Exhibit 10.39


 


AGREEMENT


 


AND PLAN OF MERGER


 


BY AND AMONG


 


MICROSEMI CORPORATION,


 


APT ACQUISITION CORP.


 


AND


 


ADVANCED POWER TECHNOLOGY, INC.


 


 










November 2, 2005










 





















 


	
  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

  	
   

  
				



 


i





















 


	
  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.

  	
   

  
					



 


ii





















 


	
  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

  



 










*Employment Agreements
made available upon request.


 


iii





















 


AGREEMENT AND PLAN OF MERGER


 


This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated November 2, 2005, is made and
entered into by and among MICROSEMI CORPORATION, a Delaware corporation (“Parent”), APT ACQUISITION CORP., a Delaware corporation and
wholly owned subsidiary of Parent (“Merger Sub”),
and ADVANCED POWER TECHNOLOGY, INC., a Delaware corporation (the “Company”).  Merger
Sub 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 best
interests of the respective corporations and their stockholders that Merger Sub
be merged with and into the Company in accordance with the Delaware General Corporation
Law (the “DGCL”) and the terms of this Agreement,
pursuant to which the Company will be the surviving corporation and will be a
wholly owned subsidiary of Parent (the “Merger”); and


 


WHEREAS, for United States federal income tax
purposes, 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 Agreement
constitute a “plan of reorganization” within the meaning of the Code; and


 


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


 


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


 


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


 


ARTICLE I

THE MERGER


 


1.1                               The
Merger.  At the
Effective Time (as defined in Section 1.3 hereof), subject to the terms
and conditions of this Agreement and the Certificate of Merger, Merger Sub
shall be merged with and into the Company, the separate existence of Merger Sub
shall cease, and the Company shall


 





















 


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


 


1.2                               Effect of
Merger.  At the
Effective Time, the effect of the Merger shall be as provided in this
Agreement, the Certificate of Merger and the applicable provisions of the DGCL.  Without limiting the generality of the
foregoing, the Surviving Corporation shall succeed to and possess all the
properties, rights, privileges, immunities, powers, franchises and purposes,
and be subject to all the duties, liabilities, debts, obligations, restrictions
and disabilities, of the Constituent Corporations, all without further act or
deed.


 


1.3                               Effective
Time.  Subject to the
terms and conditions of this Agreement, the parties hereto will cause the “Certificate
of 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 of
Delaware in accordance with the applicable provisions of the DGCL at the time
of the Closing (as defined in Section 1.7 hereof).  The Merger shall become effective upon filing
of 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 Certificate
of Merger.  The time of effectiveness is
herein referred to as the “Effective Time.”  The day on which the Effective Time shall
occur is herein referred to as the “Effective Date.”


 


1.4                               Certificate
of Incorporation; Bylaws. 
From and after the Effective Time and until further amended in
accordance with applicable law, the Certificate of Incorporation of the
Company, as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation, as amended as set forth in an
exhibit to the Certificate of Merger. 
From and after the Effective Time and until further amended in
accordance with law, the Bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation.


 


1.5                               Directors
and Officers.  From and
after the Effective Time, the directors of the Surviving Corporation shall be
the persons who were the directors of Merger Sub immediately prior to the
Effective Time, and the officers of the Surviving Corporation shall be the
persons who were the officers of Merger Sub immediately prior to the Effective
Time.  Said directors and officers of the
Surviving Corporation shall hold office for the term specified in, and subject
to the provisions contained in, the Certificate of Incorporation and Bylaws of
the Surviving Corporation and applicable law. 
If, at or after the Effective Time, a vacancy shall exist on the Board
of Directors or in any of the offices of the Surviving Corporation, such
vacancy shall be filled in the manner provided in the Certificate of
Incorporation and Bylaws of the Surviving Corporation.


 


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


 


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


 


2





















 


California, 92614, within three (3) business days after the date
on which the last of the conditions set forth in Article VI shall have
been satisfied or waived, or at such other place and on such other date as is
mutually agreeable to Parent and the Company (the “Closing
Date”).  The Closing
will be effective as of the Effective Time.


 


ARTICLE II

CONVERSION OF SECURITIES


 


2.1                               Conversion
of Securities.  At the
Effective Time, by virtue of the Merger and without any action on the part of
Parent, Merger Sub, the Company, the holder of any shares of Company Common
Stock (as defined below) or the holder of any options, warrants or other rights
to acquire or receive shares of Company Common Stock, the following shall
occur:


 


(a)                                  Conversion
of Company Common Stock. 
At the Effective Time, each share of common stock, par value $.01 per
share, of the Company (the “Company Common Stock”)
issued and outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section 2.1(b) will
be canceled and extinguished and be converted automatically into the right to
receive the sum of two dollars ($2.00) in cash (the “Cash Component”), without
interest, plus 0.435 shares (the “Exchange Ratio”) of common
stock, par value $.20 per share, of the Parent (the “Parent
Common Stock”). Notwithstanding anything to the contrary set
forth above, the aggregate amount of cash received under this Section 2.1
by the stockholders of the Company who exchange Company Common Stock for Parent
Common Stock in the Merger shall not exceed twenty percent (20%) of the sum of (i) such
amount of cash plus (ii) the product of (A) the aggregate number of
shares of Parent Common Stock to be received in the Merger by such stockholders
multiplied by (B) the closing sale price for a share of Parent Common
Stock on the NASDAQ National Market on the trading day immediately prior to the
Effective Time, and the Stock Component shall be increased so as to prevent
such a result. All references in this Agreement to Parent Common Stock to be
issued pursuant to the Merger shall be deemed to include the corresponding
rights to purchase pursuant to the Parent SRP Plan (defined in Section 4.2
hereof), except where the context otherwise requires.


 


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


 


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


 


(d)                                 Capital
Stock of Merger Sub. 
At the Effective Time, each share of common stock, $.01 par value, of
Merger Sub (“Merger Sub Common Stock”) issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one validly issued, fully paid and nonassessable share of common stock,
$.01 par value, of the Surviving Corporation,


 


3





















 


and the Surviving Corporation shall be a wholly owned subsidiary of
Parent.  Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.


 


(e)                                  Adjustments
to Exchange Ratio.  The
Exchange Ratio shall be adjusted in the event of (i) any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization, combination, exchange of shares, adjustment
or other like change with respect to Parent Common Stock or Company Common
Stock occurring after the date hereof and prior to the Effective Time or (ii) any
increase 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 Common
Stock issuable upon the exercise or conversion of all securities outstanding
immediately prior to the Effective Time which are convertible into or
exercisable for shares of Company Common Stock, whether or not vested), other
than increases resulting from transactions permitted in Section 5.1
hereof, so as to provide holders of Company Common Stock and Parent the same
economic 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)                                    Fractional
Shares.  No fraction of
a share of Parent Common Stock will be issued, but in lieu thereof each holder
of shares of Company Common Stock who would otherwise be entitled to a fraction
of a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall receive from Parent an
amount of cash without interest (rounded to the nearest whole cent) equal to
the product of (i) such fraction, multiplied by (ii) the closing sale
price for a share of Parent Common Stock on the Nasdaq National Market on the
trading day immediately prior to the Effective Time.


 


(g)                                 Dissenting
Shares.  No dissenters’
rights shall arise in connection with the Merger pursuant to Section 262(b) of
the DGCL which applies to Company Common Stock.


 


2.2.                              Stock
Options and Warrant.


 


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


 


4





















 


(rounded down to the nearest whole number of shares of Parent Common
Stock). The per share exercise price of the shares of Parent Common Stock
issuable upon exercise of such Assumed Company Option shall be equal to the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time divided by the Implied Exchange
Ratio, as adjusted pursuant to Section 2.1(e) above (rounded up to
the nearest whole cent).  Other than pursuant
to the terms of existing commitments (all of which commitments are identified
in Section 2.2 of the Company Disclosure Letter) (as defined in the
preamble to Article III hereof), the Company and any Company Stock Option
Plan administrator shall prior to the Effective Time not take any action that
will add any benefit to the Company Options, including to extend the exercise
period of any Company Option or to cause the holder of any Company Option to receive
any right to payment under any circumstances, regardless of whether such
circumstances are to occur before or after the Effective Time, or otherwise modify
or amend the terms of outstanding Company Options.


 


(b)                                 All
outstanding rights of the Company which it may hold immediately prior to the
Effective Time to repurchase unvested shares of Company Common Stock (the “Repurchase
Options”) shall continue in effect following the Merger and
shall continue to be exercisable by the Parent upon the same terms and
conditions in effect immediately prior to the Effective Time, except that the
shares purchasable pursuant to the Repurchase Options and the purchase price
per shall be adjusted to reflect the conversion to Parent Common Stock and the
Exchange Ratio.


 


(c)                                  Parent
shall take all corporate action necessary to reserve for issuance a sufficient
number of shares of Parent Common Stock for delivery upon exercise of the Assumed
Company Options and to file all documents required to be filed to cause the
shares of Parent Common Stock issuable upon exercise of the Assumed Company
Options to be listed on the Nasdaq National Market.  As soon as practicable after the Effective
Time, but subject to Parent’s blackout procedures and the Lock-up Agreement,
Parent shall file a registration statement with the U.S. Securities and
Exchange Commission (the “SEC”) on Form S-8 (or
any successor form) or another appropriate form with respect to the Parent
Common Stock subject to such Assumed Company Options, and shall use all
commercially reasonable best efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
Assumed Company Options remain outstanding. 
As soon as practicable after the Effective Time, Parent shall inform in
writing the holders of Company Options of their rights pursuant to the Company
Stock Option Plans and the agreements evidencing the grants of such Company
Options shall continue in effect on the same terms and conditions (subject to
the adjustments required by Section 2.2(a) hereof), after giving
effect to the Merger and the assumption by Parent of the Company Options as set
forth herein.


 


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


 


(e)                                  Parent
will make good faith efforts to ensure, to the extent permitted by the Code and
to the extent required by and subject to the terms of any such Incentive Stock
Options, that Company Options which qualified as Incentive Stock Options prior
to the Closing Date continue to qualify as Incentive Stock Options of Parent
after the Closing.


 


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


 


5





















 


2.3.                              Exchange
of Certificates.


 


(a)                                  Prior
to the Effective Time, Parent shall designate a commercial bank, trust company
or other financial institution, which may include Parent’s stock transfer
agent, to act as the exchange agent (“Exchange Agent”) in the
Merger.


 


(b)                                 Promptly
after the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article II, (i) the aggregate number
of shares of Parent Common Stock issuable pursuant to Section 2.1 in
exchange for outstanding shares of Company Common Stock, and (ii) cash in
an amount sufficient to permit payment of the Cash Component pursuant to Section 2.1(a) and
cash in lieu of fractional shares pursuant to Section 2.1(f) (the “Exchange
Fund”).


 


(c)                                  Promptly,
and in any event no later than ten (10) business days after the Effective
Time, the Parent shall cause to be mailed to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the “Certificates”)
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent, and shall be in such
form and have such other provisions as Parent may reasonably specify and which
shall be reasonably acceptable to the Company) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for the Cash
Component and a certificate or certificates representing shares of Parent
Common Stock (and cash in lieu of fractional shares).  Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly completed and validly executed, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange a certificate representing
the number of whole shares of Parent Common Stock, plus cash in lieu of
fractional shares in accordance with Section 2.1(f), to which such holder
is entitled pursuant to Section 2.1, and the Certificate so surrendered
shall forthwith be canceled.  Until
surrendered as contemplated by this Section 2.3, each Certificate that,
prior to the Effective Time, represented shares of Company Common Stock will be
deemed from and after the Effective Time, for all corporate purposes, other
than the payment of dividends, to evidence the right to receive the number of
full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount of cash
in lieu of the issuance of any fractional shares in accordance with Section 2.1(f).


 


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


 


(e)                                  None
of the Parent, the Surviving Corporation or the Exchange Agent shall be liable
to any holder of shares of Company Common Stock for any amount properly
delivered to a public official in compliance with any abandoned property,
escheat or similar law.


 


6





















 


(f)                                    At
the Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of shares of Company Common
Stock thereafter on the records of the Company. 
From and after the Effective Time, the holders of the Certificates
representing shares of Company Common Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such shares
of Company Common Stock except as otherwise provided in this Agreement or by
law.


 


(g)                                 Subject
to any applicable escheat or similar laws, any portion of the Exchange Fund
that remains unclaimed by the former stockholders of the Company for one year
after the Effective Time shall be delivered by the Exchange Agent to Parent,
upon demand of Parent, and any former stockholders of the Company shall
thereafter look only to Parent for satisfaction of their claim for certificates
representing shares of Parent Common Stock in exchange for their shares of
Company Common Stock pursuant to the terms of Section 2.1 hereof.


 


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


 


ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY


 


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


 


3.1.                            Organization
and Qualification.  Each of the Company and its Subsidiaries (as
defined below) is a company duly incorporated, validly existing and, if
applicable, in good standing under the laws of the jurisdiction of its
incorporation and each such entity has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.  Each of the
Company and its Subsidiaries is duly qualified or licensed to carry on its business
as it is now being conducted, and is qualified to conduct business, in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities makes such qualification necessary, except for
failures 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 its
Subsidiaries is in violation of any of the provisions of its Certificate of
Incorporation or other applicable charter document (any such document of any
business entity hereinafter referred to as its “Charter
Document”) or its Bylaws, or other applicable organizational
document (any such documents of any business entity hereinafter referred to as
its “Governing
Document”).  The


 


7





















 


Company has delivered to Merger Sub accurate and complete copies of the
respective Charter Documents and Governing Documents, as currently in effect,
of each of the Company and its Subsidiaries. 
As used in this Agreement, the term “Company
Material Adverse Effect” means any change, effect, event or
condition that (i) has a material adverse effect on the assets, business
or 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 result
of the transactions contemplated hereby), or (ii) would prevent or
materially impair the Company’s ability to consummate the transactions
contemplated hereby.  As used in this
Agreement, the term “Subsidiary” when used with respect to any party means
any corporation or other organization, whether incorporated or unincorporated,
of which such party directly or indirectly owns or controls at least a majority
of the securities or other interests having by their terms ordinary voting
power to elect a majority of the board of directors or others performing
similar functions.


