Document:

Exhibit
10.12

 

AML
COMMUNICATIONS, INC.

 

FOURTH
AMENDED AND RESTATED 1995 STOCK

 

INCENTIVE
PLAN AS AMENDED AND RESTATED

 

JUNE 10,
2002

 

 

SECTION 1.  PURPOSE OF PLAN

 

This Amended and Restated Stock Incentive Plan (this “Plan”) is
intended to serve as an incentive to, and to encourage stock ownership by,
certain directors, officers and other persons employed by AML Communications,
Inc., a Delaware corporation (the “Company”), so that they may acquire or
increase their proprietary interests in the success of the Company and to
encourage them to remain in the Company’s service.

 

SECTION 2.  PERSONS ELIGIBLE UNDER PLAN

 

Any person, including any director of the Company, who is an employee
of or consultant to the Company or any of its subsidiaries (an “Employee”) and
any director of the Company who is not an Employee (a “Nonemployee Director”)
shall be eligible to be considered for the grant of options hereunder (each an
“Option”); provided that only persons who are employees of the Company shall be
eligible to be considered for the grant of “Incentive Stock Options” (as
defined herein).

 

SECTION 3.  OPTIONS

 

(a)          The
Committee (as hereinafter defined), on behalf of the Company, is authorized
under this Plan to enter into any type of arrangement with an Employee or a
Nonemployee Director that is not inconsistent with the provisions of this Plan
and that, by its terms, involves or might involve the issuance of
(I) shares of Common Stock, par value $.01 per share, of the Company
(“Common Shares”) or (ii) a Derivative Security (as such term is defined
in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), as such Rule may be amended from time to time)
with an exercise or conversion privilege at a price related to the Common Shares
or with a value derived from the value of the Common Shares.  The entering into of any such arrangement is
referred to herein as the “grant” of an Option.

 

(b)         Common
Shares may be issued pursuant to an Option for any lawful consideration as
determined by the Committee, including, without limitation, services rendered
by the recipient of such Option.

 

(c)          Subject
to the provisions of this Plan, the Committee, in its sole and absolute
discretion, shall determine all of the terms and conditions of each Option
granted under this Plan, which terms and conditions may include, among other
things:

 

(i)                                     a provision
permitting the recipient of such Option, including any recipient who is a
director or officer of the Company, to pay the purchase price of the Common
Shares or other property issuable pursuant to such Option, and/or such
recipient’s tax withholding obligation with respect to such issuance, in whole
or in part, by any one or more of the following:

 

 

(A)                              the delivery of
previously owned shares of capital stock of the Company (including
“pyramiding”) or other property, provided that the Company is not then
prohibited from purchasing or acquiring shares of its capital stock or such
other property,

 

(B)                                a reduction in the
amount of Common Shares or other property otherwise issuable pursuant to such
Option, or

 

(C)                                the delivery of cash or
a promissory note, the terms and conditions of which shall be determined by the
Committee;

 

(ii)                                  a provision
conditioning or accelerating the receipt of benefits pursuant to such Option,
either automatically or in the discretion of the Committee, upon the occurrence
of specified events, including, without limitation, a change of control of the
Company, an acquisition of a specified percentage of the voting power of the Company,
the dissolution or liquidation of the Company, a sale of substantially all of
the property and assets of the Company or an event of the type described in
Section 7 hereof; or

 

(iii)                               any provisions required
in order for such Option to qualify (A) as an incentive stock option (an
“Incentive Stock Option”) under Section 422 of the Internal Revenue Code
of 1986, as amended from (the “Code”), provided that the recipient of such
Option is eligible under the Code to receive an Incentive Stock Option and/or
(B) as performance based compensation described in Section 162(m) of the
Code (“Performance-Based Compensation”).

 

(d)         Notwithstanding
any other provision of this Plan, no Employee shall be granted Options for in
excess of 300,000 shares of Common Stock and no Nonemployee Director shall be
granted Options in excess of 50,000 shares of Common Stock during any one
calendar year.  The limitation set forth
in this Section 3(d) shall be subject to adjustment as provided in
Section 7 hereof, but only to the extent such adjustment would not affect
the status of compensation attributable to Options hereunder as
Performance-Based Compensation.

 

SECTION 4.  STOCK SUBJECT TO PLAN

 

(a)          The
aggregate number of Common Shares that may be issued pursuant to all Incentive
Stock Options granted under this Plan shall not exceed 3,000,000, subject to
adjustment as provided in Section 7 hereof.

 

(b)         The
aggregate number of Common Shares issued and issuable pursuant to all Options
(including Incentive Stock Options) granted under this Plan shall not exceed
3,000,000, subject to adjustment as provided in Section 7 hereof.

 

(c)          For
purposes of Section 4(b) hereof, the aggregate number of Common Shares
issued and issuable pursuant to all Options granted under this Plan shall at
any time be deemed to be equal to the sum of the following:

 

(i)                                     the number of
Common Shares that were issued prior to such time pursuant to Options granted
under this Plan, other than Common Shares that were subsequently reacquired

 

 

by the Company pursuant to the terms and conditions of such Options and
with respect to which the holder thereof received no benefits of ownership such
as dividends; plus

 

(ii)                                  the number of Common
Shares that were otherwise issuable prior to such time pursuant to Options
granted under this Plan, but that were withheld by the Company as payment of
the purchase price of the Common Shares issued pursuant to such Options or as
payment of the recipient’s tax withholding obligation with respect to such
issuance; plus

 

(iii)                               the maximum number of
Common Shares issuable at or after such time pursuant to Options granted under
this Plan prior to such time.

 

(d)         The
“Fair Market Value” of a Common Share or other security on any date (the
“Determination Date”) shall be equal to the closing price per Common Share or
unit of such other security on the business day immediately preceding the
Determination Date, as reported in The Wall Street Journal, Western Edition,
or, if no closing price was so reported for such immediately preceding business
day, the closing price for the next preceding business day for which a closing
price was so reported, or, if no closing price was so reported for any of the
30 business days immediately preceding the Determination Date, the average of
the high bid and low asked prices per Common Share or unit of such other
security on the business day immediately preceding the Determination Date in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System (“NASDAQ”) or such other
system then in use, or, if the Common Shares or such other security were not
quoted by any such organization on such immediately preceding business day, the
average of the closing bid and asked prices on such day as furnished by a professional
market maker making a market in the Common Shares or such other security
selected by the Board.

 

SECTION 5.  DURATION OF PLAN

 

Options shall not be granted under this Plan after November 1,
2006.  Although Common Shares may be
issued on or after November 1, 2006 pursuant to Options granted prior to
such date, no Common Shares shall be issued under this Plan after
October 31, 2016.

 

SECTION 6.  ADMINISTRATION OF PLAN

 

(a)          This
Plan shall be administered by a committee (the “Committee”) of the Board
consisting of two or more directors, each of whom is a “non-employee director”
(as such term is defined in Rule 16b-3 promulgated under the Exchange Act, as
such Rule may be amended from time to time); provided, however,
that in the event the Committee is not comprised of two or more “non-employee
directors,” then (i) the Committee shall only be authorized and empowered
to recommend to the Board all things necessary or desirable in connection with
the administration of this Plan, including, without limitation, the things
listed in Section 6, (ii) all recommendations of the Committee
relating to this Plan shall be subject to final approval by the Board and
(iii) all references herein to the Committee shall be deemed to refer to
the Board; provided  further, that unless otherwise determined by
the Board, with respect to any Option that is intended to qualify as
Performance-Based Compensation, the Plan shall be administered by a committee
consisting of two or more directors, each of whom is an “outside director” (as
such term is defined under Section 162(m) of the Code).

 

(b)         Subject
to the provisions of this Plan, the Committee shall be authorized and empowered
to do all things necessary or desirable in connection with the administration
of this Plan, including, without limitation, the following:

 

(i)                                     adopt, amend and
rescind rules and regulations relating to this Plan;

 

 

(ii)                                  determine which
persons are Employees and to which of such Employees, if any, Options shall be
granted hereunder;

 

(iii)                               grant Options to
Employees and Nonemployee Directors (provided that Nonemployee Directors shall
not be eligible to be considered for the grant of Incentive Stock Options) and
determine the terms and conditions thereof, including (A) the number of
Common Shares issuable pursuant thereto and (B) the exercise price for any
Option, provided that the exercise price of any option to purchase Common
Shares shall not be less than the Fair Market Value of a Common Share on the
date such option is granted, except that (1) the Committee may
specifically provide that the exercise price of any such option may be higher
or lower in the case of an option granted at the time an Employee commences
employment with the Company in assumption and substitution of options issued by
another company that are forfeited or cancelled at the time the Employee
commences employment with the Company, and (2) in the event an Employee is
required to pay or forego the receipt of any cash amount in consideration of
receipt of an option, the exercise price plus such cash amount shall equal or
exceed 100% of the Fair Market Value of a Common Share on the date the option
is granted;

 

(iv)                              determine whether, and
the extent to which, adjustments are required pursuant to Section 7
hereof; and

 

(v)                                 interpret and construe
this Plan and the terms and conditions of all Options granted hereunder.

 

SECTION 7.  ADJUSTMENTS

 

If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee may make appropriate and proportionate adjustments in (a) the
number and type of shares or other securities or cash or other property that
may be acquired pursuant to Options theretofore granted under this Plan,
(b) the maximum number and type of shares or other securities that may be
issued pursuant to Incentive Stock and other Options thereafter granted under
this Plan, and (c) to the extent permitted under Section 3(e) hereof,
the maximum number of Common Shares for which options may be granted during any
one calendar year; provided, however, that no adjustment shall be
made under this Section 7 to the number of Common Shares that may be
acquired pursuant to outstanding Incentive Stock Options or the maximum number
of Common Shares with respect to which Incentive Stock Options may be granted
under this Plan to the extent such adjustment would result in such options
being treated as other than Incentive Stock Options; provided further that no
such adjustment shall be made to the extent the Committee determines that such
adjustment would result in the disallowance of a federal income tax deduction
for compensation attributable to Options hereunder by causing such compensation
to be other than Performance-Based Compensation.