 


3.2.                            Capital
Stock of Subsidiaries. 
Neither the Company nor any of its Subsidiaries owns, controls or holds
with the power to vote, directly or indirectly, of record, beneficially or
otherwise, any share of capital stock or any equity or ownership interest in
any company, corporation, partnership, association, joint venture, business,
trust or other entity, except for the Subsidiaries described in the Company SEC
Reports (as defined in Section 3.6(a) hereof) or listed in Section 3.2
of the Company Disclosure Letter, and except for ownership of securities in any
publicly traded company held for investment by the Company or any of its
Subsidiaries and comprising less than five percent of the outstanding stock of
such company.  Except as set forth in Section 3.2
of the Company Disclosure Letter, the Company is directly or indirectly the
record and beneficial owner of all of the outstanding shares of capital stock
of each of its Subsidiaries and no equity securities of any of such
Subsidiaries are or may be required to be issued by reason of any options,
warrants, scrip, rights to subscribe for, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any capital stock of any such Subsidiary, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any such Subsidiary is bound to issue, transfer or sell any shares
of such capital stock or securities convertible into or exchangeable for such
shares.  Other than as set forth in Section 3.2
of the Company Disclosure Letter, all of such shares so owned by the Company
are validly issued, fully paid and nonassessable and are owned by it free and
clear of any claim, lien, pledge, security interest or other encumbrance of any
kind (collectively “Liens”) with respect thereto other
than restrictions on transfer pursuant to applicable securities laws.


 


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


 


8





















 


duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights.  There are not as of
the date hereof any existing options, warrants, stock appreciation rights,
stock issuance rights, calls, subscriptions, convertible securities or other
rights 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 its
Subsidiaries, other than rights to purchase shares of Company Common Stock
issuable under the Company Stock Option Plans (“Rights”).  As of the date hereof, there are no
outstanding contractual obligations of the Company or any of its Subsidiaries
to repurchase, reprice, redeem or otherwise acquire any shares of the capital
stock of the Company or any of its Subsidiaries.  As of the date hereof, there are no
outstanding contractual obligations of the Company to vote or to dispose of any
shares of the capital stock of any of its Subsidiaries.


 


3.4.                            Authority
Relative to this Agreement. 
The Company has the requisite corporate power and authority to execute
and deliver, and perform its obligations under this Agreement and, subject to
obtaining the necessary approval of its stockholders, to consummate the Merger
and the other transactions contemplated hereby under applicable law.  The execution and delivery of this Agreement and
the consummation of the Merger and other transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of the Company and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby (other than approval by the Company’s stockholders as
required by applicable law).  This
Agreement and the agreements contemplated hereby have been duly and validly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery hereof by Parent and Merger Sub, each constitutes a
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors rights generally or by
general equitable principles.


 


3.5.                            No
Conflict; Required Filings and Consents.


 


(a)                                  Assuming
that all filings, permits, authorizations, consents and approvals or waivers
thereof 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 the
consummation of the Merger or other transactions contemplated hereby nor
compliance 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 a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries under, any of
the terms, conditions or provisions of (A) their respective Charter
Documents or Governing Documents, (B) any note, bond, charge, lien,
pledge, mortgage, indenture or deed of trust to which the Company or any such
Subsidiary is a party or to which they or any of their respective properties or
assets may be subject, or (C) any license, lease, agreement or other
instrument or obligation to which the Company or any such Subsidiary is a party
or to which they or any of their respective properties or assets may be
subject, or (ii) violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to the Company or any of
its Subsidiaries or any of their respective properties or assets, except, in
the case of clauses (i) (B) and (C) and (ii) above, for
such 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 in
the aggregate, have a Company Material Adverse Effect.


 


9





















 


(b)                                 No
filing, registration with or notification to, and, no permit, authorization,
consent or approval of any court, commission, governmental body, regulatory
authority, agency or tribunal wherever located (a “Governmental
Entity”) is required to be obtained, made or given by the
Company in connection with the execution and delivery of this Agreement or the
consummation by the Company of the Merger or other transactions contemplated
hereby or thereby except (i) (A) the filing of the Certificate of
Merger as provided in Section 1.3 hereof, (B) in connection with the
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the “HSR Act”), (C) the
filing of the Proxy Statement/Prospectus (as defined in Section 3.26
hereof) and such reports under Sections 13(a), 13(d), 15(d) or 16(a) with
the SEC in accordance with the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder (the “Exchange
Act”) and the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (the “Securities Act”), as may
be required in connection with this Agreement and the transactions contemplated
hereby, or (D) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state 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 Adverse
Effect.


 


3.6.                            SEC
Filings; Financial Statements.


 


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


 


(b)                                 The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company and its Subsidiaries included or
incorporated by reference in such Company SEC Reports (collectively, the “Financial
Statements”) have been prepared in accordance with United
States generally accepted accounting principles applied on a consistent basis
during the periods involved (except as may be otherwise indicated in the notes
thereto) and present fairly, in all material respects, the financial position
and results of operations and cash flows of the Company and its Subsidiaries on
a consolidated basis at the respective dates and for the respective periods
indicated (except, in the case of all such financial statements that are interim
financial statements, for footnotes and normal year-end adjustments).


 


(c)                                  Neither
the Company nor any of its Subsidiaries has any liabilities or obligations of
any nature, whether absolute, accrued, un-matured, contingent or otherwise
whether due or to become due, known or unknown, or any unsatisfied judgments or
any leases of personalty


 


10





















 


or realty or unusual or extraordinary commitments that are required to
be shown on the face of a balance sheet or disclosed in notes to financial
statements 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 statements
referred in Section 3.6(a) hereof and the notes thereto, or (ii) liabilities
or obligations incurred since December 31, 2004 (whether or not incurred
in the ordinary course of business and consistent with past practice) that
would not, individually or in the aggregate, have a Company Material Adverse
Effect.


 


3.7.                            Absence of
Changes or Events.  Except
as set forth in Section 3.7 of the Company Disclosure Letter or in the
Company SEC Reports, since December 31, 2004 through the date of this
Agreement, the Company and its Subsidiaries have not incurred any liability or
obligation that has resulted or would reasonably be expected to result in a
Company Material Adverse Effect, and there has not been any change in the
business, financial condition or results of operations of the Company or any of
its Subsidiaries which has had, or would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect, and the
Company and its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with their past practices.


 


3.8.                            Litigation.  Except as disclosed in the Company SEC
Reports 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 its
Subsidiaries, threatened against or relating to the Company or any of its
Subsidiaries, or (b) outstanding judgment, order, writ, injunction or
decree (collectively, “Orders”), or application, request or
motion therefor, in a proceeding to which the Company, any Subsidiary of the
Company or any of their respective assets was or is a party except actions,
suits, proceedings or Orders that, individually or in the aggregate, has not
had or would not reasonably be expected to have a Company Material Adverse
Effect, and neither the Company nor any Subsidiary is in default in any
material respect with respect to any such Order.


 


3.9.                            Title to
Properties. Section 3.9 of the Company
Disclosure Letter includes an accurate list and general description of all real
property owned by the Company or any of its Subsidiaries.  Each of the Company and its Subsidiaries has
good and marketable title to the real properties that it owns (the “Owned Real
Property”) 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 or
sublessees in such matters that are reflected in a written lease disclosed in
the Company Disclosure Letter; (b) current taxes (including assessments
collected with taxes) not yet due and payable; (c) encumbrances, if any,
that are not substantial in character, amount or extent and do not materially
detract from the value, or interfere with present use, or the ability of the
Company or its Subsidiaries to dispose, of the property subject thereto or
affected thereby; and (d) other matters as described in Section 3.9
of the Company Disclosure Letter. The Company has heretofore made available to
Parent correct and complete copies of all leases, subleases and other
agreements (collectively, the “Real Property Leases”) under
which the Company or any of its Subsidiaries uses or occupies or has the right
to use or occupy, now or in the future, any real property or facility (the “Leased Real
Property”), including without limitation all modifications,
amendments and supplements thereto. 
Except in each case where the failure would not, individually or in the
aggregate, have a Company Material Adverse Effect or except as otherwise set
forth in Section 3.9 of the Company Disclosure Letter, (i) the
Company or one of its Subsidiaries has a valid leasehold interest in each
parcel of Leased Real Property free and clear of all Liens except liens of
record and other permitted liens and each Real Property Lease is in full force
and effect, (ii) all rent and other sums and charges due and payable by
the Company or its


 


11





















 


Subsidiaries as tenants thereunder are current in all material
respects, (iii) no termination event or condition or uncured default of a
material nature on the part of the Company or any such Subsidiary or, to the
Knowledge of the Company or any such Subsidiary, the landlord, exists under any
Real Property Lease, (iv) the Company or one of its Subsidiaries is in
actual possession of each Leased Real Property and is entitled to quiet
enjoyment thereof in accordance with the terms of the applicable Real Property
Lease and applicable law, and (v) the Company and its Subsidiaries own
outright all of the personal property (except for leased property or assets for
which it has a valid and enforceable right to use) which is reflected on the
Balance Sheet, except for property since sold or otherwise disposed of in the
ordinary course of business and consistent with past practice and except for
liens 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 of
the Company and its Subsidiaries that are used in the operations of their
businesses are in good operating condition and repair, subject to ordinary wear
and tear, and, subject to normal maintenance, are available for use.


 


3.10.                     Certain
Contracts.  Neither the
Company nor any of its Subsidiaries has breached, or received in writing any
claim or notice that it has breached, any of the terms or conditions of (i) any
agreement, contract or commitment required to be filed as an exhibit to the
Company SEC Reports (including any agreements, contracts or commitments entered
into since December 31, 2004 that will be required to be filed by the
Company with the SEC in any report), (ii) any agreements, contracts or
commitments with manufacturers, suppliers, sales representatives, distributors,
or original equipment manufacturer (“OEM”) strategic partners of the Company
pursuant to which the Company recognized revenues or payments in excess of $250,000
for the twelve-month period ended December 31, 2004, or (iii) any
agreements, contracts or commitments containing covenants that limit the
ability of the Company or any of its Subsidiaries to compete in any line of
business or with any Person (as defined in Section 8.6 hereof), or that
include any exclusivity provision or involve any restriction on the geographic
area 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 would
reasonably be expected to have a Company Material Adverse Effect.  Section 3.10 of the Company Disclosure
Letter lists each Company Material Contract described in clauses (ii) and (iii) of
the preceding sentence.  Each Company
Material Contract that has not expired by its terms is in full force and effect
and is the legal, valid and binding obligation of the Company and/or its
Subsidiaries, enforceable against them in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), except where the
failure of such Company Material Contract to be in full force and effect or to
be legal, valid, binding or enforceable against the Company and/or its
Subsidiaries has not had and would not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.  Except as set forth in Section 3.10 of
the Company Disclosure Letter, no consent, approval, waiver or authorization
of, or notice to any Person is needed in order that each such Company Material
Contract shall continue in full force and effect in accordance with its terms
without penalty, acceleration or rights of early termination by reason of the
consummation of the Merger and the other transactions contemplated by this
Agreement.  Except as set forth in Section 3.10
of the Company Disclosure Letter, there is no agreement, contract, commitment
or obligation of any kind that arises by reason of the consummation of the
Merger and the other transactions contemplated by this Agreement.


 


12





















 


3.11.                     Compliance
with Law.  Except where the
failure would not have a Company Material Adverse Effect, all activities of the
Company and its Subsidiaries have been, and are currently being, conducted in
compliance 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 other
Governmental Entity or any nongovernmental self-regulatory agency, and no
notice has been received by the Company or any Subsidiary of any claims filed
against the Company or any Subsidiary alleging a violation of any such laws,
regulations or other requirements which would be required to be disclosed in
any Company SEC Report or any New SEC Report (as defined in Section 5.16
hereof).  The Company Stock Option Plans
have been duly authorized, approved and operated in compliance in all material
respects with all applicable securities, corporate and other laws of each
jurisdiction in which participants of such plans are located.  The Company and its Subsidiaries have all
permits, licenses and franchises from Governmental Entities required to conduct
their businesses as now being conducted, except for such permits, licenses and
franchises the absence of which has not had and would not, individually or in
the aggregate, have a Company Material Adverse Effect.


 


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


 


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


 


(b)                                 All
patents, registered trademarks, service marks, domain names and copyrights
which are held by the Company or any of its Subsidiaries, the loss or
invalidity of which


 


13





















 


would reasonably be expected to cause a Company Material Adverse
Effect, are in force and are believed to be valid and subsisting.  The Company (i) has not been sued in any
unresolved 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 trade
secret or other proprietary right of any third party; and (ii) has no
Knowledge that the manufacturing, marketing, licensing or sale of its products
or services infringe upon, misappropriate or otherwise come into conflict with
any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement, misappropriation or
conflict in the cases of clause (i) and (ii) would, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.  To the Knowledge of the Company,
no other Person has interfered with, infringed upon, or otherwise come into
conflict with any Company Intellectual Property Rights or other proprietary
information of the Company or any of its Subsidiaries which has or would,
individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect.


 


(c)                                  Except
where the failure to do so would not have a Company Material Adverse Effect, to
the Company’s Knowledge, each employee, agent, consultant or contractor who has
materially contributed to or participated in the creation or development of any
copyrightable, 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 under
which the Company or such Subsidiary is deemed to be the original owner/author
of all property rights therein; or (ii) has executed an assignment or an
agreement to assign in favor of the Company, such Subsidiary or such
predecessor in interest, as applicable, all right, title and interest in such
material.


 


(d)                                 Except
where the failure to do so would not have a Company Material Adverse Effect,
the Company and its Subsidiaries have not suffered any compromise of data
security 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 taxes
and any other applicable duties, levies, fees, charges and assessments that are
in the nature of a tax, including income, gross receipts, property, sales, use,
license, excise, franchise, ad valorem, value-added, transfer, social security
payments, and health taxes and any deductibles relating to wages, salaries and
benefits and payments to subcontractors for any jurisdiction in which the
Company or any of its Subsidiaries does business (to the extent required under
applicable Tax law), together with all interest, penalties and additions
imposed with respect to such amounts.


 


(b)                                 Except
as set forth in (or resulting from matters set forth in) Section 3.13 of
the Company Disclosure Letter or as could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect:


 


(i)                                     the
Company and its Subsidiaries have prepared and timely filed with the
appropriate governmental agencies all franchise, income, sales and all other
material Tax returns and reports required to be filed on or before the
Effective Time (collectively “Returns”),
taking into account any extension of time to file granted to or obtained on
behalf of the Company and/or its Subsidiaries;


 


14





















 


(ii)                                  all
Taxes of the Company and its Subsidiaries shown on such Returns or otherwise
known by the Company to be due or payable have been timely paid in full to the
proper authorities, other than such Taxes as are being contested in good faith
by appropriate proceedings or which are adequately reserved for in accordance
with generally accepted accounting principles;


 


(iii)                               all
deficiencies resulting from Tax examinations of income, sales and franchise and
all other material Returns filed by the Company and its Subsidiaries in any
jurisdiction in which such Returns are required to be so filed have either been
paid or are being contested in good faith by appropriate proceedings;


 


(iv)                              no
deficiency has been asserted or assessed against the Company or any of its
Subsidiaries which has not been satisfied or otherwise resolved, and no
examination of the Company or any of its Subsidiaries is pending or, to the
Knowledge of the Company, threatened for any material amount of Tax by any
taxing authority;


 


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


 


(vi)                              all
Returns filed by the Company and its Subsidiaries are correct and complete in
all material respects or adequate reserves have been established with respect
to any additional Taxes that may be due (or may become due) as a result of such
Returns not being correct or complete;


 


(vii)                           to the
Knowledge of the Company, no Tax liens have been filed with respect to any
Taxes;


 


(viii)                        neither
the 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 their
accounting methods for any pre-Merger period;


 


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


 


(x)                                   the
Company and its Subsidiaries are not parties to any Tax sharing or Tax matters
agreement; and


 


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


 


(c)                                  The
Company and its Subsidiaries are not parties to any agreement, contract, or
arrangement that would, as a result of the transactions contemplated hereby,
result, separately or in the aggregate, in (i) the payment of any “excess
parachute payments” within the meaning of


 


15





















 


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


 


3.14.                     Employees.  Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement, arrangement or
labor contract with a labor union or labor organization, whether formal or
otherwise.  The Company Disclosure
Letter, under the caption referencing this Section 3.14, lists all
employment, severance and change of control agreements (or any other agreements
that may result in the acceleration of outstanding options) of the Company or
its Subsidiaries.  Each of the Company
and its Subsidiaries is in compliance with all applicable laws (including,
without limitation, all applicable extension orders) respecting employment and
employment practices, terms and conditions of employment, equal opportunity,
anti-discrimination laws, and wages and hours, except where such noncompliance
has not had and would not, individually or in the aggregate, reasonably be
expected 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 unfair
labor practice complaints, labor disturbances or other controversies respecting
employment which are pending or threatened which, if they actually occurred,
would reasonably be expected to have a Company Material Adverse Effect) against
the Company or any of its Subsidiaries.


 


3.15.                     Employee
Benefit 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 or
not) which is maintained or contributed to by the Company and its Subsidiaries
for the benefit of present or former employees or with respect to which the
Company and its Subsidiaries otherwise has current or potential liability.  Plan includes any arrangement intended to
provide:  (i) medical, surgical,
health care, hospitalization, dental, vision, workers’ compensation, life
insurance, death, disability, legal services, severance, sickness, accident, or
cafeteria plan benefits (whether or not defined in Section 3(1) of
ERISA), (ii) pension, profit sharing, stock bonus, retirement,
supplemental retirement or deferred compensation benefits (whether or not tax
qualified and whether or not defined in Section 3(2) of ERISA), (iii) bonus,
incentive compensation, stock option, stock appreciation right, phantom stock
or stock purchase benefits, change in control benefits or (iv) salary
continuation, unemployment, supplemental unemployment, termination pay,
vacation or holiday benefits (whether or not defined in Section 3(3) of
ERISA).  The Company Disclosure Letter,
under the caption referencing this Section 3.15(a), sets forth all
material Plans by name and brief description.


 


(b)                                 To
the extent required (either as a matter of law or to obtain the intended tax
treatment and tax benefits), all Plans comply and have complied with the
requirements of ERISA, the Code and other applicable law, except where such
noncompliance would not, individually or in the aggregate, have a Company
Material Adverse Effect.  With respect to
the Plans, (i) all required contributions which are due have been made and
an accrual required by generally accepted accounting principles has been made
on the books and records of the Company or its Subsidiaries for all future
contribution obligations; (ii) there are no actions, suits or claims
pending, other than routine uncontested claims for benefits; and (iii) there
have been no nonexempt prohibited transactions (as defined in Section 406
of ERISA or Section 4975 of the Code), except for such transactions, if
any, 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 Company
Disclosure Letter under the caption referencing this Section 3.15(b), all
benefits under the Plans (other than


 


16





















 


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


 


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


 


(d)                                 Except
as set forth in Section 3.15 of the Company Disclosure Letter, the Company
does not maintain or contribute to (and has never contributed to) any
multi-employer plan, as defined in Section 3(37) of ERISA.  Neither the Company nor any of its
Subsidiaries has any actual or potential material liabilities under
Title IV of ERISA, including under Section 4201 of ERISA for any
complete or partial withdrawal from a multi-employer plan.


 


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


 


(f)                                    Neither
the 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 ERISA
or any other applicable law with respect to the Plans which would subject the
Company, Parent or any of their respective directors, officers or employees to
any liability under ERISA or any applicable law, except for such breaches, if
any, which have not had and would not, individual or in the aggregate,
reasonably be expected to have, a Company Material Adverse Effect.


 


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


 


(h)                                 Except
with respect to Taxes on benefits paid or provided, no Tax has been waived or
excused, 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 in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect.  No action has been taken by the
Company, nor has there been any failure by the Company to take any action, nor
is any action or failure to take action contemplated by the Company (including
all actions contemplated under this Agreement), that would subject any person
or entity to any liability or Tax imposed by the IRS or the U.S. Department of Labor
in connection with any Plan, except for such liability or Tax that has not had
and would not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.  No
reserve for any Taxes has been established with respect to any Plan by the
Company nor has any advice been given to the Company with respect to the need
to establish such a reserve, except for


 


17





















 


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


 


(i)                                     There
are no (i) legal, administrative or other proceedings or governmental
investigations or audits, or (ii) complaints to or by any Governmental
Entity, which are pending, anticipated or, to the Knowledge of the Company,
threatened, against any Plan or its assets, or against any Plan fiduciary or
administrator, or against the Company or its officers or employees with respect
to any Plan which would, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.


 


(j)                                     Except
as set forth in Section 3.15 of the Company Disclosure Letter, there are
no leased employees, as defined in Section 414(n) of the Code, providing
services to the Company or its Subsidiaries, that must be taken into account
with respect to the requirements under Section 414(n)(3) of the Code.


 


(k)                                  Except
as set forth in Section 3.15 of the Company Disclosure Letter, each Plan
may be terminated directly or indirectly by Parent and the Company, in their
sole discretion, at any time before or after the Effective Date in accordance
with its terms, without causing the Parent or the Company to incur any
liability to any person, entity or government agency for any conduct, practice
or omission of the Company which occurred prior to the Effective Date, except
for (i) liabilities to, and the rights of, the employees thereunder
accrued prior to the Effective Date, or if later, the time of termination, (ii) continuation
rights required by the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, or other applicable law, and (iii) liabilities which would not
have a Company Material Adverse Effect.


 


3.16.                     Environmental
Matters.


 


(a)                                  The
Company and its Subsidiaries (i) have been in compliance and are presently
complying in all material respects with all applicable health, safety and
Environmental Laws (as defined below), and (ii) have obtained all material
permits, licenses and authorizations which are required under all applicable
health, safety and Environmental Laws and are in compliance in all material
respects with such permits, licenses and authorizations, except in each case
for such failure to comply or to obtain permits, licenses or authorizations
that would not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect. 
To the Knowledge of the Company, (i) none of the Owned Real
Property and Leased Real Property (including without limitation soils and
surface and ground waters) are contaminated with any Hazardous Materials (as
defined in Section 3.16(b) hereof) in quantities which require
investigation or remediation under Environmental Laws, (ii) neither the
Company nor any of its Subsidiaries is liable for any off-site contamination,
and (iii) there is no environmental matter which could reasonably be
expected to expose the Company or any of its Subsidiaries to a claim to cleanup
any Hazardous Materials or otherwise to remedy any pollution or damage at any
of the properties utilized in the Company’s business under any Environmental
Laws, that would, with respect to any of (i), (ii) or (iii) above, be
required to be disclosed in the Company SEC Reports.


 


(b)                                 For
purposes of this Agreement, the term (i) ”Environmental Laws” means
all applicable United States federal, state, provincial, local and other
foreign 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 other
foreign laws, rules, regulations, codes, ordinances,


 


18





















 


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


 


3.17.                     Insurance.
Section 3.17 of the Company Disclosure Letter identifies each of the insurance
policies currently in force with respect to the business and properties of the
Company and its Subsidiaries.  Except as
disclosed in Section 3.17 of the Company Disclosure Letter, there are no
claims outstanding under any insurance policy which could, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect
and, to the Knowledge of the Company or any of its Subsidiaries, neither the
Company nor any of its Subsidiaries has failed to give any notice or to present
any such claim with respect to its business under any such policy in due and
timely fashion, except where such failure would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.


 


3.18.                     Foreign
Corrupt Practices Act. 
Neither the Company nor any of its Subsidiaries (nor any person
representing the Company or any of its Subsidiaries) has at any time during the
last five years (a) made any payment in violation of the Foreign Corrupt
Practices Act or similar laws of other countries where the Company engages in
business, or (b) made any payment to any foreign, federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.


 


3.19.                     Export
Control Laws.  The Company has conducted its export
transactions in accordance in all material respects with applicable provisions
of United States export control laws and regulations, including but not limited
to the Export Administration Act and implementing Export Administration
Regulations.


 


3.20.                     Finders or
Brokers.  Except for Houlihan Lokey
Howard & Zukin, whose fees will be paid by the Company, none of
the Company, the Subsidiaries of the Company, the Board of Directors of the
Company (the “Company Board”) or any member of the Company
Board has employed any agent, investment banker, broker, finder or intermediary
in connection with the transactions contemplated hereby who might be entitled
to a fee or any commission in connection with the Merger or the other
transactions contemplated hereby.


 


3.21.                     Board
Recommendation.  The Company Board has,
at a meeting of such Company Board duly held on November 2, 2005, approved
and adopted this Agreement, the Merger and the other transactions contemplated
hereby, declared the advisability of the Merger and recommended that the stockholders
of the Company approve the Merger and the other transactions contemplated
hereby, and has not as of the date hereof rescinded or modified in any respect
any of such actions.


 


3.22.                     Vote
Required.  The affirmative
vote of the holders of a majority of the shares of Company Common Stock
outstanding on the record date set for the Company Stockholders Meeting


 


19





















 


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


 


3.23.                     Opinion of
Financial Advisor.  The
Company has received the oral opinion of Houlihan Lokey Howard & Zukin
on the date of the meeting of the Company Board referenced in Section 3.21
above, to the effect that, as of such date, the Exchange Ratio is fair, from a
financial 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 any
circumstances, that (without regard to any action taken or agreed to be taken
by Parent or any of its affiliates) would prevent the business combination to
be effected by the Merger from constituting a transaction qualifying as a
reorganization within the meaning of Section 368 of the Code.


 


3.25.                     State
Takeover Statutes.  The
Company Board has taken all actions so that the restrictions contained in Section 203
of the DGCL applicable to a “business combination” (as defined in Section 203
of the DGCL) will not apply to the execution, delivery of performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement.


 


3.26.                     Registration
Statement; Proxy Statement/Prospectus.  The information supplied by the Company for
inclusion in the registration statement on Form S-4 (or such other or
successor form as shall be appropriate) pursuant to which the shares of Parent
Common Stock to be issued in the Merger will be registered with the SEC (the “Registration
Statement”) shall not at the time the Registration Statement
(including any amendments or supplements thereto) is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  The information supplied
by the Company for inclusion in the proxy statement/prospectus to be sent to
the stockholders of the Company in connection with the meeting of the Company’s
stockholders to consider the Merger (the “Company Stockholders Meeting”)
(such proxy statement/prospectus as amended or supplemented is referred to
herein as the “Proxy Statement/Prospectus”) shall not, on the date the Proxy
Statement/Prospectus is first mailed to the Company’s stockholders, at the time
of the Company Stockholders Meeting at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading.  If at any time
prior to the Effective Time any event or information should be discovered by
the Company which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement/Prospectus, the Company shall
promptly inform Parent.  Notwithstanding
the foregoing, the Company makes no representation, warranty or covenant with
respect to any information supplied by Parent or Merger Sub which is contained in
any of the foregoing documents.


 


20





















 


ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF MERGER SUB AND PARENT


 


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


 


4.1.                            Organization
and Qualification.  Parent is a
corporation duly incorporated, validly existing and in good standing under the
laws 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 being
conducted.  Merger Sub is a corporation
validly existing and in good standing under the laws of the State of Delaware.  Each of Merger Sub and Parent is duly
qualified or licensed to carry on its business as it is now being conducted,
and is qualified to conduct business, in each jurisdiction where the character
of its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified that would not,
individually or in the aggregate, have, or would not reasonably be expected to
have, a Parent Material Adverse Effect (as defined below).  Neither Parent nor Merger Sub is in violation
of any of the provisions of its Charter Document or its Governing
Document.  As used in this Agreement, the
term “Parent Material Adverse Effect” means any change, effect, event or
condition that (i) has a material adverse effect on the assets, business
or financial condition of Parent and its Subsidiaries, taken as a whole, or (ii) would
prevent or materially delay Merger Sub’s or Parent’s ability to consummate the
transactions contemplated hereby.


 


4.2.                            Capitalization.  The authorized capital stock of Parent
consists of 100,000,000 shares of Parent Common Stock, $0.20 par value per
share, and 1,000,000 shares of preferred stock, $1.00 par value per share (of
which 100,000 shares are designated Series A Junior Participating
Preferred Stock, the “Parent Preferred Stock”). 
As of the close of business on November 1, 2005 (the “Parent
Measurement Date”), (a) 63,574,526 shares of Parent Common Stock were
issued and outstanding, (b) no shares of Parent Preferred Stock were
issued and outstanding, (c) 15,011,443 shares of Parent Common Stock were
reserved for issuance under the 1987 Stock Plan of the Parent (the “Parent
Stock Plan”), (d) options to purchase 11,958,035 shares of Parent Common
Stock in the aggregate had been granted and remained outstanding under the Parent
Stock Plan, and (e) rights to acquire shares or property pursuant to the Microsemi
Corporation Shareholder Rights Plan, dated as of December 22, 2000, as
amended, 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, no
additional shares of Parent Common Stock have been issued and are outstanding,
except pursuant to the exercise of options, and no Parent Rights have been
granted.  All issued and outstanding
shares of Parent Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights created by the DGCL or Parent’s
Charter Document or Governing Document, or any other agreement with the
Company.  There are not at the date of
this Agreement any existing options, warrants, calls, subscriptions,
convertible securities or other rights which obligate Parent or any of its
Subsidiaries to issue, exchange, transfer or sell any shares of capital stock
of Parent or any of its Subsidiaries, other than shares of Parent Common Stock
issuable under the Parent Stock Plan, or awards granted pursuant thereto, and
other than


 


21





















 


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


 


4.3.                            Authority
Relative to this Agreement. 
Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver, and to perform its obligations under, this
Agreement and, subject to obtaining the necessary approval of its stockholders,
to consummate the Merger and the other provisions contemplated hereby under
applicable law.  The execution and
delivery by Parent and Merger Sub of this Agreement and the consummation of the
Merger and the transactions contemplated hereby and thereby, have been duly and
validly authorized by the Board of Directors of Parent and Merger Sub and no
other corporate proceedings on the part of Parent or Merger Sub are necessary
to authorize this Agreement or to consummate the Merger or other transactions
contemplated hereby.  This Agreement has
been duly and validly executed and delivered by Parent and Merger Sub and,
assuming the due authorization, execution and delivery of this Agreement by the
Company, is a valid and binding obligation of Parent and Merger Sub,
enforceable against them in accordance with its terms, except to the extent
that its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors
rights generally or by general equitable principles.  The shares of Parent Common Stock to be
issued by Parent pursuant to the Merger, as well as the Assumed Company Options
and the shares of Parent Common Stock to be issued upon exercise thereof:  (i) have been duly authorized, and, when
issued in accordance with the terms of the Merger and this Agreement (or the
applicable option agreements), will be validly issued, fully paid and
nonassessable and will not be subject to preemptive rights, (ii) will,
when issued in accordance with the terms of the Merger and this Agreement (or
the applicable option agreements), be registered under the Securities Act, and
registered or exempt from registration under applicable United States “Blue Sky”
laws, (iii) will, when issued in accordance with the terms of the Merger
and this Agreement (or the applicable option agreements), be listed on the
Nasdaq National Market and (iv) will be issued free and clear of any
Liens.