 

SECTION 8.  AMENDMENT AND TERMINATION OF PLAN

 

The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination
shall deprive the recipient of any Option theretofore granted under this Plan,
without the consent of such recipient, of any of his or her rights thereunder
or with respect thereto.

 

 

SECTION 9.  EFFECTIVE DATE OF PLAN

 

The Stock Incentive Plan became effective on November 3,
1995.  The amendments to the Stock
Incentive Plan reflected in this Amended and Restated Stock Incentive Plan
shall be effective as of June  10, 2002, the date upon which it was
approved by the Board; provided, however, that no Options may be granted nor
may Common Shares be issued under this Amended and Restated Stock Incentive
Plan until it has been approved, directly or indirectly, by (a) the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware or (b) the written consent of
the holders of a majority of the securities of the Company entitled to vote.EXHIBIT
10.13

 

MERGER AGREEMENT

 

 

by and among

 

 

AML Communications, Inc.,

a Delaware corporation,

 

and

 

AML Holdings, LLC

a California limited liability company

 

on the one hand;

 

and

 

Microwave Power, Inc.,

a California corporation

 

on the other hand.

 

 

 

May 25, 2004

 

 

TABLE OF CONTENTS

 

	
  1.
  Definitions.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  2. Basic Transaction.

  	
   

  	
   

  
	
  3. The Merger.

  	
   

  	
   

  
	
  4. The Closing.

  	
   

  	
   

  
	
  5. Actions at the Closing.

  	
   

  	
   

  
	
  6. Effect of Merger.

  	
   

  	
   

  
	
  9. Procedure for Payment.

  	
   

  	
   

  
	
  10. Closing of Transfer Records.

  	
   

  	
   

  
	
  (g) Withholding Taxes

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  11. Representations and Warranties of the
  Target.

  	
   

  	
   

  
	
  12. Organization, Qualification, and
  Corporate Power.

  	
   

  	
   

  
	
  13. Capitalization.

  	
   

  	
   

  
	
  14. Authorization of Transaction.

  	
   

  	
   

  
	
  15. Noncontravention.

  	
   

  	
   

  
	
  16. Preferred Shareholders.

  	
   

  	
   

  
	
  17. Financial Statements.

  	
   

  	
   

  
	
  18. Events Subsequent to Target Financial
  Statements.

  	
   

  	
   

  
	
  19. Brokers’ Fees.

  	
   

  	
   

  
	
  20. Title to Property; Encumbrances.

  	
   

  	
   

  
	
  25. Inventory and Accounts Receivable.

  	
   

  	
   

  
	
  28. Compliance with Law.

  	
   

  	
   

  
	
  29. Trademarks, Patents, License Agreements, Etc.

  	
   

  	
   

  
	
  34. Banking and Insurance.

  	
   

  	
   

  
	
  35. Indebtedness.

  	
   

  	
   

  
	
  36. Judgments; Litigation.

  	
   

  	
   

  
	
  39. Income and Other Taxes.

  	
   

  	
   

  
	
  45. Corporate Records.

  	
   

  	
   

  
	
  46. No Undisclosed Liabilities.

  	
   

  	
   

  
	
  47. Permits, Licenses, Etc.

  	
   

  	
   

  
	
  48. Regulatory Filings.

  	
   

  	
   

  
	
  49. Material Contracts; No Defaults.

  	
   

  	
   

  
	
  56. Absence of Certain Changes.

  	
   

  	
   

  
	
  57. Employees and Labor Matters.

  	
   

  	
   

  
	
  61. Hazardous Materials.

  	
   

  	
   

  
	
  67. Disclosure.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  68. Representations and Warranties of the
  Buyer and the Transitory Subsidiary.

  	
   

  	
   

  
	
  69. Organization.

  	
   

  	
   

  
	
  70. Authority to Execute and Perform
  Agreements.

  	
   

  	
   

  
	
  71. Noncontravention.

  	
   

  	
   

  
	
  72. Brokers’ Fees.

  	
   

  	
   

  

 

i

 

	
  73. SEC Documents.

  	
   

  	
   

  
	
  74. Disclosure.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  75.
  Covenants.

  	
   

  	
   

  
	
  76. General.

  	
   

  	
   

  
	
  77. Notices and Consents.

  	
   

  	
   

  
	
  78. Regulatory Matters and Approvals.

  	
   

  	
   

  
	
  79. Operation of Business.

  	
   

  	
   

  
	
  87. Full Access.

  	
   

  	
   

  
	
  88. Notification; Update to Disclosure
  Schedule.

  	
   

  	
   

  
	
  89. Delivery of Final Balance Sheet.

  	
   

  	
   

  
	
  90. Exclusivity.

  	
   

  	
   

  
	
  91. Indemnification.

  	
   

  	
   

  
	
  (j) 
  Share Duly Authorized

  	
   

  	
   

  
	
  (k) California Franchise Tax Clearance

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  95. Conditions to Obligation to Close.

  	
   

  	
   

  
	
  96. Conditions to Obligation of the Buyer
  and the Transitory Subsidiary.

  	
   

  	
   

  
	
  108. Conditions to Obligation of the
  Target.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  113.
  Termination.

  	
   

  	
   

  
	
  114. Termination of Agreement.

  	
   

  	
   

  
	
  119. Effect of Termination.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  120. Registration of Shares.

  	
   

  	
   

  
	
  121. Registration Statement.

  	
   

  	
   

  
	
  122. Continuing Effectiveness.

  	
   

  	
   

  
	
  125. Copies of Registration Statement and
  Related Documents.

  	
   

  	
   

  
	
  126. Blue Sky Laws.

  	
   

  	
   

  
	
  127. Expenses.

  	
   

  	
   

  
	
  128. Indemnification.

  	
   

  	
   

  
	
  133. Rule 144 Reporting.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  137.
  Miscellaneous.

  	
   

  	
   

  
	
  138. Survival.

  	
   

  	
   

  
	
  139. Press Releases and Public Announcements.

  	
   

  	
   

  
	
  140. No Third-Party Beneficiaries.

  	
   

  	
   

  
	
  141. Entire Agreement.

  	
   

  	
   

  
	
  142. Succession and Assignment.

  	
   

  	
   

  
	
  143. Counterparts.

  	
   

  	
   

  
	
  144. Headings.

  	
   

  	
   

  
	
  145. Notices.

  	
   

  	
   

  
	
  147. Amendments and Waivers.

  	
   

  	
   

  
	
  148. Severability.

  	
   

  	
   

  
	
  149. Expenses.

  	
   

  	
   

  
	
  150. Construction.

  	
   

  	
   

  
	
  151. Incorporation of Exhibits and Schedules.

  	
   

  	
   

  

 

ii

 

	
  152. Facsimile Signatures.

  	
   

  	
   

  
	
  153. Attorneys Fees.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A— Certificate of Merger

  	
   

  	
   

  
	
  Exhibit B—Form of Letter of Transmittal

  	
   

  	
   

  
	
  Exhibit C—Form of Employment Agreement

  	
   

  	
   

  
	
  Exhibit D—Form of Interim Lease and Proposal

  	
   

  	
   

  
	
  Disclosure Schedule—Exceptions to Representations and Warranties

  	
   

  	
   

  

 

iii

 

MERGER AGREEMENT

 

Agreement entered into as of May 25, 2004, by and among AML
Communications, Inc., a Delaware corporation (the “Buyer”), AML
Holdings, LLC, a California limited liability company and a wholly-owned
Subsidiary of the Buyer (the “Transitory Subsidiary”), and Microwave
Power, Inc., a California corporation (the “Target”).  The Buyer, the Transitory Subsidiary, and
the Target are referred to collectively herein as the “Parties.”  Dr. Marina Bujatti and Dr. Franco Sechi,
both shareholders of Target, are signatories to this Agreement solely to make
certain indemnifications as set forth in Section 5(i) below.

 

This Agreement contemplates a transaction in which the Buyer will
acquire all of the outstanding capital stock of the Target for stock through a
forward subsidiary merger of the Target into the Transitory Subsidiary.

 

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

 

1.                                      Definitions.

 

“Affiliate” has the meaning set forth in Rule
12b-2 of the regulations promulgated under the Securities Exchange Act.

 

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

 

“Certificate of Merger” has the meaning set
forth in §2(c) below.

 

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

 

“Closing Date” has the meaning set forth in
§2(b) below.

 

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

 

“Disclosure Schedule” has the meaning set
forth in §3 and §4 below.

 

“Dissenting Share” means any shares held by
Target stockholder who or which has exercised his or its appraisal rights under
the California Corporations Code.

 

“Effective Time” has the meaning set forth in
§2(d)(i) below.

 

“Environmental Laws” shall mean all Legal
Requirements pertaining to the protection of the environment, the treatment,
emission and discharge of gaseous, particulate and effluent pollutants and the
use, handling, storage, treatment, removal, transport, transloading, cleanup,
decontamination, discharge and disposal of Hazardous Material.

 

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

 

“Governmental Entity” shall mean any local,
state, federal or foreign (i) court, (ii) government or (iii) governmental
department, commission, instrumentality, board, agency or authority, including
the IRS and other taxing authorities.

 

“Hazardous Material” shall mean any flammable,
ignitable, corrosive, reactive, radioactive or explosive substance or material,
hazardous waste, toxic substance or related material and any other substance or
material defined or designated as a hazardous or toxic substance, material or
waste by any Environmental Law currently in effect or as amended or promulgated
in the future.

 

“Indebtedness” of any Person means all obligations of such
Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures
or similar instruments, (iii) for the deferred purchase price of goods or
services (other than trade payables or accruals incurred in the ordinary course
of business), (iv) under capital leases, and (v) in the nature of
guarantees of the obligations described in clauses (i) through
(iv) above of any other Person.