 


4.4.                            No
Conflicts; Required Filings and Consents.


 


(a)                                  Neither
the execution, delivery or performance of this Agreement by Merger Sub or
Parent, nor the consummation of the transactions contemplated hereby, nor compliance
by Merger Sub or Parent with any provision hereof will (i) violate,
conflict with or result in a breach of any provision of the Charter Documents
or Governing Documents of Merger Sub or Parent, (ii) cause a default or
give rise to any right of termination, cancellation or acceleration or loss of
a material benefit under, or result in the creation of any lien, charge or
other encumbrance upon any of the properties or assets of Merger Sub or Parent
under 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 which
its properties or assets may be bound or (iii) violate any law, judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Merger Sub or Parent or binding upon any of its properties,
except for, in the case of clauses (ii) and (iii), such defaults or
violations which would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect.


 


(b)                                 No
filing or registration with or notification to and no permit, authorization,
consent or approval of any Governmental Entity is required to be obtained, made
or given by Merger Sub or Parent in connection with the execution and delivery
of this Agreement or the consummation by Merger Sub of the Merger or other
transactions contemplated hereby except (i) (A) in connection with
the applicable requirements of the HSR Act, (B) the filing of a
Registration Statement (defined


 


22





















 


in Section 3.26 hereof) with the SEC, in accordance with the
Securities Act, as further described in Section 3.26 hereof or (C) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any country other than the United States, or (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,
reasonably be expected to have a Parent Material Adverse Effect.


 


4.5.                            SEC
Filings; Financial Statements.


 


(a)                                  Parent
has filed all forms, reports, schedules, statements and other documents
required to be filed by it since January 1, 2003 to the date hereof
(collectively, as supplemented and amended since the time of filing, the “Parent
SEC Reports”) with the SEC. 
The Parent SEC Reports (i) were prepared in all material respects
with all applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and (ii) did not at the time they were filed contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.  The representation in clause (ii) of
the preceding sentence does not apply to any misstatement or omission in any
Parent SEC Report filed prior to the date of this Agreement which was
superseded by a subsequent Parent SEC Report filed prior to the date of this
Agreement.


 


(b)                                 The
audited consolidated financial statements and unaudited consolidated interim
financial statements of Parent and its Subsidiaries included or incorporated by
reference in such Parent SEC Reports have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may otherwise be indicated in the
notes thereto) and present fairly, in all material respects, the financial
position and results of operations and cash flows of Parent and its
Subsidiaries on a consolidated basis at the respective dates and for the
respective periods indicated (except, in the case of all such financial
statements that are interim financial statements, for normal year-end
adjustments).


 


(c)                                  Neither
Parent nor any of its Subsidiaries has any liabilities or obligations of any nature,
whether absolute, accrued, unmatured, contingent or otherwise, whether due or
to become due, known or unknown, or any unsatisfied judgments or any leases of
personalty or realty or unusual or extraordinary commitments that are required
to be disclosed under United States generally accepted accounting principles,
except (i) as set forth in the Parent SEC Reports, (ii) the
liabilities recorded on Parent’s consolidated balance sheet at September 26,
2004 included in the financial statements referred in Section 4.5(a) hereof
and the notes thereto, (iii) liabilities or obligations incurred since September 26,
2004 (whether or not incurred in the ordinary course of business and consistent
with past practice) that would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect, or (iv) liabilities
that would not be required by United States generally accepted accounting
principles to be disclosed in financial statements or in the notes thereto and
that would not, individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.


 


4.6.                            Absence of
Changes or Events.  Except
as set forth in the Parent SEC Reports, since December 31, 2004 through
the date of this Agreement, Parent and its Subsidiaries have not incurred any
liability or obligation outside the ordinary course of business, nor has any
event occurred or action been threatened, that has resulted or would reasonably
likely be expected to result in a Parent Material Adverse Effect


 


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4.7.                            Litigation.  Except as disclosed in the Parent SEC
Reports, there is no (i) claim, action, suit or proceeding pending or, to
the Knowledge of Parent, threatened against or relating to Parent or any of its
Subsidiaries, or (ii) outstanding Orders, or application, request or
motion therefor, in a proceeding to which Parent, any Subsidiary of Parent or
any of their respective assets was or is a party except actions, suits,
proceedings or Orders that, individually or in the aggregate, has not had or
would not reasonably be expected to have a Parent Material Adverse Effect, and
neither Parent nor any Subsidiary is in default in any material respect with
respect to any such Order.


 


4.8.                            Compliance
with Law.  All activities
of Merger Sub and Parent have been, and are currently being, conducted in
compliance 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 any
court or other Governmental Entity or any nongovernmental self-regulatory
agency, and no notice has been received by Parent of any claims filed against
either Merger Sub or Parent alleging a violation of any such laws, regulations
or other requirements which would be required to be disclosed in the Parent SEC
Reports.  Merger Sub and Parent have all
permits, licenses and franchises from Governmental Entities required to conduct
their businesses as now being conducted, except for such permits, licenses and
franchises the absence of which would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect.


 


4.9.                            Finders or
Brokers.  Except for Lehman
Brothers, whose fees will be paid by Parent, none of Parent, Merger Sub, the
other Subsidiaries of Parent, the Boards of Directors of Parent and Merger Sub
or any member of such Boards of Directors has employed any agent, investment
banker, broker, finder or intermediary in connection with the transactions
contemplated hereby who might be entitled to a fee or any commission in
connection with the Merger or the other transactions contemplated hereby.


 


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


 


4.11.                     Registration
Statement; Proxy Statement/Prospectus.  The information supplied by Parent and Merger
Sub for inclusion in the Proxy Statement/Prospectus shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.  The information supplied by
Parent for inclusion in the Proxy Statement/Prospectus shall not, on the date
the 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 respect
to any material fact, or omit to state any material fact necessary in order to
make the statements therein, in light of the circumstances under which it is
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders Meeting which has become
false or misleading.  If at any time
prior to the Effective Time any event or information should be discovered by
Parent or Merger Sub which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy


 


24





















 


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


 


ARTICLE V

COVENANTS AND AGREEMENTS


 


5.1.                            Conduct of
Business of the Company Pending the Merger.  Except as contemplated by this Agreement or
as expressly agreed to in writing by Parent, during the period from the date of
this Agreement to the earlier of (i) the termination of this Agreement or (ii) the
Effective Time, each of the Company and its Subsidiaries will conduct their
respective operations according to its ordinary course of business consistent
with past practice, and will use commercially reasonable best efforts
consistent with past practice and policies to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with it and will take no action which
would adversely affect the ability of the parties to consummate the
transactions contemplated by this Agreement, or the timing thereof.  Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement, prior
to the Effective Time, the Company will not nor will it permit any of its
Subsidiaries to, without the prior written consent of Parent:


 


(a)                                  amend
any of its Charter Documents or Governing Documents;


 


(b)                                 authorize
for issuance, issue, sell, deliver, grant any options, warrants, stock
appreciation rights, or stock issuance rights for, or otherwise agree or commit
to issue, sell, deliver, pledge, dispose of or otherwise encumber any shares of
any class of its capital stock or any securities convertible into shares of any
class of its capital stock, except (i) pursuant to and in accordance with
the terms of Company Options outstanding on the Company Measurement Date or
granted pursuant to clause (ii) below, or (ii)  the grant of
Company Options consistent with past practices to new employees, which Company
Options will represent the right to acquire no more than 15,000 shares of
Company Common Stock per new employee; provided however, that the current form
of agreement under the Company Stock Option Plans shall be amended to no longer
include any provisions providing for acceleration of vesting upon a change of
control, and any other form used by the Company shall be in a form reasonably
acceptable to Parent;


 


(c)                                  subdivide,
cancel, consolidate or reclassify any shares of its capital stock, issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, declare, set aside or pay any
dividend or other distribution (whether in cash, shares or property or any
combination thereof) in respect of its capital stock or purchase, redeem or
otherwise acquire any shares of its own capital stock or of any of its
Subsidiaries, except as otherwise expressly provided in this Agreement;


 


(d)                                 (i) incur
or assume any long-term or short-term debt or issue any debt securities except
for borrowings under existing lines of credit in the ordinary course of
business consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the material obligations of any other person (other than
Subsidiaries of the Company); or (iii) make any material loans, advances
or capital contributions to, or investments in, any other person (other than to
Subsidiaries of the Company);


 


25





















 


(e)                                  except
as otherwise expressly contemplated by this Agreement, (i) increase in any
manner the compensation of (A) any employee who is not an officer of the
Company or any Subsidiary (a “Non-Executive Employee”),
except in the ordinary course of business consistent with past practice or (B) any
of its directors or officers, except in the ordinary course of business,
consistent with past practice, after consultation with Parent, (ii) pay or
agree to pay any pension, retirement allowance or other employee benefit not
required, or enter into, amend or agree to enter into or amend any agreement or
arrangement 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 the
ordinary course of business consistent with past practice, provided, however,
that the vesting of outstanding options held by officers or directors may be
accelerated; (iii) grant any rights to receive any severance or
termination pay to, or enter into or amend any employment or severance
agreement with, any employee or any of its directors or officers, except as
required by applicable law or with respect to severance or termination pay to
Non-Executive Employees in the ordinary course of business, consistent with
past practices; or (iv) except as may be required to comply with
applicable law, become obligated (other than pursuant to any new or renewed
collective bargaining agreement) under any new pension plan, welfare plan,
multi-employer plan, employee benefit plan, benefit arrangement, or similar
plan or arrangement, which was not in existence on the date hereof, including
any bonus, incentive, deferred compensation, share purchase, share option,
share appreciation right, group insurance, severance pay, retirement or other benefit
plan, agreement or arrangement, or employment or consulting agreement with or
for the benefit of any person, or amend any of such plans or any of such
agreements in existence on the date hereof; provided, however, that
this clause (iv) shall not prohibit the Company from renewing any
such plan, agreement or arrangement already in existence on terms no more
favorable to the parties to such plan, agreement or arrangement;


 


(f)                                    except
as otherwise expressly contemplated by this Agreement, enter into, amend in any
material respect or terminate any Company Material Contracts other than in the
ordinary course of business consistent with past practice;


 


(g)                                 sell,
lease, license, mortgage or dispose of any of its properties or assets, other
than (i) transactions in the ordinary course of business consistent with
past 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) as
may be required or contemplated by this Agreement;


 


(h)                                 except
as otherwise contemplated by the Merger, acquire or agree to acquire by merging
or consolidating with, or by purchasing a substantial portion of the assets of
or equity in, or by any other manner, any business or any corporation, limited
liability company, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets, other
than the acquisition of assets that is in the ordinary course of business
consistent with past practice and which are contemplated within the budget
previously provided in writing by the Company to the Parent without the prior
written 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;


 


26





















 


(j)                                     authorize
or commit to make any material capital expenditures not within the budget
previously provided in writing by the Company to Parent without the prior
written consent of Parent, which consent shall not be unreasonably withheld;


 


(k)                                  make
any change in the accounting methods or accounting practices followed by the
Company, except as required by generally accepted accounting principles or
applicable law;


 


(l)                                     make
any election under any applicable Tax laws which would, individually or in the
aggregate, have a Company Material Adverse Effect;


 


(m)                               settle
any action, suit, claim, investigation or proceeding (legal, administrative or
arbitrative) requiring a payment by the Company or its Subsidiaries in excess
of $200,000 without the consent of Parent, which consent shall not be
unreasonably 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 with
past practice or in accordance with their terms, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the most
recent financial statements (or the notes thereto) of the Company included in
the Company SEC Reports or incurred in the ordinary course of business consistent
with past practice; or


 


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


 


5.2.                            Preparation
of 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 Proxy
Statement/Prospectus will be included as part thereof.  Parent and the Company shall use all
commercially reasonable best efforts to have such Registration Statement
declared effective under the Securities Act as promptly as practicable after
filing.  The Proxy Statement/Prospectus
will, when prepared pursuant to this Section 5.2 and mailed to the Company’s
stockholders, comply in all material respects with the applicable requirements
of the Exchange Act and the Securities Act. 
The Proxy Statement/Prospectus shall be reviewed and approved by Parent
and Parent’s counsel prior to the mailing of such Proxy Statement/Prospectus to
the Company’s stockholders.  Parent shall
also take any action required to be taken under any applicable provincial or
state securities laws (including “Blue Sky” laws) in connection with the
issuance of the Parent Common Stock in the Merger; provided,
however, that neither Parent nor the Company shall be required
to register or qualify as a foreign corporation or to take any action that
would subject it to service of process in any jurisdiction where any such
entity is not now so subject, except as to matters and transactions arising
solely from the offer and sale of Parent Common Stock or the Assumed Company
Options.


 


5.3.                            Company Stockholder
Meeting.  The Company
shall, promptly after the date hereof, take all action necessary in accordance
with the DGCL and its Certificate of Incorporation and Bylaws to convene the Company
Stockholders Meeting within 45 days of the Registration Statement being
declared effective by the SEC, whether or not the Company Board determines at
any time after the date hereof that the Merger is no longer advisable.  The adoption of the Merger by


 


27





















 


the stockholders of the Company shall be recommended by the Company
Board unless, in the good faith judgment of the Company Board, after
consultation with outside counsel, taking such action would be inconsistent with
its 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 applicable
securities laws.  The Company shall
consult with Parent regarding the date of the Company Stockholders Meeting.  Subject to Section 5.2 and Section 5.6
hereof, the Company shall use commercially reasonable best efforts to solicit
from stockholders of the Company proxies in favor of the Merger and shall take
all other commercially reasonable actions necessary or advisable to secure the
vote or consent of stockholders required to effect the Merger.


 


5.4.                            Additional
Agreements; Cooperation.


 


(a)                                  Subject
to the terms and conditions herein provided, each of the parties hereto agrees
to 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 or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, and to cooperate, subject to
compliance with applicable law, with each other in connection with the
foregoing, including using its commercially reasonable best efforts (i) to
obtain all necessary waivers, consents and approvals from other parties to loan
agreements, material leases and other material contracts, (ii) to obtain
all necessary consents, approvals and authorizations as are required to be
obtained under any United States federal or state, foreign law or regulations, (iii) to
defend all lawsuits or other legal proceedings challenging this Agreement or
the consummation of the transactions contemplated hereby, (iv) to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby, (v) to
effect all necessary registrations and filings and submissions of information
requested by Governmental Entities, and (vi) to fulfill all conditions to
this Agreement.


 


(b)                                 Each
of the parties hereto agrees, subject to compliance with applicable law, to
furnish to each other party hereto such necessary information and reasonable
assistance as such other party may request in connection with its preparation
of necessary filings or submissions to any regulatory or governmental agency or
authority, including, without limitation, any filing necessary under the
provisions of the HSR Act, the Exchange Act, the Securities Act or any other
United States federal or state, or foreign statute or regulation.  Each party hereto shall promptly inform each
other party of any material communication from the U.S. Federal Trade
Commission or any other government or governmental authority regarding any of
the transactions contemplated hereby.


 


5.5.                      Publicity.  Parent and the Company will mutually consult concerning the news release first
announcing this Agreement and the transactions contemplated hereby, which shall
be a joint news release.  Neither party shall issue any such news
release or other announcement without the consent of the other party. Thereafter,
without the consent of the Parent, which consent shall not be
unreasonably 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 public
announcement with respect to the transactions contemplated by this Agreement, except as otherwise required by applicable
law or by obligations pursuant to any listing agreement with the Nasdaq Stock
Market, in which case the Company shall use its commercially reasonable best efforts
to consult with Parent and to provide Parent with a copy of such news release
or other announcement and afford Parent the opportunity to comment thereon
prior to publication.


 


28





















 


5.6.                            No
Solicitation.


 


(a)                                  Immediately
upon execution of this Agreement, the Company shall (and shall cause its
officers, directors, employees, investment bankers, attorneys and other agents
or representatives to) cease all discussions, negotiations, responses to
inquiries (except as set forth in the proviso to this sentence) and other
communications relating to any potential business combination with all third parties
who, prior to the date hereof, may have expressed or otherwise indicated any
interest in pursuing an Acquisition Proposal (as hereinafter defined) with the
Company; provided that, this Section 5.6(a) shall
not prohibit activities permitted by Section 5.6(b) in response to an
inquiry initiated after the date hereof.


 


(b)                                 Prior
to termination of this Agreement pursuant to Article VII hereof, the
Company and its Subsidiaries shall not, nor shall the Company authorize or
permit any officers, directors or employees of, or any investment bankers,
attorneys or other agents or representatives retained by or acting on behalf
of, the Company or any of its Subsidiaries to, (i) initiate, solicit or
encourage, directly or indirectly, any inquiries or the making of any proposal
that constitutes an Acquisition Proposal, (ii) engage or participate in
negotiations or discussions with, or furnish any information or data to, or
take any other action to, facilitate any inquiries or making any proposal by,
any third party relating to an Acquisition Proposal, (iii) enter into any
agreement with respect to any Acquisition Proposal or approve an Acquisition
Proposal, or (iv) make or authorize any statement, recommendation or
solicitation in support of any possible Acquisition Proposal.  Notwithstanding anything to the contrary
contained in this Section 5.6 or in any other provision of this Agreement,
prior to the Company Stockholders Meeting, the Company Board may participate in
discussions or negotiations with or furnish information to any third party
making an unsolicited Acquisition Proposal (a “Potential Acquiror”) or
approve or recommend an unsolicited Acquisition Proposal if (A) a majority
of the disinterested directors of the Company Board determines in good faith,
after consultation with its independent financial advisor, that a Potential
Acquiror has submitted to the Company a written Acquisition Proposal which sets
forth a price or range of values to be paid by the Potential Acquiror and
which, if consummated, would be more favorable to the Company’s stockholders,
from a financial point of view, than the Merger (a “Superior Proposal”), (B) the
Company Board has determined in good faith, based on consultation with
independent financial advisor(s), that such Potential Acquiror is financially
capable of consummating such Superior Proposal, and (C) a majority of the
disinterested directors of the Company Board determines in good faith, after
receiving advice from reputable outside legal counsel experienced in such
matters (and the parties hereto agree that the law firm of Davis Wright &
Tremaine LLP is so experienced), that the failure to participate in such
discussions or negotiations or to furnish such information or to approve or
recommend such unsolicited Acquisition Proposal is inconsistent with the
Company Board’s fiduciary duties under applicable law.  In the event that the Company shall receive
any Acquisition Proposal, it shall promptly (and in no event later than forty-eight
(48) hours after receipt thereof) furnish to Parent the identity of the
recipient of the Acquisition Proposal and of the Potential Acquiror, the terms
of such Acquisition Proposal, copies of such Acquisition Proposal and all
information requested by the Potential Acquiror, and shall further promptly
inform Parent in writing as to the fact such information is to be provided
after compliance with the terms of the preceding sentence.  Notwithstanding the foregoing, the Company
shall not provide any non-public information to any such Potential Acquiror unless
(1) it has prior to the date thereof provided such information to Parent
and Merger Sub, and (2) the Company provides such non-public information
pursuant to a nondisclosure agreement with terms that are at least as
restrictive as those pursuant to the Confidential Disclosure Agreement (the “Reciprocal
Confidentiality Agreement”), dated November 12, 2004,
between Parent and the Company.  Nothing
contained herein shall prevent the Company


 


29





















 


from complying with Rules 14d-9 and 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal or making any disclosure to
the Company’s stockholders if, in the good faith judgment of the Company Board,
after receiving advice from reputable outside legal counsel experienced in such
matters (and the parties hereto agree that the law firm of Davis Wright &
Tremaine LLP is so experienced), such disclosure is required by applicable
law.  In addition to the foregoing, the
Company shall not enter into any agreement concerning an Acquisition Proposal
for a period of not less than five (5) days after the Parent’s receipt of
a copy of the Acquisition Proposal. 
Further, Parent has the right to match or better any Superior Proposal
of 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 new
proposals. If the Parent has not notified Company of its decision to match or
better the Superior Proposal by the eleventh day after Company’s notification
is received by Parent that the acquisition proposal is a Superior Proposal,
Company may pay the Parent Termination Fee and terminate this Agreement in
accordance with its terms and proceed with the Superior Proposal. If Parent
notifies Company that it will match or better a Superior Proposal, this
Agreement must be amended to reflect the matched or bettered terms within two (2) days
of Parent’s decision to so match or better the Superior Proposal. Upon such
amendment, Company may not terminate this Agreement and must notify the party
making the Superior Proposal that such proposal has been matched or bettered
and that this Agreement has been amended to reflect this fact. After such
amendment to this Agreement, Company must, and must cause Company Bank and its
representatives to, cease and terminate all discussions and negotiations
regarding the previous Superior Proposal, unless a new Acquisition Proposal is
received that is determined to be a Superior Proposal pursuant to this Section 5.6.
Without limiting the foregoing, the Company understands and agrees that any
violation of the restrictions set forth in this Section 5.6(b) by the
Company or any of its Subsidiaries, or by any director or officer of the
Company or any of its Subsidiaries or any financial advisor, attorney or other
advisor or representative of the Company or any of its Subsidiaries, whether or
not such person is purporting to act on behalf of the Company or any of its
Subsidiaries or otherwise, shall be deemed to be a breach of this Section 5.6(b) sufficient
to enable Parent to terminate this Agreement pursuant to Section 7.1(d)(i) hereof.


 


(c)                                  For
the purposes of this Agreement, “Acquisition Proposal”
shall mean any proposal, whether in writing or otherwise, made by any person
other than Parent and its Subsidiaries to acquire “beneficial ownership” (as
defined 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 outstanding
capital stock of any of the Company or its Subsidiaries pursuant to a merger,
consolidation, exchange of shares or other business combination, sale of shares
of capital stock, sales of assets, tender offer or exchange offer or similar
transaction involving the Company or its Subsidiaries.


 


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


 


30





















 


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


 


5.8.                            Notification
of Certain Matters.  The
Company or Parent, as the case may be, shall promptly notify the other of (a) its
obtaining of Knowledge as to the matters set forth in clauses (i), (ii) and
(iii) below, or (b) the occurrence, or failure to occur, of any
event, which occurrence or failure to occur would be likely to cause (i) any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, (ii) any material failure of the Company or Parent, as the
case may be, or of any officer, director, employee or agent thereof, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement or (iii) the institution of any
claim, suit, action or proceeding arising out of or related to the Merger or
the transactions contemplated hereby; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.


 


5.9.                            Resignation
of Officers and Directors. 
At or prior to the Effective Time, the Company shall deliver to Parent
the resignations of all officers and directors of the Company and shall use its
commercially reasonable best efforts to deliver to Parent the resignations of
such officers and directors of its Subsidiaries (in each case, in their
capacities as officers and directors, but not as employees if any of such
persons are employees of the Company or any Subsidiary), except as Parent may
specify, which resignations shall be effective at the Effective Time.


 


5.10.                     Indemnification.


 


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


 


(b)                                 Any
determination required to be made with respect to whether an Indemnified Person’s
conduct complies with the standards set forth under the DGCL or other
applicable law shall be made by independent counsel selected by Parent and
reasonably acceptable to the Indemnified Persons.  Parent shall pay such counsel’s fees and
expenses (so long as the Indemnified Persons do not challenge any such
determination by such independent counsel).


 


(c)                                  In
the event that Parent or any of its successors or assigns (i) consolidates
with, merges or otherwise enters a business combination into or with any other
person, and Parent or such successor or assign is not the continuing or
surviving corporation or entity of such consolidation, merger or business
combination, or (ii) transfers all or substantially all of its properties
and assets to any person, then, and in each case, proper provision shall be
made so that such person or the continuing or surviving corporation assumes the
obligations set forth in this Section 5.10 and


 


31





















 


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


 


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


 


(i)                                     maintain
the D&O Policy in effect for not less than six years from the Effective
Time (provided that Parent may substitute therefor, through brokers of its
choice,  policies of at least comparable
coverage containing terms and conditions which are no less advantageous to the
Indemnified Persons in all material respects so long as no lapse in coverage
occurs 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 the
Company), 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 such
six-year period, such insurance shall be continued in respect of any such Claim
until final disposition of any and all such Claims; and provided,
further, that Parent shall not be obligated to make aggregate premium
payments for such insurance to the extent such annual premiums in the aggregate
exceed two hundred percent (200%) of the Annual Premium.  In such case, Parent shall purchase only as
much coverage as possible for aggregately two hundred percent (200%) of the Annual
Premium; or


 


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


 


Neither Parent nor the Surviving Corporation shall
be deemed in breach of their obligations to maintain any insurance policy
pursuant to this Section 5.10(d) as to any Indemnified Party that is
denied coverage under such insurance policy by the issuer or underwriter
thereof as a result of any act or omission of an Indemnified Person in
connection with either the application for any insurance policy or any claim
thereunder.


 


(e)                                  In
the event any claim, action, suit, proceeding or investigation (a “Claim”) for
which indemnification is provided under this Section 5.10 is brought
against an Indemnified Person (whether arising before or after the Effective
Time) after the Effective Time Parent shall, consistent with the terms of any
directors’ and officers’ liability insurance policy, defend such Indemnified
Person from such claim with counsel reasonably acceptable to such Indemnified
Person; provided, however, that in the event Parent fails to
provide a defense to such Claim or it would be


 


32





















 


inappropriate due to conflicts of interests that counsel for Parent
also represent such Indemnified Person, (i) such Indemnified Person may
retain separate counsel reasonably acceptable to Parent, (ii) the
indemnifying party shall pay all reasonable fees and expenses of such counsel
for such Indemnified Person as statements therefor are received, and (iii) the
indemnifying party will use all commercially reasonable best efforts to assist
in the defense of any such matter, provided that the indemnifying party shall
not 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 all
Indemnified Persons at the expense of the indemnifying party (unless, and to
the extent that, the joint representation of all Indemnified Persons poses an
actual conflict of interest).  Any
Indemnified Person desiring to claim indemnification under this Section 5.10,
upon learning of any Claim, shall notify the indemnifying party (but the
failure to so notify shall not relieve the indemnifying party from any
liability which it may have under this Section 5.10 except to the extent
such failure materially prejudices such indemnifying party).


 


(f)                                    This
Section 5.10 is intended to benefit the Indemnified Persons, shall be
enforceable by each Indemnified Person and his or her heirs and
representatives.


 


5.11.               Stockholder
Litigation.  The Company
shall give Parent the reasonable opportunity to participate in the defense of
any stockholder litigation against or in the name of the Company and/or its
respective directors relating to the transactions contemplated by this
Agreement.


 


5.12.                     Employee
Benefit Plans.


 


(a)                                  401(k)
Plan.  The Company
shall 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 shall
terminate the 401(k) Plan pursuant to written resolutions, the form and
substance of which shall be satisfactory to Parent.  Individuals employed by the Company at the
Effective Time (“Company Employees”) shall be allowed to participate in Parent’s
401(k) plan effective as of the first payroll following the Effective Time; and
all service with the Company shall be considered service with Parent for
purposes of determining eligibility, vesting, and benefit accrual (i.e., any
matching contributions) under Parent’s 401(k) plan.  As soon as administratively feasible after
assets are distributed from the 401(k) Plan, Company Employees shall be offered
an opportunity to roll their 401(k) Plan account balances into Parent’s 401(k)
Plan.


 


(b)                                 Welfare
Plans.  Company
Employees shall be eligible to participate in Parent’s disability plans, group
life insurance plan, medical plan, dental plan, and Section 125 cafeteria
plan as soon as administratively feasible after the Effective Time.  Prior to such time, Company Employees shall
remain eligible for the Company’s welfare plans, as applicable, and such plans
will not be amended or changed in any material respect by Parent or the Company.  Parent shall include service and prior
earnings with the Company for purposes of determining eligibility,
participation, and benefit accrual under its short term disability plan, group
life insurance plan medical plan, dental plan, and Section 125 cafeteria
plan.  Parent shall include such service
for purposes of determining benefit eligibility or participation in Parent’s
disability plans; however, such participation shall be subject to any
applicable preexisting condition exclusions.


 


(c)                                  Vacation
and PTO.  Company
Employees shall be eligible to participate in Parent’s vacation or paid time
off (“PTO”) policy, as applicable, as soon as administratively feasible after
the Effective Time.  Prior to such date
Company Employees shall remain eligible for the Company’s vacation pay or sick
pay policies, as applicable, and such plans or policies will not be


 


33





















 


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


 


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


 


5.13.                     Determination
of Optionholders.  At least
thirty (30) business days before the Effective Time, the Company shall provide
Parent with a true and complete list, as of such date, of (a) the holders
of Company Options, (b) the number of shares of Company Common Stock
subject to Company Options held by each such optionholder and (c) the
address of each such optionholder as set forth in the books and records of the
Company or any Subsidiary, following upon which there shall be no additional
grants of Company Options without Parent’s prior written consent.  From the date such list is provided to Parent
until the Effective Time, the Company shall provide option activity reports to
Parent twice monthly containing such information as Parent shall reasonably
request and shall provide an update of such information at and as of the
Effective Time.