 

“Knowledge” as used in §§3 and 4 hereof, the
phrases “to the knowledge of”, “known”, “aware” and similar phrases of the
Target, the Buyer or the Transitory Subsidiary shall mean the “knowledge” (as
defined below) of Dr. Marina Bujatti and Dr. Franco Sechi,
in the case of the Target, or of the “executive officers” (as such term is
defined in Rule 3b-7 under the Exchange Act) of each of the Buyer or the
Transitory Subsidiary.  For purposes of
the preceding sentence, “knowledge” with respect to conduct, a fact or
circumstance, or a result, means knowing or being aware that a person is
engaging in conduct, that a fact or circumstance exists, or that a result is
substantially certain to occur; having a firm belief that a fact or
circumstance exists or that a result is substantially likely to occur; or being
aware of a high probability of the existence of a fact or circumstance, unless
the person actually believes that the fact or circumstance does not exist; and
“knowledge” may be deemed to exist if a person consciously or willfully
disregards the existence of conduct, a fact or circumstance, or the likelihood
of a result.

 

“Legal Requirement” shall mean any statute,
law, ordinance, rule, regulation, permit, order, writ, judgment, injunction,
decree or award issued, enacted or promulgated by any Governmental Entity or
any arbitrator.

 

“Lien” shall mean all liens (including
judgment and mechanics’ liens, regardless of whether liquidated), mortgages,
assessments, security interests, easements, claims, pledges, trusts
(constructive or other), deeds of trust, options or other charges, encumbrances
or restrictions.

 

“Material Adverse Effect” As used in this
Agreement, the phrase “Material Adverse Effect” or “Material Adverse Change”

 

1

 

shall mean any effect or change that is materially adverse to the
business, assets, financial condition or results of operations of the Target or
Buyer (as the context requires), whether or not covered by insurance, other
than:

 

(a)                                  adverse
effects resulting from compliance with this Agreement;

 

(b)                                 adverse
changes in the global economy, the U.S. economy or other economies in which the
Target operates;

 

(c)                                  adverse
changes in the industry in which the Target operates;

 

(d)                                 changes
attributable to the impact of the Merger or this Agreement on customers,
suppliers or employees;

 

(e)                                  changes
attributable to changes in legal, regulatory or business conditions; and

 

(f)                                    changes
attributable to actions taken by Buyer to fulfill its obligations under this
Agreement.

 

“Merger” has the meaning set forth in §2(a)
below.

 

“Merger Consideration” has the meaning set
forth in §2(d)(ii) below.

 

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

 

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

 

“Permitted Lien” means (i) any Lien for Taxes not yet due
or delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP,
(ii) any statutory Lien arising in the Ordinary Course of Business by
operation of law with respect to a liability that is not yet due or delinquent
and (iii) any minor imperfection of title or similar Lien which
individually or in the aggregate with other such Liens does not materially
impair the value of the property subject to such Lien or the use of such
property in the conduct of a business.

 

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

 

“Registered Rights” means all patents, patent
applications, trade names, logos, trademarks, service marks, trademark and
service mark registrations and applications, copyrights, copyright
registrations and applications, Internet domain names, 1-800 and 1-888
telephone numbers used by the Target in the conduct of its business, whether
registered or not.

 

“Registration Statement” has the meaning set
forth in §8(a) below.

 

“Requisite Stockholder Approval” means the
affirmative vote of the holders of a majority of the Target Shares in favor of
this Agreement and the Merger.

 

“SEC” means the Securities and Exchange
Commission.

 

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

 

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

 

“Security Interest” means any mortgage,
pledge, lien, encumbrance, charge, or other security interest, other than
(a) mechanic’s, materialman’s, and similar liens, (b) liens for taxes not yet
due and payable or for taxes that the taxpayer is contesting in good faith
through appropriate proceedings, (c) purchase money liens and liens securing
rental payments under capital lease arrangements, and (d) other liens arising
in the Ordinary Course of Business and not incurred in connection with the borrowing
of money.

 

“Surviving Entity” has the meaning set forth
in §2(a) below.

 

“Tax” shall mean any federal, state, local or
foreign income, gross receipts, license, payroll, unemployment, excise,
severance, stamp, occupation, premium, windfall profits, environmental, customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), employment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated tax
or other tax, assessment or charge of any kind whatsoever, including, without
limitation, any interest, fine penalty or addition thereto, whether disputed or
not.

 

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

 

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

 

“Target Share” means any share of the Common
Stock of the Target.

 

“Target Stockholder” means any Person who or
which holds any Target Shares.

 

“Transitory Subsidiary” has the meaning set
forth in the preface above.

 

2.                                      Basic Transaction.

 

3.                                      The Merger.  On and subject to the terms and conditions of
this Agreement, the Target will merge with and into the Transitory Subsidiary
(the “Merger”) at the Effective Time. The Transitory Subsidiary shall be
the entity surviving the Merger (the “Surviving Entity”).

 

4.                                      The Closing.  The closing of the transactions contemplated
by this Agreement (the “Closing”) shall take place at a mutually agreed
place, commencing at 9:00 a.m. local time on the business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Parties may mutually

 

2

 

determine (the “Closing Date”); provided, however, that
the Closing Date shall be no later than June 7, 2004.

 

5.                                      Actions at the Closing.  At the Closing, (i) the Target will deliver
to the Buyer and the Transitory Subsidiary the various certificates,
instruments, and documents referred to in §6(a) below, (ii) the Buyer and the
Transitory Subsidiary will deliver to the Target the various certificates,
instruments, and documents referred to in §6(b) below, and (iii) the Target and
the Transitory Subsidiary will file with the Secretary of State of the State of
California a Certificate of Merger in the form attached hereto as Exhibit A
(the “Certificate of Merger”).

 

6.                                      Effect of Merger.

 

7.                                      General.
The Merger shall become effective at the time (the “Effective Time”) the Target
and the Transitory Subsidiary file the Certificate of Merger with the Secretary
of State of the State of California. The Merger shall have the effect set forth
in the California Corporations Code. The Surviving Entity may, at any time
after the Effective Time, take any action (including executing and delivering any
document) in the name and on behalf of either the Target or the Transitory
Subsidiary in order to carry out and effectuate the transactions contemplated
by this Agreement.

 

8.                                      Conversion
of Target Shares. At and as of the Effective Time:  (A) each Target Share (other than any Dissenting Share) shall be
converted into the right to receive 0.2906 shares of the Buyer Common Stock;
(B) each Target Shareholder shall receive one share of Microwave Holdings, LLC,
a California limited company, for each Target Share owned immediately prior to
the Effective Time (collectively, the “Merger Consideration”); and (C) each
Dissenting Share shall be converted into the right to receive payment from the
Surviving Entity or the Buyer with respect thereto in accordance with the
provisions of the California Corporations Code.  No Target Share shall be deemed to be outstanding or to have any
rights other than those set forth above in this §2(d)(ii) after the Effective
Time.

 

9.                                      Procedure for Payment.  Immediately
after the Effective Time, the Buyer having heretofore authorized the issuance
of 2,117,362 shares of its common stock for delivery pursuant to
§ 2(d)(ii), will mail a letter of transmittal (with instructions for its
use) in the form attached hereto as Exhibit C to each record holder of
outstanding Target Shares for the holder to use in surrendering the
certificates which represented his or its Target Shares against payment of the
Merger Consideration.

 

10.                               Closing of Transfer Records.  After
the close of business on the Closing Date, transfers of Target Shares
outstanding prior to the Effective Time shall not be made on the transfer books
of the Surviving Entity.

 

(g)                                 Withholding Taxes. 
Buyer shall withhold an amount of Merger Consideration (the “Withheld
Shares”) from F.E.I., an Italian company (“FEI”) equal to the amount required
by Buyer to withhold (the “Withholding Amount”) pursuant to applicable sections
of the Internal Revenue Code of 1986, as amended, or Treasury Regulations
promulgated thereunder with respect to the transfer of interests in Microwave
Holdings, LLC to FEI.  Buyer shall
transfer such Withheld Shares to FEI if FEI forwards to Buyer the Withholding
Amount within 30 days after the Closing.

 

11.                               Representations and Warranties of the
Target.  The
Target represents and warrants to the Buyer and the Transitory Subsidiary that
the statements contained in this §3 are correct and complete as of the date of
this Agreement, except as set forth in the disclosure
schedule accompanying this Agreement (the “Disclosure Schedule”).
The Disclosure Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this §3.

 

12.                               Organization, Qualification, and
Corporate Power.  Target is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation.  Target is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required except for such failures to qualify
as do not have a Material Adverse Effect. Target has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.

 

13.                               Capitalization.  At
the Effective Time, the entire authorized capital stock of the Target will
consist of 20,000,000 Target Shares, of which 7,285,300 Target Shares will be
issued and outstanding, 3,460,000 Series A Preferred Shares and 1,540,000
Series B Preferred Shares, none of which will be outstanding.  At the Effective Time all of the issued and
outstanding Target Shares will be duly authorized and validly issued, fully
paid, and nonassessable, there will be no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Target to
issue, sell, or otherwise cause to become outstanding any of its capital stock,
and there will be no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the Target.

 

14.                               Authorization of Transaction.  The
Target has full power and authority (including full corporate power and
authority) to execute and deliver this Agreement and to perform its obligations
hereunder; provided, however, that the

 

3

 

Target cannot consummate the Merger unless and until it receives the
Requisite Stockholder Approval. This Agreement constitutes the valid and
legally binding obligation of the Target, enforceable in accordance with its
terms and conditions, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors’ rights and to general principles of equity.

 

15.                               Noncontravention. 
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Target is subject or any provision of the charter or bylaws
of the Target or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Target is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets).  Other than in connection with
the provisions of the Hart-Scott-Rodino Act, the California Corporations Code,
the Securities Exchange Act, the Securities Act, and the state securities laws,
the Target need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.

 

16.                               Preferred Shareholders.  All appropriate approvals and consents have been received from
the Series A Preferred Shares and the Series B Preferred Shares (the “Preferred
Stockholders”) in accordance with the Target’s Articles of Incorporation with
respect to the conversion of their preferred shares into common stock.  Immediately prior to the Effective Time,
Target will not have any obligations (monetary or otherwise) to any Preferred
Stockholders.