 


5.14.                     Preparation
of Tax Returns.  The
Company shall file (or cause to be filed) at its own expense, on or prior to
the due date thereof, all Returns required to be filed on or before the Closing
Date.  The Company shall provide Parent
with a copy of appropriate work papers, schedules, drafts and final copies of
each foreign and domestic, federal, provincial and state income Tax return or
election of the Company (including returns of all Employee Benefit Plans) at
least ten days before filing such return or election and shall consult with
Parent with respect thereto prior to such filing.


 


5.15.                     Tax-Free
Reorganization.  Parent and
the Company shall each use all commercially reasonable best efforts to cause
the Merger to qualify as a reorganization within the meaning of Section 368(a) of
the Code.  Neither Parent nor the Company
shall 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 Company
and Parent shall each cause the forms, reports, schedules, statements and other
documents required to be filed with the SEC by the Company and Parent,
respectively, between the date of this Agreement and the Effective Time (with
respect to either the Company or Parent, the “New SEC
Reports”) to be prepared in all material respects with all applicable
requirements 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 untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading.


 


5.17.                     Listing of
Additional Shares.  Prior
to the Effective Time, Parent shall file with the Nasdaq National Market a
Notification Form 10b-17 for Listing Additional Shares with respect to the
shares of Parent Common Stock to be issued in the Merger.


 


5.18.                     Environmental
Investigation. The Parent shall arrange for and direct environmental
investigations of soil and groundwater, with the assistance and cooperation of
Company, in, under


 


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or about properties operated, now or previously, by Company or its
Subsidiaries.  Company shall use
commercially reasonable efforts to provide Parent adequate access to any and
all such properties.  Company shall provide Parent
documentation of any and all insurance policies, indemnities, judgments, orders
or agreements respecting liability under any Environmental Laws.


 


5.19.                     Delivery of
Ancillary Documents.  The
Company shall use its commercially reasonable best efforts to deliver the
Employment Agreements, Lock-up Agreements and the Voting Agreements,
fully-executed by the parties thereto other than the Parent, within ten (10) business
days following the execution of this agreement.


 


ARTICLE VI

CONDITIONS TO CLOSING


 


6.1.                            Conditions
to Each Party’s Obligation to Effect the Merger.  The respective obligation of each party to
effect the Merger is subject to the satisfaction or waiver on or prior to the
Effective Date of the following conditions:


 


(a)                                  Company Stockholder
Approval.  This
Agreement and the Merger shall have been approved and adopted by the requisite
vote of the stockholders of the Company under the DGCL and the Company’s
Charter Document and Governing Documents.


 


(b)                                 Governmental
Action; No Injunction or Restraints.  No action or proceeding shall be instituted
by any Governmental Entity seeking to prevent consummation of the Merger,
asserting the illegality of the Merger or this Agreement or seeking damages (in
an 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 the
transactions contemplated hereby which continues to be outstanding.  No judgment, order, decree, statute, law,
ordinance, rule or regulation entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition shall be in effect (i) imposing or
seeking to impose sanctions, damages or liabilities (in an 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 the Merger on the
Company or any of its officers or directors; or (ii) preventing the
consummation of the Merger.


 


(c)                                  Governmental
Consents.  All
necessary authorizations, consents, orders or approvals of, or declarations or
filings with, or expiration or waiver of waiting periods imposed by, any
Governmental Entity of any applicable jurisdiction required for the
consummation of the transactions contemplated by this Agreement shall have been
filed, expired or obtained, as to which the failure to obtain, make or occur
would have the effect of making the Merger or this Agreement or any of the
transactions contemplated hereby illegal or which, individually or in the
aggregate, would have a Parent Material Adverse Effect (assuming the Merger had
taken place), including, but not limited to, the expiration or termination of
the applicable waiting period, or any extensions thereof, pursuant to the HSR
Act.


 


6.2.                            Conditions
to Obligations of Parent. 
The obligation of Parent to effect the Merger is further subject to
satisfaction or waiver of the following conditions:


 


(a)                                  Representations
and Warranties.  The
representations and warranties of the Company set forth herein shall be true
and correct both when made and at and as of the Effective


 


35





















 


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


 


(b)                                 Performance
of Obligations of the Company.  The Company shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Date.


 


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


 


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


 


(e)                                  Delivery
of Closing Documents. 
At or prior to the Effective Time, the Company shall have delivered to
Parent all of the following:


 


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


 


(ii)                                  a
copy of (A) the Certificate of Incorporation of the Company, dated as of a
recent date, certified by the Secretary of State of the State of Delaware, (B) the
Bylaws of the Company and (C) the resolutions of the Company Board and stockholders
authorizing the Merger and the other transactions contemplated by this
Agreement, certified by the Secretary of the Company; and


 


(iii)                               each
and all of the Ancillary Agreements executed by each of the individuals as
listed in Exhibit G.


 


6.3.                            Conditions
to Obligations of the Company. 
The obligation of the Company to effect the Merger is further subject to
satisfaction or waiver of the following conditions:


 


(a)                                  Representations
and Warranties.  The
representations and warranties of Parent and Merger Sub set forth herein shall
be true and correct both when made and at and as of the Effective Date, as if
made at and as of such time (except to the extent expressly made as of an
earlier


 


36





















 


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


 


(b)                                 Performance
of Obligations of Parent. 
Parent shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Effective Date.


 


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


 


(d)                                 Tax
Opinion.  The Company
shall have received an opinion from Davis Wright & Tremaine LLP,
counsel to the Company, dated as of the Effective Time, substantially to the
effect that, on the basis of the facts, representations and assumptions set
forth in such opinion which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code
and that accordingly:


 


(i)                                     No
gain or loss will be recognized by the Company as a result of the Merger;


 


(ii)                                  No
gain or loss will be recognized by the stockholders of the Company who exchange
Company Common Stock for Parent Common Stock pursuant to the Merger (except
with respect to the Cash Component and any cash received in lieu of fractional
shares);


 


(iii)                               The
tax basis of the Parent Common Stock received by the stockholders who exchange
all of their Company Common Stock in the Merger will be the same as the tax
basis of the Company Stock surrendered in exchange therefor; and


 


(iv)                              The
holding period of the Parent Common Stock received by a stockholder of the
Company pursuant to the Merger will include the period during which the Company
Common Stock surrendered therefor was held, provided the Company Common Stock
is a capital asset in the hands of the stockholder of the Company at the time
of the Merger.


 


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


 


ARTICLE VII

TERMINATION


 


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


 


37





















 


(a)                                  by
mutual written consent of the Company and Parent (on behalf of Parent and
Merger Sub);


 


(b)                                 by
either the Company or Parent (on behalf of Parent and Merger Sub):


 


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


 


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


 


(iii)                               if
any restraint having any of the effects set forth in Section 6.1(b) or
Section 6.2(c) hereof shall be in effect and shall have become final
and nonappealable; provided, however,
that the right to terminate this Agreement pursuant to this Section 7.1(b)(iii) shall
not be available to any party whose failure to perform any of its obligations
under this Agreement results in such restraint to continue in effect; or


 


(iv)                              if
the Company enters into a merger, acquisition or other agreement (including an
agreement in principle) or understanding to effect a Superior Proposal or the
Company Board or a committee thereof resolves to do so; provided,
however, that the Company may not terminate this Agreement pursuant
to this Section 7.1(b)(iv) unless (a) the Company has delivered
to Parent and Merger Sub a written notice of the Company’s intent to enter into
such an agreement to effect such Acquisition Proposal, which notice shall
include, without limitation, the material terms and conditions of the
Acquisition Proposal and the identity of the Person making the Acquisition
Proposal, (b) five (5) days have elapsed following delivery to Parent
and Merger Sub of such written notice by the Company, (c) Parent shall not
have notified the Company Board that Parent wishes to equal or better the
Superior Proposal and (d) during such five-day period, the Company has
cooperated with Parent and Merger Sub to allow Parent and Merger Sub within such
five-day period to propose terms of this Agreement to be at least as favorable
as 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 to
believe that the Acquisition Proposal constitutes a Superior Proposal;


 


(c)                                  by
the Company


 


(i)                                     if
Parent or Merger Sub shall have breached any of its representations and
warranties contained in Article IV hereof which breach has had or is
reasonably likely to have a Parent Material Adverse Effect or Parent or Merger
Sub shall have breached or failed to perform in any material respect any of its
covenants or other agreements contained in this Agreement, in each case, which
breach or failure to perform has not been cured by Parent or Merger Sub within
thirty days following receipt of notice thereof from the Company;


 


38





















 


(d)                                 by
Parent (on behalf of Parent and Merger Sub):


 


(i)                                     if
the Company shall have breached any of its representations and warranties
contained in Article III hereof which breach has had or is reasonably
likely to have a Company Material Adverse Effect or the Company shall have
breached or failed to perform in any material respect any of its covenants or
other agreements contained in this Agreement, in each case (other than a breach
of Section 5.6(b) hereof, as to which no materiality requirement and
no cure period shall apply), which breach or failure to perform has not been
cured by the Company within thirty days (30) following receipt of notice
thereof from Parent; or


 


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


 


7.2.                            Effect of
Termination.                             The
termination of this Agreement pursuant to the terms of Section 7.1 hereof
shall become effective upon delivery to the other party of written notice
thereof.  In the event of the termination
of 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 or
directors or officers in respect thereof, except for agreements which expressly
survive the termination of this Agreement, except for liability that
Parent or Merger Sub or the Company might have to the other party or parties
arising from a breach of this Agreement due to termination of this Agreement in
accordance with Sections 7.1(c)(i) or 7.1(d)(i) or due to the
fraudulent or willful misconduct of such party.


 


7.3.                            Fees
and Expenses.


 


(a)                                  Except
as 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, each
shall bear their respective expenses incurred in connection with the Merger,
including, without limitation, the preparation, execution and performance of
this Agreement and the transactions contemplated hereby, and all fees and
expenses of investment bankers, finders, brokers, agents, representatives,
counsel and accountants, except that the registration and filing fees incurred
in connection with the filing under the HSR Act and the Registration Statement
and Proxy Statement/Prospectus shall be shared equally by the Company and
Parent.


 


(b)                                 Notwithstanding
any provision in this Agreement to the contrary, if this Agreement is
terminated as a result of a breach of this Agreement in accordance with
Sections 7.1(c)(i) or 7.1(d)(i), then the nonbreaching party shall be
entitled to receive from the breaching party damages resulting from such
breach, including without limitation, all out-of-pocket fees and expenses
incurred or paid by or on behalf of the nonbreaching party or any affiliate of
the nonbreaching party in connection with this Agreement, the Merger and
transactions 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 any
party pursuant to this Section 7.3(b) if a Termination Fee is paid to
such party pursuant to Section 7.3(c) or 7.3(d) below.


 


39





















 


(c)                                  Notwithstanding
any other provision in this Agreement to the contrary, if (x) this
Agreement is terminated by the Company or Parent at a time when Parent or the
Company is entitled to terminate this Agreement pursuant to Section 7.1(b)(ii) (except
if, immediately prior to the Company Stockholder Meeting, an event or condition
exists 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 Company
shall enter into an agreement, or binding arrangement or understanding with
respect to an Acquisition Proposal (which shall include, for this purpose, the
commencement by a third party of a tender offer or exchange offer or similar
transaction directly with the Company’s stockholders) with a third party
(collectively, a “Third Party Deal”) or (y) this Agreement is
terminated pursuant to Section 7.1(b)(iv), or 7.1(d)(ii) (except, in
the case of 7.1(d)(ii) only, if the Company Board’s withdrawal or
modification of its approval or recommendation of this Agreement or the Merger
occurs after the occurrence of a Parent Material Adverse Effect), then, in each
case, the Company shall (in lieu of any obligation under this Agreement and as
liquidated damages and not as a penalty or forfeiture) pay to Parent $4,000,000
(the “Parent
Termination Fee”) in cash. 
Such payment shall be made promptly, but in no event later than the
second business day following:  (i) in
the case of clause (x) relating to a termination pursuant to Section 7.1(d)(i) as
a result of a breach of Section 5.6, the later to occur of such
termination and the entry of such Third Party Deal; (ii) in the case of
clause (x) other than as set forth in the immediately preceding clause (i), the
later to occur of such termination and the consummation of such Third Party
Deal; and (iii) in the case of clause (y) such termination.


 


(d)                                 The
parties acknowledge that the agreements contained in Sections 7.3(b), (c) and
(d) hereof are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Merger Sub on the one
hand, and the Company on the other, would not enter into this Agreement.  Accordingly, if the Company fails promptly to
pay the amounts due pursuant to Sections 7.3(b) and/or (c) hereof, or
if 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 on
such 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 or
takes other action which results in a judgment or other binding determination
against the nonpaying party for the fees and expenses in Sections 7.3(b), 7.3(c) or
7.3(d) hereof, the nonpaying party shall also pay to the party entitled to
receive payment its costs and expenses (including reasonable attorneys’ fees)
in connection with such suit, together with interest payable under the
preceding clause (i).


 


ARTICLE VIII

MISCELLANEOUS


 


8.1.                            Nonsurvival
of Representations and Warranties.  None of the representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time.  This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.


 


8.2.                            Waiver.  At any time prior to the Effective Date, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto, and (c) waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations contained herein. 
Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing duly
authorized by and signed on behalf of such party.


 


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8.3.                            Attorneys’
Fees.  Should suit be
brought to enforce or interpret any part of this Agreement, the prevailing
party will be entitled to recover, as an element of the costs of suit and not
as damages, reasonable attorneys’ fees to be fixed by the court (including,
without limitation, costs, expenses and fees on any appeal).


 


8.4.                            Notices.


 


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


 


If to Parent:


 


MICROSEMI CORPORATION

2381 Morse Avenue

Irvine, California 92614

Telephone No.: (949) 221-7188

Facsimile No.:  (949) 756-2087

Attention: James J. Peterson, President & CEO


 


with a copy to:


 


The Yocca Law Firm LLP

19900 MacArthur Blvd., Suite #650


 


Irvine, California 92612

Telephone No.: (949) 253-0800

Facsimile No.:  (949) 203-6161

Attention: Nicholas J. Yocca


 


If to the Company:


 


ADVANCED POWER TECHNOLOGY, INC.

405 S.W. Columbia Street 

Bend, Oregon 97702

Telephone No.: (541) 382-8028

Facsimile No.:  (541) 388-0364

Attention: Patrick P.H. Sireta, President and CEO


 


with copies to:


 


Davis Wright & Tremaine LLP

1300 SW Fifth Avenue, Suite 2300


Portland, Oregon 97201-5630


Telephone No.: (503) 778-5306

Facsimile No.:  (503) 778-5299

Attention:  David C. Baca


 


(b)                                 All
notices and communications will be deemed to have been duly given: at the time
delivered by hand, if personally delivered; three (3) business days after
being deposited in


 


41





















 


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


 


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


 


8.6.                            Interpretation;
Construction.  The language
used in this Agreement and the other agreements contemplated hereby shall be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction shall be applied against any
party.  The headings of articles and
sections herein are for convenience of reference, do not constitute a part of
this Agreement, and shall not be deemed to limit or affect any of the
provisions hereof.  As used in this
Agreement, “Person” means any individual,
corporation, limited liability company, limited or general partnership, joint
venture, association, joint stock company, trust, unincorporated organization
or other entity; “Knowledge” means the actual knowledge of
a director or any executive officer of the applicable party or any of its
Subsidiaries, as such knowledge has been obtained or would have been obtained
after 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, unless
specifically referenced otherwise.


 


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


 


8.8.                            No Third-Party
Beneficiaries.  Except for
the provisions of Section 5.10 hereof (which is intended to be for the
benefit of the persons referred to therein, and may be enforced by such
persons) nothing in this Agreement shall confer any rights upon any person or
entity which is not a party or permitted assignee of a party to this Agreement.


 


8.9.                            Governing
Law.  This Agreement shall
be governed by, and construed in accordance with, the laws of the State of
Delaware.  Each party hereby irrevocably
waives the right to any jury trial in connection with any action or proceeding
brought or maintained in connection with this Agreement.


 


8.10.                     Jurisdiction.  Any
legal action or proceeding with respect to this Agreement may be brought in the
superior courts of the State of California sitting in Orange County, California
or federal district courts of the United States of America for the Central District
of California and, by execution and delivery of this Agreement, the parties
hereby accept for themselves and in respect of their property, generally and
unconditionally, the jurisdiction of the aforesaid courts.  The parties irrevocably consent to the
service of process out of any of the aforementioned courts in any such action
or proceeding by the delivery of notice as provided in this Agreement, such
service to become effective thirty (30) days after such delivery.


 


8.11.                     Entire
Agreement.  This Agreement
(together with the Exhibits and the Company Disclosure Letter, and the other
documents delivered pursuant hereto or contemplated hereby) constitutes the
entire agreement between the parties with respect to the subject matter hereof
and


 


42





















 


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


 


8.12.                     Validity.  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.  Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.


 


IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed by their duly authorized officers all as of the
day 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

  



 


43





















 


EXHIBIT A


 


VOTING AGREEMENT


 


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


 


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, herein
called the “Merger Agreement”) by
and among Parent, Army Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent (the “Merger Sub”), and Army, Inc., a
Delaware corporation (the “Company”), it is proposed that Parent shall issue
shares of Parent Common Stock and/or Parent Stock Options in exchange for
Shares 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, Parent
has required that each Promissor, in each such person’s capacity as a
stockholder of the Company, enter into, and the Promissor has agreed to enter
into, this Voting Agreement.


 


AGREEMENT


 


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


 


1.                                       Representations and
Warranties of the Promissor.  The Promissor hereby represents and warrants
to Parent as follows:


 


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


 


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


 


1





















 


with
respect to the matters set forth in Section 2 hereof, sole power of
disposition, sole power to demand appraisal rights and sole power to engage in
actions set forth in Section 2 hereof, with no restrictions on the voting
rights, rights of disposition or otherwise, subject to applicable laws and the
terms of this Agreement.


 


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


 


2.                                       Voting Agreement and
Agreement Not to Transfer.


 


(a)                                  The Promissor hereby agrees to vote all of
the Shares held by the Promissor (i) in favor of the Merger, the Merger
Agreement and the transactions contemplated by the Merger Agreement; (ii) against
any action or agreement that would result in a breach in any material respect
of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement; and (iii) except with
the prior written consent of Parent, against the following actions (other than
the Merger and the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transactions, such as a merger, consolidation or other
business combination involving the Company; (B) any sale, lease or
transfer of a material amount of the assets of 
the Company; (C) any change in the majority of the Board of the
Company; (D) any material change in the present capitalization of the Company;
(E) any amendment of the Company’s Articles of Incorporation; (F) any
other material change in the Company’s corporate structure or business; or (G) any
other action which is intended, or could reasonably be expected to, impede,
interfere with, delay, postpone, discourage or materially adversely affect the
contemplated economic benefits to Parent or Company of the transactions
contemplated by the Merger Agreement. 
The Promissor shall not enter into any agreement or understanding with
any person or entity prior to the Termination Date (as defined below) to vote
or give instructions after the Termination Date in any manner inconsistent with
clauses (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 the
prior written consent of Parent, other than Shares sold or surrendered to pay
the exercise price of any stock options or to pay taxes or satisfy the Company’s
withholding obligations with respect to any taxes resulting from such exercise
or (ii) pledge, mortgage or encumber such Shares.  Any permitted transferee of Shares must
become a party to this Agreement and any purported transfer of Shares to a
person or entity that has not become a party hereto shall be null and void.


 


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


 


4.                                       Promissor Capacity.  The
Promissor is entering this Agreement in his or her capacity as the record or
beneficial owner of the Shares, and not in his or her capacity as a
director/executive officer of the Company. 
Nothing in this Agreement shall be deemed in any


 


2





















 


manner to limit the
discretion of any Promissor to take any action, or fail to take any action, in
his or her capacity as a director/executive officer of the Company, that may be
required of such Promissor in the exercise of his or her duties and
responsibilities.


 


5.                                       Termination.  The
obligations of the Promissor hereunder shall terminate upon the consummation of
the Merger.  If the Merger is not
consummated, the obligations of the Promissor hereunder shall terminate upon
the termination of the Merger Agreement, provided
that if, in the event of such termination, the Company is required to pay
Parent the Termination Fee specified in Section 7.3(c) of the Merger
Agreement, those obligations set forth in Section 2(a) of this
Agreement shall survive until the Company pays the Termination Fee to
Parent.  The “Termination Date” for any
particular provision hereunder shall be the date of termination of the
Promissor’s obligations for such provision.


 


6.                                       Specific Performance.  The
Promissor acknowledges that damages would be an inadequate remedy to Parent for
an actual or prospective breach of this Agreement and that the obligations of
the Promissor hereto shall be specifically enforceable. Each of the parties
hereto recognizes and acknowledges that a breach of any covenants or agreements
contained in this Agreement by the Promissor will cause Parent to sustain
damages for which it would not have an adequate remedy at law for money
damages, and therefore each of the parties hereto agrees that in the event of
any such breach Parent shall be entitled to the remedy of specific performance
of such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which they may be entitled, at law or in
equity.


 


7.                                       Miscellaneous.


 


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


 


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


 


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


 


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


 


(e) Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received (i) when
delivered by hand; (ii) on the day sent by facsimile, provided that the
sender 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 day
after sent by facsimile (to the extent that (A) the sender has received
confirmation of transmission after 5:00 p.m. local time of the recipient
on the day sent by facsimile, or


 


3





















 


(B) notice
is sent on a day that is not a business day); or (iv) the third business
day after sent by registered mail or by courier or express delivery service, in
each case to the address or facsimile number set forth on the signature page to
this Agreement beneath the name of such party, or to such other address or
facsimile number as such party shall have specified in a written notice given
to 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 are
held to be invalid or unenforceable under the applicable law of any
jurisdiction, the parties agree to renegotiate such provision in good faith, in
order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable. In the event that
the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of this Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of this Agreement
shall be valid and enforceable in accordance with its terms. Each provision of
this Agreement is separable from any other provisions of this Agreement, and
each part of each provision of this Agreement is severable from every other
part of such provision.


 


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


 


(h) Assignment.  This Agreement
shall not be assigned by Promissor without the prior written consent of the
Parent.


 


4





















 


(i) Entire Agreement, etc. This Agreement (i) constitutes the
entire agreement, and supersedes all other prior agreements, understandings,
representations and warranties both written and oral among the parties with
respect to the subject matter hereof, and (ii) shall not be transferable
or assignable by operation 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 any of its rights and obligations hereunder to any of its
subsidiaries or to any other entity which may acquire all or substantially all
of the assets, shares or business of the Parent or any of its subsidiaries or
any entity with or into which the Parent or any of its subsidiaries may be
consolidated or merged.


 


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


 


(SIGNATURE PAGE FOLLOWS)


 


5





















 


SIGNATURES


 


IN
WITNESS WHEREOF, the parties hereto have executed this Voting Agreement as of
the date first above written.


 


	
   

  	
  Marines Corporation:

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
  Address

  	
   

  	
   

  
	
   

  	
  Telephone:

  	
   

  	
   

  
	
   

  	
  Fax:

  	
   

  	
   

  
	
   

  	
  Email:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Stockholder:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
  Number of Shares:

  	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  	
   

  
																		



 





















 


EXHIBIT B


 


NON-COMPETITION AGREEMENT


 


This
Non-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 the
meaning 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, herein
called the “Merger Agreement”) by
and among Parent, Army Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent (“Merger Sub”), and Company, it is proposed
that Parent shall issue shares of Parent Common Stock and/or Parent Stock
Options (the “New Shares”) in exchange for issued shares of Company Common
Stock (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 has
required 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 to
minimize the risk that the Parent will lose the benefits of the goodwill and
other assets being acquired from the Merger Sub, the Obligor has agreed to
restrict his/her activities in accordance with the terms and conditions of this
Agreement.


 


AGREEMENT


 


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


 


1.               Definitions.    As
used in this Agreement, the following terms shall have the following meanings:


 


(a)          “Restricted Business” shall mean any activity
customarily associated with Advanced Power Technology’s ordinary course of
business.


 


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


 


2.               Agreement Not To Compete.


 


(a)          Agreement.    The
Obligor agrees that for a two-year period from the date of this Agreement
through the date that is the second anniversary of the Effective Date, Obligor
shall


 


1





















 


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


 


(b)    Confidential
Information.    The Obligor
hereby acknowledges that he/she makes use of, acquires and adds to confidential
information of a special and unique nature and value relating to the Merger Sub
and its strategic plan and financial operations.  The Obligor further recognizes and
acknowledges that all confidential information is the exclusive property of
Merger Sub, is material and confidential, and is critical to the successful
conduct of the business of Merger Sub. 
Accordingly, the Obligor hereby covenants and agrees that he will use
confidential information for the benefit of the Merger Sub only and shall not
at any time, directly or indirectly, during the term of this Agreement and
thereafter divulge, reveal or communicate any confidential information to any
person, firm, corporation or entity whatsoever, or use any confidential
information for his own benefit or for the benefit of others.


 


(c)    Separate
Covenants.    If, in any
judicial proceeding, a court shall refuse to enforce any of the separate
covenants (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 to
maintain the economic position enjoyed by each party as closely as possible to
that under the provision rendered unenforceable. In the event that the parties
cannot reach a mutually agreeable and enforceable replacement for such
provision, then (i) such provision shall be excluded from this Agreement, (ii) the
balance of the Agreement shall be interpreted as if such provision were so
excluded and (iii) the balance of the Agreement shall be valid and enforceable
in accordance with its terms. Each provision of this Agreement is separable
from any other provisions of this Agreement, and each part of each provision of
this Agreement is severable from every other part of such provision.


 


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


 


(e)    Injuntions;
Specific Performance.    The
Obligor acknowledges that it would be impossible to determine the amount of
damages that would result from any breach of any of the provisions of this Section 2
and that the remedy at law for any breach, or threatened breach, of any of such
provisions would likely be inadequate and, accordingly, agrees that the Parent
or the Company shall, in addition to any other rights or remedies which it may
have, be entitled to seek such equitable and injunctive relief as may be
available from any court of competent jurisdiction to restrain the Obligor from
violating any of such provisions of this Agreement or to cause the Obligor to
perform any of such provisions.  In connection
with any action or proceeding for injunctive relief, the Obligor hereby waives
the claim or defense that a remedy at law alone is adequate and agrees, to the
maximum extent permitted by law, to have each such provision of this Section 2
specifically enforced against the Obligor, without the necessity of posting
bond or other security against the Obligor, and consents to the entry of
injunctive relief against the Obligor enjoining or restraining any breach or
threatened breach of such provisions of this Section 2.


 


2





















 


3.               Miscellaneous.


 


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


 


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


 


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


 


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


 


(e) Notices.
Any notice or other communication required or permitted to be delivered to any
party under this Agreement shall be in writing and shall be deemed properly
delivered, given and received (i) when delivered by hand; (ii) on the
day sent by facsimile, provided that the sender 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 day after sent by facsimile (to the
extent that (A) the sender has received confirmation of transmission after
5:00 p.m. local time of the recipient on the day sent by facsimile, or (B) notice
is sent on a day that is not a business day); or (iv) the third business
day after sent by registered mail or by courier or express delivery service, in
each case to the address or facsimile number set forth on the signature page to
this Agreement beneath the name of such party, or to such other address or
facsimile number as such party shall have specified in a written notice given
to 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:

  



 


3





















 


	
  Fax:

  
	
  Email:

  



 


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


 


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


 


(h) Entire
Agreement, etc. This Agreement (i) constitutes the entire agreement, and
supersedes all other prior agreements, understandings, representations and
warranties both written and oral among the parties with respect to the subject
matter hereof, and (ii) shall not be transferable or assignable by
operation 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 any
of its rights and obligations hereunder to any of its subsidiaries or to any
other entity which may acquire all or substantially all of the assets, shares
or business of the Parent or any of its subsidiaries or any entity with or into
which 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 be
brought in the superior courts of the State of California sitting in Orange
County, California or federal district courts of the United States of America
for the Central District of California and, by execution and delivery of this
Agreement, the parties hereby accept for themselves and in respect of their
property, generally and unconditionally, the jurisdiction of the aforesaid
courts.  The parties irrevocably consent
to the service of process out of any of the aforementioned courts in any such
action 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 of
Agreement; Termination.   
This Agreement shall terminate upon the earlier of the date, if any, of
termination of the Merger Agreement in accordance with its terms or the
expiration of the period described in Section 2(a) of this Agreement.
Upon such termination, no party shall have any further obligations or
liabilities hereunder; provided, however,
such termination shall not relieve any party from liability for any breach of
this Agreement prior to such termination.


 


IN
WITNESS WHEREOF, the parties have executed this Non-competition Agreement as of
the date first written above.