 

17.                               Financial Statements.  The Target
has forwarded to the Buyer its balance sheets as of February 20, 2004 and
statements of operations and cash flows for the 12 months ended
February 20, 2004 (collectively, the “Target Financial Statements”).  The Target Financial Statements (including
the related notes and schedules) have not been prepared in accordance with
GAAP, but, except with respect to the lack of accruals for income tax, present
fairly the financial condition of the Target as of the indicated dates and the
results of operations of the Target for the indicated periods, are correct and
complete in all respects, and are consistent with the books and records of the
Target and its Subsidiaries.  The Final
Balance Sheet to be delivered pursuant to §5(h) below will be prepared in the
same manner as the February 20, 2004 balance sheet.

 

18.                               Events Subsequent to Target Financial
Statements.
Since the date of the Target Financial Statements, there has not been any
Material Adverse Change.

 

19.                               Brokers’ Fees.  None
of the Target and its Subsidiaries has any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement other than a finders fee payable to
Reuven Sadeh by the Buyer by the issuance of 21,174 unregistered, restricted
shares of the Buyer’s common stock on the Closing Date.

 

20.                               Title to Property; Encumbrances.

 

21.                               As
of the Effective time, the Target will not own any real property.

 

22.                               The
Target has, and immediately prior to the Closing Date will have, good, valid
and marketable title in fee simple to all personal property reflected on the
Target Financial Statements as owned by the Target and all personal property
acquired by the Target since the Target Financial Statements, in each case free
and clear of all Liens.

 

23.                               All
leases and licenses pursuant to which the Target leases or licenses from others
real or personal property are valid, subsisting in full force and effect in
accordance with their respective terms, and there is not, under any real
property lease, personal property lease or license, any existing default or
event of default (or event that, with notice or passage of time, or both, would
constitute a default, or would constitute a basis of force majeure or other
claim of excusable delay or nonperformance) on the part of the Target.  True and complete copies of all real
property leases, licenses and personal property leases of the Target have been
made available to the Buyer heretofore. 
Except as set forth in the Disclosure Schedule, no such lease or license
will require the consent of the lessor or licensor to or as a result of the
consummation of the transactions contemplated by this Agreement.  For purposes of this Agreement, a “lease”
shall include a sublease.

 

24.                               All
personal property owned by the Target and all personal property held by the
Target pursuant to personal property leases is in good operating condition and
repair, subject only to ordinary wear and tear, has been operated, serviced and
maintained properly within the recommendations and requirements of the
manufacturers thereof (if any) and is suitable and appropriate for the use
thereof made and proposed to be made by the Target in its business and
operations.  The leased real property located
at 3350 Scott Boulevard, Building 25, Santa Clara, California (the “Santa Clara
Property”) comprises all of the leased real property used in the conduct of

 

4

 

business of the Target.  

 

25.                               Inventory and Accounts Receivable.

 

26.                               All
inventory set forth or reflected in the Target Financial Statement, or acquired
by the Target since the Target Financial Statement, consists of a quality and
quantity usable and saleable by the Target in the Ordinary Course of
Business.  The value at which
inventories are carried on the Target Financial Statement reflects the normal
inventory valuation policy of the Target, on a basis consistent with that of
preceding period, of stating inventory at its lower of cost or market value,
and, consistent therewith, all non-current or obsolete inventory held by the
Target as of the Target Financial Statement has been valued at its current
market value on the Target Financial Statement.

 

27.                               All
accounts receivable of the Target reflected in the Target Financial Statement
and all accounts receivable of the Target that have arisen since the date of
the Target Financial Statement (except such accounts receivable as have been
collected since such dates) are, to the knowledge of the Target, valid and
enforceable claims against the account debtor, and the goods and services sold
and delivered that gave rise to such accounts were sold and delivered in
conformity with all applicable express and implied warranties, purchase orders,
agreements and specifications. To the knowledge of the Target, such accounts
receivable of the Target are subject to no valid defense, offset or
counterclaim and, to the knowledge of the Target, are fully collectible within
ninety (90) days after the Closing Date, except to the extent of the allowance
for doubtful accounts reflected on the Target Financial Statement.

 

28.                               Compliance with Law.  Except where it has not had a Material
Adverse Effect, through and including the Closing Date, the Target (i) has not
violated, has not conducted its business or operations in violation of, and has
not used or occupied its properties or assets in violation of, any Legal
Requirement, (ii) has not been alleged to be in violation of any Legal
Requirement, and (iii) has not received any notice of any alleged violation of,
nor any citation for noncompliance with, any Legal Requirement.

 

29.                               Trademarks, Patents, License Agreements, Etc.

 

30.                               True
and complete copies of all documentation related to the Registered Rights have
been delivered to the Buyer heretofore.

 

31.                               Except as described in the Disclosure
Schedule, the Target owns exclusively and has the exclusive and unrestricted
right to use the Registered Rights, and all renewals therefor and claims for
infringement thereof, and every trade secret, know-how, process, discovery,
development, design, technique, customer and supplier list, promotional idea,
marketing and purchasing strategy, computer program (including source code),
technical data, invention, process, confidential data and other information
(collectively herein, “Proprietary Information”) required for or incident to
the design, development, manufacture, operation, sale and use of all products
and services sold or rendered or proposed to be sold or rendered by the Target,
free and clear of any right, equity or claim of others and without infringing
upon or otherwise acting adversely to the right or claimed right of any third
party under or with respect to any of the Proprietary Information.  The Target has taken reasonable security
measures to protect the secrecy, confidentiality and value of all Proprietary
Information.

 

32.                               Except as described in the Disclosure
Schedule, (A) the Target has not sold, transferred, assigned, licensed,
restricted, encumbered or subjected to any Lien, any Registered Rights or
Proprietary Information or any interest therein, and (B) the Target is not
obligated or under any liability whatever to make any payments by way of
royalties, fees or otherwise to any owner or licensor of, or other claimant to,
any Registered Rights or Proprietary Information.  No other Proprietary Information is necessary to permit the
Target’s business to be conducted as now conducted or as heretofore or proposed
to be conducted.  True and complete
copies of all documentation related to the Proprietary Information have been
made available to the Buyer heretofore.

 

33.                               There are no claims or demands of any Person
pertaining to, or any Actions that are pending or threatened, which challenge
the rights of the Target in respect of any Registered Rights or any Proprietary
Information.

 

34.                               Banking and Insurance.  The
Target has no obligation, liability or other commitment relating to any
contract of insurance containing a provision for retrospective rating or
adjustment of the Target’s premium obligation. 
No facts or circumstances exist that would cause the Target to be unable
to renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable as those currently in effect, other than possible
increases in premiums that do not result from any act or omission of the Target
or its shareholders.

 

35.                               Indebtedness.  The
Target has no liability or obligation for Indebtedness other than as set forth
in Target Financial Statements or the Disclosure Schedule, and true and
complete copies of all instruments and documents evidencing, creating, securing
or otherwise relating to such Indebtedness have been made available to the
Buyer heretofore.  No event has occurred
and no condition has become known to the Target (including the transactions
contemplated hereby) that

 

5

 

constitutes or, with notice or passage of time, or both, would
constitute a default or a basis of force  majeure or other claim
of accelerated or increased rights, termination, excusable delay or
nonperformance by the Target or any other Person under any instrument or
document relating to or evidencing Indebtedness that would entitle any Person
to require the Target to pay any portion of the principal amount of such
Indebtedness prior to the scheduled maturity thereof.  No instrument or document evidencing, creating, securing or
otherwise relating to Indebtedness will require the consent of any Person to or
as a result of the consummation of the transactions contemplated by this
Agreement.

 

36.                               Judgments; Litigation.

 

37.                               There is no (A) outstanding judgment, order,
decree, award, stipulation, injunction of any Governmental Entity or arbitrator
against or affecting the Target or its properties, assets or business or (B)
Action pending against or affecting the Target or its properties, assets or
business.

 

38.                               To the knowledge of the Target, there is no
(i) outstanding judgment, order, decree, award, stipulation, injunction of any
Governmental Entity or arbitrator against or affecting any officer, director or
employee of the Target relating to the Target or its business, (ii) Action
threatened against the Target or its properties, assets or business, (iii)
Action pending or threatened against the Target’s officers, directors or
employees relating to the Target or its business or (iv) basis for the
institution of any Action against the Target or any of its officers, directors,
employees, properties or assets.

 

39.                               Income and Other Taxes.  Except as set forth on the Disclosure Schedule,

 

40.                               All Tax Returns required to be filed through
and including the date hereof in connection with the operations of the Target
are true, complete and correct in all respects and have been properly and
timely filed and the Target has not requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed.  The Buyer has heretofore been provided the
opportunity to obtain from the Target true, correct and complete copies of each
Tax Return of the Target with respect to the past 5 taxable years, and of all
reports of, and communications from, any Governmental Entities relating to such
period.  The Target has disclosed on its
Federal income Tax Returns all positions taken therein that could give rise to
a substantial understatement of income Taxes for federal income tax purposes
within the meaning of Code Section 6662.  

 

41.                               All Taxes required to be paid or withheld and
deposited through and including the date hereof in connection with the
operations of the Target have been duly and timely paid or deposited by the
Target; the Target has properly withheld or collected all amounts required by
law for income Taxes and employment Taxes relating to its employees, creditors,
independent contractors and other third parties, and for Taxes on sales, and
has properly and timely remitted such withheld or collected amounts to the
appropriate Governmental Entity; and the Target has no liabilities for any
Taxes for any taxable period ending prior to or coincident with the Closing
Date.  

 

42.                               The
Target has made adequate provision on its books of account for all Taxes with
respect to its business, properties and operations through the date of the
Target Financial Statements.

 

43.                               The Target has not (A) had a tax deficiency
proposed, asserted or assessed against it, (B) executed any waiver of any
statute of limitations on the assessment or collection of any Taxes, or (C)
been delinquent in the payment of any Taxes.

 

44.                               No Tax Return of the Target has been audited
or the subject of other Action by any Governmental Entity.  The Target has not received any notice from
any Governmental Entity of any pending examination or any proposed deficiency,
addition, assessment, demand for payment or adjustment relating to or affecting
the Target or its assets or properties and the Shareholders have no reason to
believe that any Governmental Entity may assess (or threaten to assess) any
Taxes for any periods ending on or prior to the Closing Date.

 

45.                               Corporate Records.  The copies or originals of the Articles of
Incorporation, Bylaws, minute books and stock records of the Target that have
made available to the Buyer are true, complete and correct.

 

46.                               No Undisclosed Liabilities.  Except (A) to the extent set
forth or provided for in the Target Financial Statements or the notes thereto,
(B) as set forth on the Disclosure Schedule, or (C) for current liabilities
incurred in the Ordinary Course of Business since the date of the Target
Financial Statements, as of the date hereof the Target has no liabilities,
whether accrued, absolute, contingent or otherwise, whether due or to become
due and whether the amounts thereof are readily ascertainable or not, or any
unrealized or anticipated losses from any commitments of a contractual nature,
including Taxes with respect to or based upon the transactions or events
occurring at or prior to the Closing.

 

47.                               Permits, Licenses, Etc.  The Target possesses, and is
operating in material compliance with, all franchises, licenses, permits,
certificates, authorizations, rights and other approvals of Governmental
Entities necessary to conduct its business as currently conducted and as
proposed to be conducted (the “Permits”) except where the failure to do
so possess or operate would not have a Material Adverse Effect.  Each Permit has been lawfully and validly
issued, and no proceeding is pending or threatened looking toward the
revocation, suspension or limitation of any Permit.  The

 

6

 

consummation of the transactions contemplated by this Agreement will
not result in the revocation, suspension or limitation of any Permit and no
Permit will require the consent of its issuing authority to or as a result of
the consummation of the transactions contemplated hereby.

 

48.                               Regulatory Filings.  The Target has made all
required registrations and filings with and submissions to all applicable
Governmental Entities relating to the operations of the Target as currently
conducted and as proposed to be conducted, including, without limitation, all
such applicable Governmental Entities having jurisdiction over any matters
pertaining to conservation or protection of the environment, and the treatment,
discharge, use, handling, storage or production, or disposal of Hazardous
Materials.  All such registrations,
filings and submissions were in material compliance with all Legal Requirements
(including all Environmental Laws) and other requirements when filed, no material
deficiencies have been asserted by any such applicable Governmental Entities
with respect to such registrations, filings or submissions and no facts or
circumstances exist which would indicate that a material deficiency may be
asserted by any such authority with respect to any such registration, filing or
submission.

 

49.                               Material Contracts; No Defaults.

 

50.                               All
outstanding sales orders and sales contracts of the Target have been entered
into in the Ordinary Course of Business, and true and complete copies of all
outstanding sales orders and sales contracts of the Target have been made
available to the Buyer heretofore.  The
Target has not received any advance, progress payment or deposit in respect of
any sales order or sales contract, and the Target has no sales order or sales
contract that will result, upon completion or performance thereof, in gross
margins materially lower than those normally experienced by the Target for the
services or products covered by such sales order or sales contract.

 

51.                               All outstanding purchase orders and purchase
commitments of the Target have been incurred in the Ordinary Course of
Business, and no purchase order or purchase commitment of the Target is in
excess of the normal, ordinary and usual requirements of the business of the
Target or at an excessive price.

 

52.                               True and complete copies of each sales
agency, sales representative and similar contracts or agreements of the Target
have been made available to the Buyer heretofore.  All of such contracts and agreements are terminable at any time
by the Target without penalty upon not more than thirty (30) days’ notice.

 

53.                               The Target is not restricted by any agreement
from carrying on its business or engaging in any other activity anywhere in the
world (including relocating, closing, or terminating any of its operations or
facilities), and no such officer, director or key employee is a party to or
otherwise bound or affected by any agreement, covenant or other arrangement or
understanding that would restrict or impair his ability to perform diligently
his other duties to the Target.

 

54.                               True and complete copies of any other
material contracts, agreements, understandings, arrangements and commitments of
the Target by which it or its properties, rights or assets are bound have been
made available to Buyer.  For the
purposes of this subsection (v), “material” means any contract, agreement,
understanding, arrangement or commitment that (A) involves performance by any
party more than ninety (90) days from the date hereof, (B) involves payments or
receipts by the Target in excess of $10,000, (C) involves capital expenditures
in excess of $10,000 or (C) otherwise materially affects the Target.

 

55.                               Except as described in the Disclosure
Schedule:

 

(A)                              each
agreement, contract, arrangement or commitment described above in this §3(u)
is, and after the Closing Date on identical terms will be, legal, valid,
binding, enforceable and in full force and effect;

 

(B)                                no
event or condition has occurred or become known to the Target or is alleged to
have occurred that constitutes or, with notice or the passage of time, or both,
would constitute a default or a basis of force  majeure or other
claim of excusable delay, termination, nonperformance or accelerated or
increased rights by the Target or any other Person under any contract, agreement,
arrangement, commitment or other understanding, written or oral, described
above in this §3(u), or described or otherwise disclosed pursuant to this
Agreement; and

 

(C)                                no
Person with whom the Target has such a contract, agreement, arrangement, commitment
or other understanding is, to the knowledge of Target, in default thereunder or
has failed to perform fully thereunder by reason of force  majeure
or other claim of excusable delay, termination or nonperformance thereunder,
the delay, termination or nonperformance of which, or a default under which,
has had or may have a material adverse effect to the business of Target.

 

56.                               Absence of Certain Changes. 
Since the Target Financial Statement, the Target has not:
(A) incurred any debts, obligations or liabilities (absolute, accrued,
contingent or otherwise), other than current liabilities incurred in the

 

7

 

Ordinary Course of Business or as set forth on the Disclosure Schedule;
(B) subjected to or permitted a Lien (other than a Permitted Lien) upon or
otherwise encumbered any of its assets, tangible or intangible; (C) sold,
transferred, licensed or leased any of its assets or properties except in the
Ordinary Course of Business and except for the distribution of shares in
Microwave Holdings, LLC; (D) discharged or satisfied any Lien other than a
Lien securing, or paid any obligation or liability other than, current
liabilities shown on the Target Financial Statements and current liabilities
incurred since the Target Financial Statements, in each case in the Ordinary
Course of Business; (E) canceled or compromised any debt owed to or by or
claim of or against it, or waived or released any right of material value other
than in the Ordinary Course of Business; (F) suffered any physical damage,
destruction or loss (whether or not covered by insurance) causing a Material
Adverse Effect to its business; (G) entered into any material transaction
or otherwise committed or obligated itself to any capital expenditure other
than in the Ordinary Course of Business; (H) made or suffered any change
in, or condition affecting, its condition (financial or otherwise), properties,
profitability, prospects or operations other than changes, events or conditions
in the Ordinary Course of Business; (I) made any change in the accounting
principles, methods, records or practices followed by it or depreciation or
amortization policies or rates theretofore adopted; (J) other than in the
Ordinary Course of Business, made or suffered any amendment or termination of
any material contract, agreement, lease or license to which it is a party;
(K) paid, or made any accrual or arrangement for payment of, any severance
or termination pay to, or entered into any employment or loan or loan guarantee
agreement with, any current or former officer, director or employee or
consultant; (L) paid, or made any accrual or arrangement for payment of,
any increase in compensation, bonuses or special compensation of any kind to
any employee other than pursuant to an agreement disclosed on the Disclosure
Schedule or other than in the Ordinary Course of Business, or paid, or
made any accrual or arrangement for payment of, any increase in compensation,
bonuses or special compensation of any kind to any officer or director of the
Target or any consultant to the Target; (M) made or agreed to make any
charitable contributions or incurred any nonbusiness expenses; (N) changed
or suffered change in any compensation plan or labor agreement affecting any
employee of the Target otherwise than to conform to legal requirements; or
(O) entered into any agreement or otherwise obligated itself to do any of
the foregoing.

 

57.                               Employees and Labor Matters.

 

58.                               Except for the employment and labor
agreements disclosed to the Buyer on the Disclosure Schedule, neither the Buyer
nor the Target will have any responsibility for continuing any person in the
employ (or retaining any person as a consultant) of the Target from and after
the Closing or have any liability for any severance payments to or similar
arrangements with any such Person who shall cease to be an employee of the
Target at or prior to the Closing. 
There is no agreement, arrangement, commitment or understanding between
the Target and any of its employees which could prohibit the Target from
modifying the work schedule of its employees.

 

59.                               There is not occurring or threatened, any
strike, slow down, picket, work stoppage or other concerted action by any union
or other group of employees or other persons against the Target or its premises
or products.  

 

60.                               The Target has materially complied with all
applicable law relating to employment and labor and, to the knowledge of
Target, no facts or circumstances exist that could provide a reasonable basis
for a claim of wrongful termination, sexual harassment or any other applicable
labor and employment laws by any current or former employee of the Target
against the Target.

 

61.                               Hazardous Materials.

 

62.                               No Hazardous Material (A) has been, to the
knowledge of Target, released, placed, stored, generated, used, manufactured,
treated, deposited, spilled, discharged, released or disposed of on or under
any real property currently or previously owned or leased by the Target (or any
property adjoining any such real property), (B) is presently maintained, used,
generated, or permitted to remain in place by the Target in violation of any
applicable Environmental Laws, (C) is required by any applicable Environmental
Laws to be eliminated, removed, treated or mitigated by the Target, given the
nature of its present condition, location, nature, material or maintenance, or
(D) is of a type, location, material, nature or condition which requires
special notification to third parties by the Target under applicable
Environmental Laws or common law.

 

63.                               No notice, citation, summons or order has
been received by the Target and no complaint has been filed, no penalty has
been assessed and no investigation or review is pending or threatened by any
Governmental Entity, with respect to (A) any alleged violation by the Target of
any Environmental Laws or (B) any alleged failure by the Target to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with its business or properties, or (C)
any use, possession, generation, treatment, storage, recycling, transportation,
release or disposal by or on behalf of the Target of any Hazardous Material.

 

64.                               The
Target has not received any request for information, notice of claim, demand or
notification that it is or that indicates that it may be a “potentially
responsible party” with respect to any investigation or

 

8

 

remediation
of any threatened or actual release of any Hazardous Material.

 

65.                               To the knowledge of Target, no above-ground
or underground storage tanks, whether or not in use, are or have ever been
located at any property currently owned or leased by the Target.

 

66.                               The Target has not released, transported, or
arranged for the transportation of any Hazardous Material from any property
currently or previously owned, operated or leased by the Target.

 

67.                               Disclosure.  Except as set forth on the Disclosure
Schedule, no representation or warranty of the Target in this Agreement and no
information contained in any Schedule or other writing delivered by the
Target pursuant to this Agreement or at the Closing contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to make the statements herein or therein, in the
circumstances in which made, not misleading.

 

68.                               Representations and Warranties of the Buyer
and the Transitory Subsidiary.  Each of the Buyer and the Transitory
Subsidiary represents and warrants to the Target that the statements contained
in this §4 are correct and complete as of the date of this Agreement, except as
set forth in the Disclosure Schedule. The Disclosure Schedule will be
arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this §4.

 

69.                               Organization.  Each
of the Buyer and the Transitory Subsidiary is an entity duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
formation.

 

70.                               Authority to Execute and Perform
Agreements.  Each of the Buyer and Transitory Subsidiary has all requisite
corporate or limited liability company power and all authority and approvals
required to enter into this Agreement and to perform fully their obligations
hereunder.  The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of the Buyer and
the Transitory Subsidiary. This Agreement has been duly executed and delivered
by the Buyer and the Transitory Subsidiary and constitutes the valid and
binding obligation of the Buyer and the Transitory Subsidiary, as the case may
be, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights and
remedies of creditors generally, and to equitable principles.

 

71.                               Noncontravention.  Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which either the Buyer or the
Transitory Subsidiary is subject or any provision of the charter or bylaws of
either the Buyer or the Transitory Subsidiary or (ii) conflict with, result in
a breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or other
arrangement to which either the Buyer or the Transitory Subsidiary is a party
or by which it is bound or to which any of its assets is subject, except where
the violation, conflict, breach, default, acceleration, termination,
modification, cancellation, or failure to give notice would not have a material
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement.  Other
than in connection with the provisions of the Hart-Scott-Rodino Act, the
California Corporations Code, the Securities Exchange Act, the Securities Act,
and the state securities laws, neither the Buyer nor the Transitory Subsidiary
needs to give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file, or to obtain any authorization,
consent, or approval would not have a material adverse effect on the ability of
the Parties to consummate the transactions contemplated by this Agreement.

 

72.                               Brokers’ Fees.  Neither the Buyer nor the
Transitory Subsidiary has any liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which any of the Target and its Subsidiaries
could become liable or obligated other than a finders fee payable to Reuven
Sadeh by the Buyer by the issuance of 21,174 unregistered, restricted shares of
the Buyer’s common stock on the Closing Date.

 

73.                               SEC Documents.  The Buyer hereby makes
reference to the following documents filed with the United States Securities and
Exchange Commission (the “SEC”), as posted on the SEC’s website,
www.sec.gov:  (collectively, the “SEC
Documents”): (a) Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2003, 2002 and 2001; and (b) Quarterly Reports on Form 10-QSB
for the periods ended December 31, 2001, 2002 and 2003, June 31,
2001, 2002 and 2003, and September 30, 2001, 2002 and 2003, and all
amendments thereto.  As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder and none of the SEC Documents contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Buyer included in the SEC Documents comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC

 

9

 

with respect thereto, have been prepared in accordance with generally
accepted accounting principles in the United States (except, in the case of
unaudited statements, as permitted by the applicable form under the Exchange
Act) applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present the financial position of
the Buyer as of the dates thereof and its statements of operations,
stockholders’ equity and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal and recurring year-end audit
adjustments which were and are not expected to have a material adverse effect
on the Buyer, its business, financial condition or results of operations).

 

74.                               Disclosure.  No representation or warranty
of the Buyer or the Transitory Subsidiary in this Agreement and no information
contained in any other writing delivered by the Buyer or the Transitory
Subsidiary pursuant to this Agreement or at the Closing contains or will
contain any untrue statement of a material fact or omits or will omit to state
a material fact required to make the statements herein or therein, in the
circumstances in which made, not misleading.

 

75.                               Covenants.  The
Parties agree as follows with respect to the period from the execution of this
Agreement until the Closing:

 

76.                               General. Each of the Parties will use its reasonable best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but
not waiver, of the closing conditions set forth in §6 below).

 

77.                               Notices and Consents. The
Target will give any notices (and will cause each of its Subsidiaries to give
any notices) to third parties, and will use its best efforts to obtain (and
will cause each of its Subsidiaries to use its best efforts to obtain) any
third party consents, that the Buyer may request.

 

78.                               Regulatory Matters and Approvals. Each of the Parties will give any notices to, make any filings with,
and use its reasonable best efforts to obtain any applicable authorizations,
consents, and approvals of governments and governmental agencies with respect
to the transactions contemplated in this Agreement.

 

79.                               Operation of Business. The
Target will not engage in any practice, take any action, or enter into any
transaction outside the Ordinary Course of Business. Without limiting the
generality of the foregoing:

 

80.          The
Target will not authorize or effect any change in its charter or bylaws, other
than with respect to eliminating the provision in its charter requiring advance
notice be provided to holders of its preferred stock for a transaction like the
Merger;

 

81.                               The Target will not grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon the
conversion or exercise of options, warrants, and other rights currently
outstanding);

 

82.                               The Target will not issue any note, bond, or
other debt security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary Course of
Business;

 

83.                               The Target will not impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;

 

84.                               The Target will not make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;

 

85.                               The Target will not make any change in
employment terms for any of its directors, officers, and employees outside the
Ordinary Course of Business; and

 

86.                               The Target will not commit to any of the
foregoing.

 

87.                               Full Access.  The Target will (and will cause
each of its Subsidiaries to) permit representatives of the Buyer to have
reasonable access, upon prior notice, to all premises, properties, personnel,
books, records (including tax records), contracts, and documents of or
pertaining to each of the Target and its Subsidiaries. Each of the Buyer and
the Transitory Subsidiary will treat and hold as such any Confidential
Information it receives from any of the Target and its Subsidiaries in the
course of the reviews contemplated by this §5(f), will not use any of the
Confidential Information except in connection with this Agreement, and, if this
Agreement is terminated for any reason whatsoever, agrees to return to the
Target all tangible embodiments (and all copies) thereof which are in its
possession.

 

88.                               Notification; Updates to Disclosure
Schedule.

 

(i)                                     During
the period between the date hereof and the Closing, the Target shall promptly
notify Buyer in writing of the discovery by Target of:  (A) any event, condition, fact or
circumstance that occurred or existed on or prior to the date of this Agreement
and that caused or constitutes a breach of or inaccuracy in any representation
or warranty made by the Target in this Agreement; (B) any event, condition,
fact or circumstance that occurs, arises or exists after the date of this
Agreement and that would cause or constitute a breach of or inaccuracy in any
representation or warranty made by the

 

10

 

Target in this Agreement; (C) any breach of any covenant or obligation
of the Target contained in this Agreement; and (D) any event, condition, fact
or circumstance that may make the timely satisfaction of any of the conditions
set forth in Section 6 impossible or unlikely.

 

(ii)                                  If
any event, condition, fact or circumstance that is required to be disclosed
pursuant to this Section 5(f)(i) requires any change in any disclosure
schedule hereunder, or if any such event, condition, fact or circumstance
would require such a change assuming the disclosure schedule were dated as
of the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then the Target shall promptly deliver to Buyer an update
to the disclosure schedule (a “Target Disclosure Schedule Update”)
specifying such change.  No such Target
Disclosure Schedule Update shall be deemed to supplement or amend the
disclosure schedule for the purpose of (i) determining the accuracy of any
of the representations and warranties made by the Target in this Agreement as
of the Closing, or (ii) determining whether the conditions set forth in
Section 6(a) have been satisfied; provided, however that the Closing of
the transaction contemplated by this Agreement will be deemed a waiver by
Purchaser of any untrue representation or warranty made by the Target if and to
the extent such inaccuracy is fairly and accurately disclosed in any of Target
Disclosure Schedules or any such Target Disclosure Schedule Update.

 

(iii)                               During
the period between the date hereof and the Closing, Buyer shall promptly notify
the Target in writing of the discovery by Buyer of:  (A) any event, condition, fact or circumstance that occurred or
existed on or prior to the date of this Agreement and that caused or
constitutes a breach of or inaccuracy in any representation or warranty made by
Purchaser in this Agreement; (B) any event, condition, fact or circumstance
that occurs, arises or exists after the date of this Agreement and that would
cause or constitute a breach of or inaccuracy in any representation or warranty
made by Purchaser in this Agreement; (C) any breach of any covenant or
obligation of Purchaser contained in this Agreement; and (D) any event,
condition, fact or circumstance that may make the timely satisfaction of any of
the conditions set forth in Section 6(b) impossible or unlikely.

 

(iv)                              If
any event, condition, fact or circumstance that is required to be disclosed
pursuant to Section 5(f)(iii) requires any change in any disclosure
schedule hereunder, or if any such event, condition, fact or circumstance
would require such a change assuming the disclosure schedule were dated as
of the date of the occurrence, existence or discovery of such event, condition,
fact or circumstance, then Buyer shall promptly deliver to the Target an update
to the disclosure schedule (a “Buyer Disclosure Schedule Update”)
specifying such change.  No such Buyer
Disclosure Schedule Update shall be deemed to supplement or amend the
disclosure schedule for the purpose of (i) determining the accuracy of any
of the representations and warranties made by Buyer in this Agreement as of the
Closing, or (ii) determining whether the conditions set forth in
Section 6(b) have been satisfied; provided, however that the Closing of
the transaction contemplated by this Agreement will be deemed a waiver by the
Target of any untrue representation or warranty made by Buyer if and to the
extent such inaccuracy is fairly and accurately disclosed in any of Buyer
Disclosure Schedules or any such Buyer Disclosure Schedule Update.

 

89.                               Delivery of Final Balance Sheet.  The Target shall deliver to
the Buyer a final balance sheet dated at least as of 5 days before the Closing
Date (the “Final Balance Sheet”).

 

90.                               Exclusivity.  The Target will not solicit,
initiate, or encourage the submission of any proposal or offer from any Person
relating to the acquisition of all or substantially all of the capital stock or
assets of any of the Target and its Subsidiaries (including any acquisition
structured as a merger, consolidation, or share exchange); provided, however,
that the Target, its Subsidiaries, and their directors and officers will remain
free to participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person to do or seek any of the
foregoing to the extent their fiduciary duties may require.  The Target shall notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact with
respect to any of the foregoing.

 

91.                               Indemnification.

 

92.                               Each
of Dr. Marina Bujatti and Dr. Franco Sechi jointly and severally, up to their
share of Buyer common stock comprising the Merger Consideration (“Target
Indemnifying Party”), shall, for 18 months after the Effective Time, indemnify
and hold the Buyer and the Transitory Subsidiary and their directors, officers,
shareholders, members, employees and agents (each, an “Buyer Indemnified
Party”) harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation (“Losses”) that any such Buyer Indemnified Party may suffer or
incur as a result of or relating to either: (i) any misrepresentation, breach
or inaccuracy, of any of the representations, warranties, covenants or
agreements made by the Target in this Agreement due to the fraudulent behavior
of such Target Indemnifying Party; or (ii) any breach or inaccuracy of the
representations and warranties made by the Target in Section 3(e) of this
Agreement.  If any action shall be
brought

 

11

 

against any Buyer
Indemnified Party in respect of which indemnity may be sought pursuant to this
Agreement, such Buyer Indemnified Party shall promptly notify the Target
Indemnifying Party in writing, and the Target Indemnifying Party shall have the
right to assume the defense thereof with counsel of its own choosing.  Any Buyer Indemnified Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the expense
of such Buyer Indemnified Party except to the extent that the employment
thereof has been specifically authorized by the Target Indemnifying Party in
writing, the Target Indemnifying Party has failed after a reasonable period of
time to assume such defense and to employ counsel or in such action there is,
in the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Target Indemnifying Party and the
position of such Buyer Indemnified Party. 
The Target Indemnifying Party will not be liable to any Buyer
Indemnified Party under this §5(i)(A) for any settlement by a Buyer Indemnified
Party effected without the Target Indemnifying Party’s prior written consent,
which shall not be unreasonably withheld or delayed.  

 

93.                               Each
of the Buyer and the Transitory Subsidiary, jointly and severally (“Buyer
Indemnifying Party”), shall, for 18 months after the Effective Time, indemnify
and hold the Target and its directors, officers, shareholders, members,
employees and agents (each, a “Target Indemnified Party”) harmless from any and
all Losses that any such Target Indemnified Party may suffer or incur as a
result of or relating to any misrepresentation, breach or inaccuracy, of any of
the representations, warranties, covenants or agreements made by the Buyer or
the Transitory Subsidiary in this Agreement due to their own fraudulent
behavior.  If any action shall be
brought against any Target Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Target Indemnified Party shall
promptly notify the Buyer Indemnifying Party in writing, and the Buyer
Indemnifying Party shall have the right to assume the defense thereof with
counsel of its own choosing.  Any Target
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of such Target Indemnified Party except to
the extent that the employment thereof has been specifically authorized by the
Buyer Indemnifying Party in writing, the Buyer Indemnifying Party has failed
after a reasonable period of time to assume such defense and to employ counsel
or in such action there is, in the reasonable opinion of such separate counsel,
a material conflict on any material issue between the position of the Buyer
Indemnifying Party and the position of such Target Indemnified Party.  The Buyer Indemnifying Party will not be
liable to any Target Indemnified Party under this §5(i)(B) for any settlement
by an Target Indemnified Party effected without the Buyer Indemnifying Party’s
prior written consent, which shall not be unreasonably withheld or delayed.

 

(A)                               Limitation
on Claims.  In case any event shall
occur which would otherwise entitle a Party to assert a claim for
indemnification pursuant to this subsection (i), no Losses shall be deemed
to have been sustained by such Party to the extent of (a) any tax savings
realized by such Party with respect thereto, or (b) any proceeds received by
such Party from any insurance policies with respect thereto.

 

94.                               Satisfaction
of Claims.  A Target Indemnifying Party
may satisfy an indemnification obligation under subsection (A) with shares
of Buyer Common Stock, with each such share deemed to have a value of $1.63.

 

(j)                                     Shares Duly Authorized.  When issued in accordance with this
Agreement, the shares of Buyer Common Stock comprising the Merger Consideration
will be duly authorized, validly issued, fully paid and nonassessable.

 

(k)                                  California Franchise Tax Board Clearance.  The Parties shall, within 3 days, cooperate
to prepare and file a request for tax clearance certificate as required by
California law.

 

95.                               Conditions to Obligation to Close.

 

96.                               Conditions to
Obligation of the Buyer and the Transitory
Subsidiary.  The obligation of each of the Buyer and the
Transitory Subsidiary to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:

 

97.                               this
Agreement and the Merger shall have received the Requisite Stockholder
Approval;

 

98.                               the Target shall have procured all of the
third party consents specified in §5(b) above and shareholder waivers and
consents specified in §5(b) above;

 

99.                               the representations and warranties set forth
in §3 above shall be true and correct in all material respects at and as of the
Closing Date;

 

100.                        there
has not been a Material Adverse Change in the business of the Target;

 

101.                        [intentionally
omitted]; 

 

12

 

102.                        the Target shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing;

 

103.                        no action, suit, or proceeding shall be
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation, (C) affect adversely
the right of the Buyer to own the capital stock of the Surviving Entity and to
control the Surviving Entity and its Subsidiaries, or (D) affect adversely the
right of any of the Surviving Entity and its Subsidiaries to own its assets and
to operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect); 

 

104.                        the
Final Balance Sheet shall represent, at a minimum, the net assets of Target as
of the Target Financial Statements plus $100,000 representing an offset from
tax liability assumed by Buyer associated with the transfer of the Santa Clara
Property to Microwave Holdings LLC (for purposes of clarification, such Final
Balance Sheet will not show accrued tax liability with respect to the
distribution to the shareholders of Target, directly or indirectly, of the
Santa Clara Property).

 

105.                        Dr. Marina Bujatti and Dr. Franco Sechi have
entered into employment agreements in the form attached hereto as Exhibit C; 

 

106.                        The Buyer, the Transitory Subsidiary and
Microwave Holdings, LLC have entered into the Interim Lease and Proposal in the
form attached hereto as Exhibit D; and

 

107.                        all actions to be taken by the Target in
connection with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance to
the Buyer and the Transitory Subsidiary.

 

The Buyer and the Transitory Subsidiary may waive any condition
specified in this §6(a) if they execute a writing so stating at or prior to the
Closing.

 

108.                        Conditions to Obligation of the Target.  The obligation of the Target to consummate
the transactions to be performed by it in connection with the Closing is
subject to satisfaction of the following conditions:

 

109.                        the representations and warranties set forth
in §4 above shall be true and correct in all material respects at and as of the
Closing Date;

 

110.                        each of the Buyer and the Transitory
Subsidiary shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing; 

 

111.                        this Agreement and the Merger shall have received the requisite approval
of the Transitory Subsidiary;

 

112.                        all actions to be taken by the Buyer and the
Transitory Subsidiary in connection with consummation of the transactions
contemplated hereby and all certificates, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Target.

 

The Target may waive any condition specified in this §6(b) if it
executes a writing so stating at or prior to the Closing.

 

113.                        Termination.

 

114.                        Termination of Agreement.  Any of the Parties may
terminate this Agreement with the prior authorization of its board of directors
(whether before or after stockholder approval) as provided below:

 

115.                        the Parties may terminate this Agreement by
mutual written consent at any time prior to the Effective Time;

 

116.                        the Buyer and the Transitory Subsidiary may
terminate this Agreement by giving written notice to the Target at any time
prior to the Effective Time (A) in the event the Target has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, the Buyer or the Transitory Subsidiary has notified the
Target of the breach, and the breach has continued without cure for a period of
10 days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 30, 2004, by reason of the failure of any
condition precedent under §6(a) hereof (unless the failure results primarily
from the Buyer or the Transitory Subsidiary breaching any representation,
warranty, or covenant contained in this Agreement), provided the June 30,
2004 deadline shall be tolled if the reason for the delay in the closing is
waiting for the California Franchise Tax Board to respond to a request for tax
clearance;

 

13

 

117.                        the Target may terminate this Agreement by
giving written notice to the Buyer and the Transitory Subsidiary at any time
prior to the Effective Time (A) in the event the Buyer or the Transitory
Subsidiary has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Target has notified
the Buyer and the Transitory Subsidiary of the breach, and the breach has continued
without cure for a period of 10 days after the notice of breach or (B) if the
Closing shall not have occurred on or before June 30, 2004, by reason of
the failure of any condition precedent under §6(b) hereof (unless the failure
results primarily from the Target breaching any representation, warranty, or
covenant contained in this Agreement), provided the June 30, 2004 deadline
shall be tolled if the reason for the delay in the closing is waiting for the
California Franchise Tax Board to respond to a request for tax clearance;

 

118.                        any Party may terminate this Agreement by
giving written notice to the other Parties at any time in the event this
Agreement and the Merger fail to receive the requisite shareholder or member
approval.

 

119.                        Effect of Termination.  If any Party terminates this
Agreement pursuant to §7(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach).

 

120.                        Registration of Shares.

 

121.                        Registration Statement.  Promptly after the Closing Date, the Buyer
shall file a registration statement with the SEC (the “Registration
Statement”) covering the resale of the shares of Buyer’s common stock
comprising the Merger Consideration (collectively, the “Registered Shares”)
by the Holders (as defined below).  The
Buyer will use its best efforts to cause the SEC to declare the Registration
Statement effective as soon as practicable after such filing.  For the purposes of this Article 8, a “Holder”
shall mean a Target Stockholder and any person to whom a Target Stockholder has
transferred Registered Shares.  The
Buyer shall notify Dr. Marina Bujatti (the “Target Stockholders’
Representative”) upon the receipt of any comments from the SEC or its staff or
any other Governmental Entity with respect to the Registration Statement and
upon reasonable request will send copies of such comments to the Target
Stockholders’ Representative.

 

122.                        Continuing Effectiveness.

 

123.                        Until the earlier of the first anniversary of
the Closing Date (but such one-year period shall be extended on a day-for-day
basis for each day that the Target Stockholders are unable to resell Registered
Shares under Rule 144 due to the failure of the Buyer to satisfy any condition
of Rule 144 within its control) or the date on which all the Registered Shares
have been sold, the Buyer shall use best efforts to keep the Registration
Statement effective and shall from time to time amend or supplement the Registration
Statement and each preliminary prospectus and final prospectus contained in the
Registration Statement as may be necessary to comply with the requirements of
the Securities Act.

 

124.                        The Buyer shall promptly notify a Holder, at
any time when a prospectus relating to the Registration Statement is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus included in the Registration Statement contains
an untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and the Buyer shall promptly prepare a
supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of Registered Shares, such prospectus shall not contain an
untrue statement of a material fact or omit to state any fact necessary to make
the statements therein not misleading.

 

125.                        Copies of Registration Statement and Related
Documents.  Upon reasonable request, the Buyer shall furnish to each Holder a
reasonable number of copies of each prospectus contained in the Registration
Statement and each supplement or amendment thereto (including each preliminary
prospectus), all of which shall conform to the requirements of the Securities
Act, and the rules and regulations thereunder.

 

126.                        Blue Sky Laws.  So as to permit the Holders to
sell the Registered Shares, the Buyer shall use its best efforts to register
and qualify the Registered Shares under such securities or Blue Sky laws of
such United States jurisdictions as shall be reasonably requested by the
Holders; provided that: (i) the Buyer shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Buyer is already subject to service in such jurisdiction and except
as may be required by the Securities Act; or (ii) the Buyer shall not be
required to do blanket registrations or qualifications in all fifty states.

 

127.                        Expenses.  The Buyer shall be responsible
for all expenses (other than the fees and disbursements of counsel for the
Holders and brokerage fees payable in respect of the shares sold by the
Holders) in connection with such registration and qualification under applicable
state securities laws.

 

128.                        Indemnification.

 

129.                        The
Buyer will indemnify and hold harmless each Holder and each of its officers,
directors and

 

14

 

partners,
and each person controlling such Holder, against all claims, losses, expenses,
damages and liabilities (or actions in respect thereto) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any preliminary or final prospectus, offering circular or other
document (including any related registration statement, notification or the
like) incident to the registration, qualification or compliance contemplated
hereby, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation or alleged violation by the Buyer
relating to action or inaction required of the Buyer in connection with the
Securities Act, any rule or regulation promulgated under the Securities Act or
any state securities law applicable to the Buyer and will reimburse (on an as
incurred basis) each such Holder, each of its officers, directors and partners,
and each person controlling such Holder, for any reasonable legal and any other
expenses incurred in connection with investigating, defending or settling any
such claim, loss, damage, liability or action; provided, however, that the
Buyer will not be liable in any such case to the extent that any such claim,
loss, damage or liability arises out of or is based on any untrue statement or
omission based upon written information furnished to the Buyer in an instrument
duly executed by such Holder specifically for use therein.

 

130.                        Each Holder will indemnify and hold harmless
the Buyer, each of its directors and officers, each person who controls the
Buyer within the meaning of the Securities Act, and each other such Holder,
each of its officers, directors and partners and each person controlling such
Holder, against all claims, losses, expenses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any preliminary or
final prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to the registration,
qualification or compliance contemplated hereby or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse (on an as incurred basis) the Buyer, such Holders, such directors,
officers, partners or persons for any reasonable legal or any other expenses
incurred in connection with investigating, defending or settling any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Buyer in an instrument
duly executed by such Holder specifically for use therein.  Notwithstanding the foregoing, in no event
shall the indemnification provided by any Holder hereunder exceed the gross
proceeds received by such Holder for the sale of such Holder’s Registered
Shares pursuant to such registration.

 

131.                        Each party entitled to indemnification under
this Section 8(f) (an “Indemnified Party” for purposes of this
Section 8(f)) shall give notice to the party required to provide
indemnification (an “Indemnifying Party” for purposes of this
Section 8(f)) promptly after such Indemnified Party has actual knowledge
of any claim as to which indemnity may be sought.  The Indemnified Party shall promptly permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not be unreasonably be withheld).  The Indemnified Party may participate in
such defense and hire counsel at such party’s own expense (or at the
Indemnifying Party’s expense, in the event that a conflict of interest exists
between Indemnifying Party’s counsel and the Indemnified Party’s counsel).  The failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations hereunder, unless, and only to the extent that, such failure is
materially prejudicial to an Indemnifying Party’s ability to defend such
action.  No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.  Any Indemnified Party shall reasonably cooperate with the
Indemnifying Party in the defense of any claim or litigation brought against
such Indemnified Party.

 

132.                        If the indemnification provided for in this
Section 8(f) is for any reason not available to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations.  The relative fault of the Indemnifying Party
and of the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue 

 

15

 

statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

 

133.                        Rule 144 Reporting.  With a view to making available to the Target
Stockholders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registered Shares to the public without registration, at
all times until the earlier of the first anniversary of the Effective Date and
the date on which all of the Registered Shares have been sold, the Buyer agrees
to:

 

134.                        Make and keep public information available,
as those terms are understood and defined in SEC Rule 144 under the Securities
Act;

 

135.                        File with or furnish to the SEC in a timely
manner all reports and other documents required of the Buyer and its Chief
Financial Officer and Chief Executive Officer under the Securities Act and the
Exchange Act (except pursuant to Section 16 and Section 13(d) of the
Exchange Act); and

 

136.                        Furnish to a Target Stockholder forthwith
upon such Target Stockholder’s request a written statement by the Buyer as to
its compliance with the reporting requirements of said Rule 144 and of the
Securities Act and the Exchange Act.

 

137.                        Miscellaneous.

 

138.                        Survival.  None of the representations,
warranties, and covenants of the Parties (other than the provisions in §2
concerning payment of the Merger Consideration, §3(e) concerning Preferred
Shareholders, and all of §8) will survive the Closing Date, unless fraudulently
made.

 

139.                        Press Releases and Public Announcements.  Buyer may issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties.

 

140.                        No Third-Party Beneficiaries.  This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions
in §2 above concerning payment of the Merger Consideration are intended for the
benefit of the Target Stockholders.

 

141.                        Entire Agreement.  This Agreement (including the
documents referred to herein) constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.

 

142.                        Succession and Assignment.  This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Parties.

 

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

 

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

 

145.                        Notices. All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other communication
hereunder shall be deemed duly given if (and then two business days after) it
is sent by registered or certified mail, return receipt requested, postage
prepaid, and addressed to the intended recipient as set forth below:

 

If to the Target:

 

Microwave Power, Inc.

3350 Scott Blvd.

Building 25

Santa Clara, CA 95054

Attn: Dr. Marina Bujatti

Fax: 408-727-2246

 

If to the Buyer:

 

AML Communications, Inc.

1000 Avenida Acaso

Camarillo, CA 93012

Attn: Jacob Inbar

Fax: 805-484-2191

 

16

 

If to the Transitory Subsidiary:

 

AML Communications, Inc.

1000 Avenida Acaso

Camarillo, CA 93012

Attn: Jacob Inbar

Fax: 805-484-2191

 

Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by giving
the other Parties notice in the manner herein set forth.

 

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

 

147.                        Amendments and Waivers.  The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to stockholder approval will be subject
to the restrictions contained in the California Corporations Code.  No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by all
of the Parties. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.

 

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

 

149.                        Expenses.  Each of the Parties will bear
its own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.

 

150.                        Construction.  The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word “including” shall mean including without limitation.

 

151.                        Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.

 

152.                        Facsimile Signatures.  In the event that any signature is delivered
by facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

 

153.                        Attorneys Fees.  In the
event suit is brought to interpret or enforce this Agreement, the prevailing
party or parties shall be entitled to an award of their attorneys’ and experts’
fees and costs along with such other relief as may be granted.

 

17

 

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

 

	
   

  	
  BUYER:

  	
   

  
	
   

  	
  AML COMMUNICATIONS, INC.,

  a Delaware corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jacob Inbar

  	
   

  	
   

  
	
   

  	
   

  	
  Jacob Inbar

  	
   

  
	
   

  	
   

  	
  President & CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Edwin McAvoy

  	
   

  	
   

  
	
   

  	
  Name:  Edwin McAvoy

  	
   

  
	
   

  	
  Title:  Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRANSITORY SUBSIDIARY:

  	
   

  
	
   

  	
  AML HOLDINGS, LLC,

  a California limited liability company

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  AML COMMUNICATIONS, INC.,

  	
   

  
	
   

  	
   

  	
  A Delaware corporation,

  Its Sole Member

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jacob Inbar

  	
   

  	
   

  
	
   

  	
   

  	
  Jacob Inbar

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TARGET:

  	
   

  
	
   

  	
  MICROWAVE POWER, INC.,

  a California corporation

  	
  /s/ Marina Bujatti

  	
   

  
	
   

  	
   

  	
  Marina Bujatti, individually

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marina Bujatti

  	
   

  	
   

  
	
   

  	
   

  	
  Marina Bujatti

  	
  /s/ Franco Sechi

  	
   

  
	
   

  	
   

  	
  President

  	
  Franco Sechi, individually

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Franco Sechi

  	
   

  	
   

  
	
   

  	
  Name:  Franco Sechi

  	
   

  
	
   

  	
  Title:  Secretary

  	
   

  

 

18

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