 


	
  Marines Corporation

  	
  Army, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
  Address

  	
   

  	
   

  	
  Address

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
  Telephone:

  	
   

  	
   

  
														



 


4





















 


	
  Fax:

  	
   

  	
   

  	
  Fax:

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  	
  Email:

  	
   

  	
   

  
	
   

  	
   

  
	
  Obligor

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  	
   

  
														



 


5





















 


 


EXHIBIT C


 


LOCK-UP AGREEMENT


 


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


 


RECITALS


 


WHEREAS,
the Holder is the registered owner of (1) such number of issued and
outstanding shares of Company Common Stock (the “Shares”) and (2) options to purchase such number of
shares of Company Common Stock (the “Options”),
each as is indicated beneath Holder’s signature on the last page of this
Agreement; 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, herein
called the “Merger Agreement”) by
and among Parent, Army Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Parent, and the Company, it is proposed that Parent
shall pay cash and issue shares of Parent Common Stock in exchange for the
Shares and assume the Options; and


 


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


 


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


 


AGREEMENT


 


1.
Agreement to Retain Shares.


 


(a) Transfer and Encumbrance. Except as contemplated by the Merger
Agreement, and except as provided in Sections 1(b) and 2 below, during the
period 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 (as
defined 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 dispose
of (including by merger, consolidation or otherwise by operation of law) or
encumber the Shares or any New Shares (as defined below), including any shares
of Parent Common Stock received in exchange for such Shares pursuant to the
Merger, 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 such
Shares or any New Shares, enter into or acquire a futures or forward contract
to deliver such Shares or any New Shares or enter into any other hedging or
other derivative transaction that has the effect of materially changing the
economic benefits and risks of ownership of the Shares or any New Shares, or
to, directly


 


1





















 


or
indirectly, make any offer or agreement relating thereto, (B) grant any
proxies or powers of attorney, deposit any of such Shares or New Shares into a
voting trust or enter into a voting agreement with respect to any of such
Shares or New Shares, or enter into any agreement or arrangement providing for
any of the actions described in this clause, or (C) take any action that
could reasonably be expected to have the effect of preventing or disabling
Holder from performing Holder’s obligations under this Agreement, and Holder
warrants that it has not agreed to carry out any of the foregoing matters in
relation to the Shares or any New Shares; provided, however that,
notwithstanding the provisions of this Section 1(a), the Holder may
provide an irrevocable undertaking or other form of support agreement to Parent
or 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 with
the terms and provisions thereof. During the ninety (90) to one hundred eighty
(180) day period following the Effective Date, the foregoing applies to fifty
percent (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 prohibit
a transfer of Shares or New Shares by Holder (i) if Holder is an
individual (A) to any member of Holder’s immediate family, or to a trust
for the benefit of Holder or any member of Holder’s immediate family, or (B) upon
the death of Holder, or (ii) if Holder is a partnership or limited
liability company, to one or more partners or members of Holder or to an
affiliated 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 a
precondition to such transfer, the transferee agrees in writing to be bound by
all of the terms of this Agreement, or (iii) with respect to Options under
the Company Stock Option Plans, Holder may sell New Shares upon or after exercise
thereof pursuant to an effective Registration Statement to be filed by Parent
under the Securities Act of 1933 (the “Securities Act”) provided also that such
New Shares are sold in accordance with Parent’s Insider Trading Policy and Rule 145
of the rules and regulations prescribed by the Securities and Exchange
Commission (“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 same
extent as if they constituted Shares. The term “New Shares” shall mean any and
all shares of capital stock or interests in shares or other securities of the
Company or Parent, including any shares of Parent Common Stock received in
exchange for such Shares pursuant to the Merger and/or received upon exercise
of the Options assumed by Parent pursuant to the Merger, that Holder purchases
or with respect to which Holder otherwise acquires registered or beneficial
ownership 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) the
Expiration 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 New
Shares. Notwithstanding anything to the contrary set forth in this Section 2,
the execution of this Agreement should not be considered an admission on Holder’s
part that Holder is an “affiliate”
of the Company, nor as a waiver of any rights Holder may have to object to any
claim that Holder is such an affiliate on or after the date of this Agreement.


 


2





















 


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


 


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


 


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


 


(iii) Holder has been advised that the issuance of Parent Common
Stock in connection with the Merger will be registered on a registration
statement on Form S-4 promulgated under the Securities Act (the “Registration Statement”) and the resale
of 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 not
sell, transfer or otherwise dispose of the Parent Common Stock issued to Holder
in the Merger, unless (i) such sale, transfer or other disposition is made
in conformity with the limitations of Rule 145, (ii) such sale,
transfer or other disposition has been registered under the Securities Act or (iii) in
the opinion of counsel reasonably acceptable to Parent, such sale, transfer or
other disposition is otherwise exempt from registration under the Securities
Act.


 


(iv) Holder understands and agrees that stop transfer instructions
will be given to Parent’s transfer agent with respect to the Parent Common
Stock issued to directors, executive officers and ten percent (10%) holders of
any 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 Stock
issued to directors, executive officers and 10% holders of any class of
securities of the Company (as of immediately prior to the Merger), or any
substitutions therefor, a legend stating in substance: “THE SHARES REPRESENTED BY THIS CERTIFICATE WERE
ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY
BE TRANSFERRED IN ACCORDANCE WITH RULE 145.” If a sale or transfer
is made prior to such legend being removed pursuant to Section 2(c) below,
certificates with the above legend will be substituted by delivery of
certificates without such legend upon delivery of a declaration to Parent (the “Declaration”), which Declaration shall be
reasonably satisfactory in form and substance to Parent, that the requirements
of Rule 145(d)(1) have been complied with.


 


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


 


3





















 


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


 


(c).
Parent Representations.


 


(i) Parent hereby agrees that, unless previously sold pursuant to
the applicable requirements of Rule 145, it is understood and agreed that
certificates with the legend set forth in Section 2(b)(iv) above will
be substituted by delivery of certificates without such legend, and any stop
transfer instructions then in effect will be terminated, if (i) one (1) year
shall have elapsed from the date Holder acquired the Parent Common Stock
received in the Merger and the provisions of Rule 145(d)(2) are then
available to Holder, (ii) two (2) years shall have elapsed from the
date Holder acquired the Parent Common Stock received in the Merger and the
provisions of Rule 145(d)(3) are then available to Holder, or (iii) Parent
has received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Parent, or a “no
action” letter obtained by Holder from the staff of the SEC, to the
effect that the restrictions imposed by Rule 145 under the Securities Act
no longer apply to Holder. For as long as resale of any shares of Parent Common
Stock owned by Holder are subject to Rule 145, Parent will use its
reasonable efforts to make all filings of the nature specified in paragraph (c)(1) of
Rule 144 under the Securities Act. Upon receipt of a properly completed
Declaration, Parent shall use its reasonable efforts to instruct its transfer
agent to deliver shares of Parent Common Stock without the legend set forth in Section 2(b)(iv) above
in accordance with the terms of the transfer set forth in the Declaration as
soon as practicable following receipt of such Declaration.


 


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


 


4.
Representations, Warranties and Covenants of Holder.


 


Holder
hereby represents, warrants and covenants to Parent that Holder (i) is the
registered owner and, as set forth on the signature page, beneficial owner, of
the Shares and Options to purchase Company Common Stock, if any, indicated
below Holder’s signature on the signature page to this Agreement, and (ii) is
not the registered owner of any shares, options or other securities in, or
convertible into, share capital of the Company, other than the Shares and the
Options to purchase Company Common Stock, if any, indicated below Holder’s
signature on the last page of this Agreement. Holder has the legal
capacity, power and authority to enter into and perform all of Holder’s
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by Holder and constitutes a valid and binding agreement
of Holder, enforceable against Holder in accordance with its terms, subject to (a) laws
of general


 


4





















 


application relating to
bankruptcy, insolvency and the relief of debtors and (b) rules of law
governing specific performance, injunctive relief and other equitable remedies.


 


5.
Further Assurances


 


Holder
shall perform such further acts and execute such further documents and
instruments as may reasonably be required to vest in Parent the power to carry
out and give effect to the provisions of this Agreement.


 


6.
Fiduciary Duties


 


Notwithstanding
anything in this Agreement to the contrary: (i) Holder makes no agreement
or understanding herein in any capacity other than in Holder’s capacity as a
registered owner of the Shares and, to the extent applicable, any New Shares, (ii) nothing
in this Agreement shall be construed to limit or affect any action or inaction
by Holder, or any officer, partner, member or employee, as applicable, of
Holder, serving on the Company’s Board of Directors acting in such person’s
capacity as a director or fiduciary of the Company, and (iii) Holder shall
have no liability to Parent or any its affiliates under this Agreement as a
result of any action or inaction by Holder, or any officer, partner, member or
employee, as applicable, of Holder, serving on the Company’s Board of Directors
acting 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 be
amended or waived with the written consent of the parties or their respective
successors and assigns. Any amendment or waiver effected in accordance with
this Section 7(a) shall be binding upon the parties and their
respective successors and assigns.


 


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


 


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


 


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


 


(e) Notices. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received (i) when
delivered by hand; (ii) on the day sent by facsimile, provided that the
sender 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 day
after sent by facsimile (to the extent that (A) the sender has received
confirmation of transmission after 5:00 p.m. local time of the recipient
on the day sent by facsimile, or (B) notice is sent on a day that is not a
business day); or (iv) the third business day after sent by registered
mail or by courier or express delivery service, in each case to the address or
facsimile number set forth on the signature page to this Agreement beneath
the name of such party, or to such


 


5





















 


other
address or facsimile number as such party shall have specified in a written
notice given to the other party hereto).


 


(f) Severability. If one or more provisions of this Agreement are
held to be invalid or unenforceable under the applicable law of any
jurisdiction, the parties agree to renegotiate such provision in good faith, in
order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable. In the event that
the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this
Agreement, (ii) the balance of the Agreement shall be interpreted as if
such provision were so excluded and (iii) the balance of the Agreement
shall be valid and enforceable in accordance with its terms. Each provision of
this Agreement is separable from any other provisions of this Agreement, and
each part of each provision of this Agreement is severable from every other
part of such provision.


 


(g) Specific Performance. Each of the parties hereto recognizes
and acknowledges that a breach of any covenants or agreements contained in this
Agreement will cause Parent to sustain damages for which it would not have an
adequate remedy at law for money damages, and therefore each of the parties
hereto agrees that in the event of any such breach Parent shall be entitled to
the remedy of specific performance of such covenants and agreements and
injunctive and other equitable relief in addition to any other remedy to which
they may be entitled, at law or in equity.


 


(h) Disclosure. Holder hereby agrees to permit Parent and the
Company to publish and disclose in the Registration Statement (including all
documents and schedules filed with the SEC) and the Proxy Statement/Prospectus,
and in any press release or other disclosure document in which Parent or the
Company reasonably determines in its good faith judgment that such disclosure
is required by law, including the rules and regulations of the SEC, as
appropriate, in connection with the Merger and any transactions related
thereto, such Holder’s identity and ownership of the Shares and New Shares and
the nature of the commitments, arrangements and undertakings under this
Agreement.


 


(i) Assignment.  This
Agreement shall not be assigned without the prior written consent of the other
party hereto, except as provided in (j).


 


(j) Entire Agreement, etc. This Agreement (i) constitutes the
entire agreement, and supersedes all other prior agreements, understandings,
representations and warranties both written and oral among the parties with
respect to the subject matter hereof, and (ii) shall not be transferable
or assignable by operation 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 any of its rights and obligations hereunder to any of its
subsidiaries or to any other entity which may acquire all or substantially all
of the assets, shares or business of the Parent or any of its subsidiaries or
any entity with or into which the Parent or any of its subsidiaries may be
consolidated or merged.


 


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


 


6





















 


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


 


SIGNATURE


 


The
parties have caused this Lock-up Agreement to be duly executed on the date
first 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

  	
   

  	
   

  



 


7





















 


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 or
more outstanding options to purchase shares of Company Common Stock granted to
you under the Company’s 1995 Stock Option Plan or the Company’s Army, Inc.
2005 Equity Incentive Plan (collectively, the “Company
Stock Option Plans”). Pursuant to the Merger Agreement, on the
Effective Date, Parent assumed all obligations of Company under your
outstanding option (or options as listed below). This Option Assumption
Agreement (the “Agreement”) evidences the terms of Parent’s assumption of an
option (or options) to purchase Company Common Stock granted to you under the
Company Stock Option Plans (the “Company Option”), and documented by a stock
option agreement (or stock option agreements) and any amendment(s) entered into
by and between you and Company (the “Option Agreement(s)”), including the
necessary adjustments for assumption of the Company Option(s) that are required
by the Acquisition.


 


Terms
used herein and not defined herein shall have the meaning set forth in the
Merger Agreement.


 


The table below summarizes
your Company Option(s) immediately before the Acquisition and your Assumed
Company 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»

  
													



 


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


 


1





















 


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


 


All
references in the Option Agreement(s) and the Company Stock Option Plans
relating to your status as an employee of Company will now be deemed to refer
to your status as an employee of Parent or any present or future Parent
subsidiary.


 


The
expiration date of your assumed Company Option(s) remain the same as set forth
in the Option Agreement(s), but the number of shares subject to each vesting
installment and the exercise price per share have been adjusted to reflect the
effect of the Acquisition. All other provisions which govern either the
exercise or the termination of your assumed Company Option(s) remain the same
as set forth in the Option Agreement(s), and the provisions of the Option
Agreement(s) (except as expressly modified by this Agreement and the
Acquisition) will govern and control your rights under this Agreement to
purchase shares of Parent Common Stock. Upon termination of your employment
with Parent you will have the limited post-termination exercise period
specified in your Option Agreement(s) for your assumed Company Option(s) to the
extent vested and outstanding at the time of termination after which time your
assumed Company Option(s) will expire and NOT be exercisable for Parent Common
Stock.


 


Nothing
in this Agreement or the Option Agreement(s) interferes in any way with your
right and Parent’s right, which rights are expressly reserved, to terminate
your employment at any time for any reason. Future options, if any, you may
receive from Parent will be governed by the terms of the Parent stock option
plan under which such options are granted, and such terms may be different from
the terms of your assumed Company Option(s), including, but not limited to, the
time period in which you have to exercise vested options after your termination
of employment.


 


Please sign and date this
Option Assumption Agreement and, by [date], return it to Marines Corporation at
the following address:


 


	
  Marines Corporation

  
	
  Attn: Administration

  
	
  Address

  
	
  Telephone:

  
	
  Fax:

  
	
  Email:

  



 


 


(SIGNATURE PAGE FOLLOWS)


 


2





















 


SIGNATURE


 


Until
your fully executed Acknowledgment (attached to this Agreement) is received by
Marines Corporation’s Stock Administration Department your Parent account will
not be activated. If you have any questions regarding this Agreement or your
assumed Company Option(s), please contact                   at
(      )                 .


 


	
  Marines Corporation

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
   

  	
   

  
	
  Email:

  	
   

  	
   

  	
   

  
										



 


 


(ACKNOWLEDGMENT PAGE FOLLOWS)


 


3





















 


ACKNOWLEDGMENT


 


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


 


	
  Dated:

  	
   

  	
  , 2005

  



 


	
  OPTIONEE

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
   

  	
   

  
	
  Telephone:

  	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
   

  	
   

  
	
  Email: