Document:

Exhibit 10.1

 

Execution Copy

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

SUMMER INFANT (USA), INC.,

 

KIDDO ACQUISITION CO., INC.,

 

KIDDOPOTAMUS & COMPANY,

 

J. CHRIS SNEDEKER,

 

KRISTEN PETERSON SNEDEKER

 

AND

 

THOMAS K. MANNING

 

April 18, 2008

 

 

TABLE OF CONTENTS

 

	
   

  	
  ARTICLE I

  	
   

  
	
   

  	
  THE MERGER

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  The Merger

  	
  1

  
	
  1.2

  	
  Effective
  Time; Closing

  	
  1

  
	
  1.3

  	
  Effect of
  the Merger

  	
  2

  
	
  1.4

  	
  Charter
  Documents; Directors and Officers

  	
  2

  
	
  1.5

  	
  Effect on
  Company Stock; Merger Consideration

  	
  2

  
	
  1.6

  	
  Merger
  Consideration; Manner of Payment

  	
  3

  
	
  1.7

  	
  Closing and
  Post-Closing Adjustment

  	
  3

  
	
  1.8

  	
  Required
  Withholding

  	
  5

  
	
  1.9

  	
  No Further
  Ownership Rights in Company Stock

  	
  6

  
	
  1.10

  	
  Taking of
  Necessary Action; Further Action

  	
  6

  
	
  1.11

  	
  Closing
  Deliveries

  	
  6

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE II

  	
   

  
	
   

  	
  STOCKHOLDER REPRESENTATIVE

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Designation
  of Stockholder Representative

  	
  9

  
	
  2.2

  	
  Authority

  	
  9

  
	
  2.3

  	
  Indemnification

  	
  9

  
	
  2.4

  	
  No Liability

  	
  10

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  	
   

  
	
   

  	
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
  STOCKHOLDERS

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Representations
  and Warranties of the Stockholders

  	
  10

  
	
  3.2

  	
  Representations
  and Warranties of the Major Stockholders

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  	
  REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJOR 

  STOCKHOLDERS

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Organization,
  Qualification and Corporate Power

  	
  13

  
	
  4.2

  	
  Capitalization.

  	
  13

  
	
  4.3

  	
  Authorization
  of Transaction

  	
  14

  
	
  4.4

  	
  Noncontravention

  	
  14

  
	
  4.5

  	
  Company
  Subsidiaries

  	
  15

  
	
  4.6

  	
  Company
  Financial Statements

  	
  15

  
	
  4.7

  	
  Absence of
  Certain Changes

  	
  15

  
	
  4.8

  	
  Undisclosed
  Liabilities

  	
  15

  
	
  4.9

  	
  Tax Matters

  	
  15

  
	
  4.10

  	
  Assets

  	
  16

  
	
  4.11

  	
  Owned Real
  Property

  	
  16

  

 

i

 

	
  4.12

  	
  Real
  Property Leases

  	
  16

  
	
  4.13

  	
  Intellectual
  Property

  	
  17

  
	
  4.14

  	
  Contracts

  	
  19

  
	
  4.15

  	
  Accounts
  Receivable

  	
  20

  
	
  4.16

  	
  Powers of
  Attorney

  	
  20

  
	
  4.17

  	
  Insurance

  	
  20

  
	
  4.18

  	
  Litigation

  	
  20

  
	
  4.19

  	
  Product
  Warranties; Products Liability; Product Quality

  	
  21

  
	
  4.20

  	
  Employees

  	
  21

  
	
  4.21

  	
  Employee
  Benefits

  	
  22

  
	
  4.22

  	
  Environmental
  Matters

  	
  23

  
	
  4.23

  	
  Legal
  Compliance

  	
  24

  
	
  4.24

  	
  Customers
  and Suppliers

  	
  24

  
	
  4.25

  	
  Permits

  	
  25

  
	
  4.26

  	
  Certain
  Business Relationships With Affiliates

  	
  25

  
	
  4.27

  	
  Brokers’
  Fees

  	
  25

  
	
  4.28

  	
  Books and
  Records

  	
  25

  
	
  4.29

  	
  Inventory

  	
  25

  
	
   

  	
  Disclosure

  	
  26

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
  REPRESENTATIONS AND WARRANTIES OF THE MERGER SUB AND SI (USA)

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Organization,
  Qualification and Corporate Power

  	
  27

  
	
  5.2

  	
  Capitalization

  	
  27

  
	
  5.3

  	
  Authorization
  of Transaction

  	
  27

  
	
  5.4

  	
  Noncontravention

  	
  28

  
	
  5.5

  	
  Litigation

  	
  28

  
	
  5.6

  	
  Legal
  Compliance

  	
  28

  
	
  5.7

  	
  Reports and
  Financial Statements

  	
  28

  
	
  5.8

  	
  Validity of
  Common Stock

  	
  29

  
	
  5.9

  	
  Consents and
  Approvals of Governmental Entities

  	
  29

  
	
  5.10

  	
  Absence of
  Certain Changes or Events

  	
  29

  
	
  5.11

  	
  Disclosure

  	
  29

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VI

  	
   

  
	
   

  	
  [INTENTIONALLY LEFT BLANK]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
  MUTUAL COVENANTS AND AGREEMENTS

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Publicity

  	
  29

  
	
  7.2

  	
  Confidentiality

  	
  29

  
	
  7.3

  	
  Employees

  	
  30

  
	
  7.4

  	
  Approvals
  and Consents

  	
  31

  
	
  7.5

  	
  Expenses

  	
  31

  

 

ii

 

	
  7.6

  	
  Payment or
  Accrual of Payoff Amounts

  	
  31

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
  POST-CLOSING COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Securities
  Act Matters

  	
  31

  
	
  8.2

  	
  Restrictive
  Legend

  	
  32

  
	
  8.3

  	
  Notice of
  Proposed Transfer

  	
  32

  
	
  8.4

  	
  Stockholder
  Representative Access

  	
  33

  
	
  8.5

  	
  Further
  Assurances

  	
  33

  
	
  8.6

  	
  Taxes

  	
  33

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
  [INTENTIONALLY LEFT BLANK]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE X

  	
   

  
	
   

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  10.1

  	
  Indemnification
  by the Company, the Major Stockholders and the Company Stockholders

  	
  34

  
	
  10.2

  	
  Indemnification
  by SI (USA)

  	
  35

  
	
  10.3

  	
  Indemnification
  Claims

  	
  35

  
	
  10.4

  	
  Survival of
  Representations, Warranties and Covenants; Limitations

  	
  38

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XI

  	
   

  
	
   

  	
  [INTENTIONALLY LEFT BLANK]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XII

  	
   

  
	
   

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE XIII

  	
   

  
	
   

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  13.1

  	
  Press
  Releases and Announcements

  	
  51

  
	
  13.2

  	
  No Third
  Party Beneficiaries

  	
  51

  
	
  13.3

  	
  Entire
  Agreement

  	
  51

  
	
  13.4

  	
  Succession
  and Assignment

  	
  52

  
	
  13.5

  	
  Counterparts
  and Electronic Signature

  	
  52

  
	
  13.6

  	
  Headings

  	
  52

  
	
  13.7

  	
  Notices

  	
  52

  
	
  13.8

  	
  Governing
  Law

  	
  54

  
	
  13.9

  	
  Amendments and
  Waivers

  	
  54

  
	
  13.10

  	
  Severability

  	
  55

  
	
  13.11

  	
  Construction

  	
  55

  

 

iii

 

EXHIBITS

 

Exhibit A:  Letters of Transmittal

Exhibit B:  Lock-Up Agreement

Exhibit C:  Registration Rights Agreement

Exhibit D-1:
Chris Snedeker Employment Agreement

Exhibit D-2:  Kristen Peterson Employment Agreement

Exhibit E:
Escrow Agreement

Exhibit F:
Consent to Change of Control and Agreement to Terminate Lease

Exhibit G:
Dissimo Independent Contractor Agreement

 

iv

 

AGREEMENT AND PLAN OF MERGER

 

This Agreement
and Plan of Merger entered into as April 18, 2008 by and among Summer
Infant (USA), Inc., a Rhode Island corporation (“SI (USA))”, Kiddo Acquisition Co., Inc.,
a Rhode Island corporation and wholly-owned subsidiary of SI (USA) (the “Merger Sub”), and Kiddopotamus &
Company, a Delaware corporation (the “Company”),
J. Chris Snedeker and Kristen Peterson Snedeker (together, the “Major Stockholders”) and Thomas K. Manning,
solely in his capacity as stockholder representative (the “Stockholder Representative”).  The Company, the Merger Sub, the Majority
Stockholders and the Stockholder Representative are sometimes referred to
herein individually as a “Party”
and collectively as the “Parties”.

 

RECITALS

 

A.                                   Upon
the terms and subject to the conditions of this Agreement (as defined in Section 1.2)
and in accordance with the applicable corporate laws of the jurisdictions of
the respective jurisdiction of formation of each of the entities as set forth
in the preamble of this Agreement (the “Applicable
Corporate Laws”), Merger Sub intends to enter into a business
combination transaction by means of a merger in which Merger Sub will merge
with and into Company (with Company  being
the surviving entity) in exchange for shares of the common stock of the Parent
(as defined in Section 1.1 below) and the payment of cash to the
Company Stockholders (as defined below) in accordance with Section 1.1
below.

 

B.                                     The
Board of Directors of the Company has determined that the Merger (as defined in
Section 1.1) is fair to, and in the best interests of, the Company
and the Company Stockholders.

 

NOW,
THEREFORE, in consideration of the covenants, promises and representations set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows
(defined terms used in this Agreement are listed alphabetically in Article XII,
together with the Section and, if applicable, paragraph number in which
the definition of each such term is located):

 

ARTICLE
I

THE MERGER

 

1.1                                 The
Merger.  At the Effective Time (as
defined in Section 1.2) and subject to and upon the terms and conditions
of this Agreement and the Applicable Corporate Laws, the Merger Sub will be
merged with and into Company, in exchange for those shares of Common Stock of
Summer Infant, Inc., a Delaware corporation and sole owner of SI (USA)
(the “Parent”), and the payment of
cash, in such amounts as set forth in Schedule 1.6(a) (the “Merger”), whereupon the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation of the Merger.  The
surviving corporation after the Merger is sometimes referred to hereinafter as
the “Surviving Corporation”.

 

1.2                                 Effective
Time; Closing.  Subject to the
conditions of this Agreement, the Parties hereto shall cause the Merger to be
consummated by filing with each jurisdiction set forth on Schedule 1.2
hereto the certificate, articles, forms of merger and/or other transaction
documentation necessary to consummate the Merger (including, but not limited
to, any notices, 

 

 

stock transfer forms and
payment of any transfer taxes, stamp or duty taxes) described on Schedule 1.2
in accordance with the Applicable Corporate Laws, as the case may be
(collectively, the “Merger Certificates”)
(the time of the last such filing to be properly completed, or such later time
as may be agreed in writing by the Merger Sub and the Company and specified in
the Merger Certificates, being the “Effective
Time”) as soon as practicable on or after the Closing Date (as
herein defined).  The term “Agreement” as used herein refers to this
Agreement and the Merger, as the same may be amended from time to time, and all
schedules hereto (including the Company Disclosure Schedule).  The closing of the Merger (the “Closing”) shall take place remotely via
email, PDF and/or facsimile,  at such
time, date and location as the parties hereto agree (the “Closing Date”).

 

1.3                                 Effect
of the Merger.  At the Effective
Time, the effect of the Merger shall be as provided in this Agreement and the
applicable provisions of the Applicable Corporate Laws.  Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of the Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.

 

1.4                                 Charter
Documents; Directors and Officers.

 

(a)                                  At the Effective
Time:

 

(i)                                     The articles of
incorporation of the Merger Sub as in effect immediately prior to the Effective
Time shall be the articles of incorporation of the Surviving Corporation until
thereafter amended as provided by law and the articles of incorporation;

 

(ii)                                  The by-laws of the
Merger Sub as in effect immediately prior to the Effective Time shall be the
by-laws of the Surviving Corporation; and

 

(iii)                               The officers and
directors of the Merger Sub immediately prior to the Effective Time shall be
the officers and directors of the Surviving Corporation.

 

1.5                                 Effect
on Company Stock; Merger Consideration. 
At the Effective Time, by virtue of the Merger, and without any action
on the part of the Merger Sub, the Company, the Major Stockholders, the
Stockholder Representative or the Company Stockholders, the Company Stock shall
be converted into the right to receive the Merger Consideration and shall no
longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of any Company Stock outstanding
immediately prior to the Closing shall cease to have any rights with respect
thereto and the Company Stockholders shall only have the right to receive the
Merger Consideration as defined and provided herein.  After the Closing, the stock transfer books
of the Company shall be closed and there shall be no further registration of
transfers on the stock transfer book of Company Stock which was outstanding
immediately prior to the Closing.  The
stock of the Merger Sub outstanding immediately prior to the Merger will be
converted, by virtue of the Merger and without any action on behalf of SI
(USA), into stock of the Surviving Corporation.

 

2

 

1.6                                 Merger
Consideration; Manner of Payment.

 

(a)                                  Merger
Consideration.  The aggregate
consideration to be paid for all of the Company Stock issued and outstanding
immediately prior to the Effective Date shall be equal to $13,500,000 less the
Payoff Amounts (subject to the adjustments set forth in Section 1.7
below), of which approximately twenty-five percent (25%) to fifty percent (50%)
will be comprised of the Parent Common Stock, with the Major Shareholders
receiving at least half the Merger Consideration they are to receive in Parent
Common Stock, the exact number to be determined in accordance with the
methodologies and procedures set forth in procedures set forth on Schedule
1.6 under the heading “Parent Common
Stock Determination” (the “Merger
Shares”), with the difference to be comprised of cash (the “Cash Portion”).  The Merger Shares and the Cash Portion shall
be referred to herein collectively as the “Merger
Consideration”.  The Merger
Shares shall be allocated among the Major Stockholders, pro rata, and the Cash
Portion shall be delivered to the Stockholder Representative and paid to each
Company Stockholder by the Stockholder Representative as required by the
Company’s certificate of incorporation as it exists immediately prior to the
Effective Time.

 

(b)                                 Manner of Payment.  Subject to the adjustments set forth in Section 1.7
below, if any, the Merger Consideration shall be payable as follows:

 

(i)                                     At Closing, the
Merger Sub shall (A) pay the Cash Portion of the Merger Consideration less
the sum of the Cash Escrow Amount by wire transfer of immediately available
funds to the Stockholder Representative on behalf of the Company Stockholders
pursuant to instructions delivered to the SI (USA) no later than two (2) Business
Days prior to the Closing Date, and (B) deposit the Cash Escrow Amount
with the Escrow Agent to be held in accordance with the provisions of the
Escrow Agreement; and

 

(ii)                                  At Closing, the
Merger Sub shall deliver to the Stockholder Representative the Merger Shares
less the Escrow Shares and to the Escrow Agent the Escrow Shares to be held in
accordance with the provisions of the Escrow Agreement.

 

(c)                                  Costs.  The Parties agree that they shall each be
responsible for any fees and disbursements of counsel and any other consultants
that they have engaged in connection with the transactions contemplated
hereunder.  The Merger Sub and the
Stockholder Representative shall split any and all fees and costs charged by
the Escrow Agent in connection with its obligations under the Escrow Agreement.

 

1.7                                 Closing
and Post-Closing Adjustment.

 

(a)                                  Estimated Closing
Balance Sheet.   An estimated closing
balance sheet for the Company containing all the assets and the Liabilities of
the Company and setting forth in reasonable detail its estimate of the net book
value of the Company’s assets as of March 31, 2008 and the book amount of
the Company’s Liabilities as of March 31, 2008 (such balance sheet is
referred to herein as the “Estimated Closing 

 

3

 

Balance Sheet”) is
attached hereto as Schedule 1.7(a). 
The Estimated Closing Balance Sheet was prepared in accordance
with GAAP consistently applied, and all the estimates
thereon were reasonably determined in good faith.  Based on the Estimated Closing Balance Sheet,
the Parties agree that estimated Closing Net Worth is $5,506,469.

 

(b)                                 Closing Date Net
Worth Adjustment. The parties agree that estimated Closing Net
Worth of $5,506,649 is less than the Net Worth Target by more than $1,000,000,
the Parties, have agreed, however, that the Merger Consideration will be
adjusted only by $1,000,000 (the “Negative
Closing Date Adjustment Amount”).

 

(c)                                  Final Closing
Balance Sheet.  Within forty-five
(45) days after the Closing Date, the Surviving Corporation shall provide to
the Stockholder Representative a final closing balance sheet for the Company
setting forth all the assets and Liabilities of the Company and setting forth
in reasonable detail the net book value of the assets of the Company as of
immediately prior to March 31, 2008 and the book amount of the Company’s
Liabilities as of immediately prior to March 31, 2008, which shall include
each of the accounts required in determining the Closing Net Worth (such
balance sheet is referred to herein as the “Closing
Balance Sheet”) following the methodologies and procedures used in
calculating the Estimated Closing Balance Sheet.  The Stockholder Representative shall be given
reasonable access to the work papers and other materials used in the preparation
of the Closing Balance Sheet.  The
Closing Balance Sheet shall be accompanied by a determination of the Closing
Net Worth.

 

(d)                                 Resolution of
Disputes.  In the event the
Stockholder Representative does not agree as to the Closing Balance Sheet or to
the amount of the Closing Net Worth determined by the Surviving Corporation,
then the Stockholder Representative shall deliver to the Surviving Corporation
a written statement (the “Objection Notice”)
describing with reasonable detail the basis for any such claim within 60 days
after receiving the Closing Balance Sheet. 
The Surviving Corporation and the Stockholder Representative will use
reasonable efforts to resolve any such claims themselves.  If they do not obtain a final resolution
within 75 days after delivery of the Objection Notice, the Surviving
Corporation and the Stockholder Representative will select a regional or
national accounting firm mutually acceptable to them to resolve any remaining
such claims.  If the Surviving
Corporation and the Stockholder Representative are unable to agree on the
choice of an accounting firm, they will select a nationally recognized
accounting firm by lot (after excluding any such firm engaged by the Surviving
Corporation, the Parent or their affiliates) (the “Arbitrating Accountant”). 
Upon submission to the Arbitrating Accountant for resolution, the
Surviving Corporation and the Stockholder Representative shall each indicate in
writing its position on each disputed matter. 
The Arbitrating Accountant shall make a written determination on each
disputed matter as soon as practicable and such determination will be
conclusive and binding upon the Surviving Corporation and the Stockholder
Representative with respect to that disputed matter.  The proposed Closing Balance Sheet and the
Closing Net Worth will be revised as appropriate to reflect the resolution of
any such claims pursuant to this Section 1.7.  The fees and expenses of the Arbitrating
Accountant shall be shared equally between the Surviving Corporation and the
Company Stockholders.

 

4

 

(e)                                  Post-Closing
Adjustments.  Promptly, and in any
event no later than the 5th Business Day after final determination of the
Closing Net Worth in accordance with Sections 1.7(c) and 1.7(d):

 

(i)                                     if the Closing Net
Worth is less than $5,431,469, then the Stockholder Representative and
Surviving Corporation will cause to be paid or delivered from the Escrow
Account a portion of the Cash Escrow Amount (by wire transfer of immediately
available funds to the Surviving Corporation) and a portion of the Escrow
Shares (by delivery of certificates reflecting such shares to the Surviving
Corporation), equal to such number (the value of the Escrow Shares delivered to
the Surviving Corporation determined in accordance with the Escrow Agreement)
and such amount shall be deemed a decrease to the Merger Consideration; and

 

(ii)                                  if the Closing Net
Worth is $5,431,469 or greater, no adjustments to the Merger Consideration
shall be made and no amount shall be payable by the Surviving Corporation to
the Stockholder Representative.

 

(f)                                    [Intentionally
left blank]

 

(g)                                 The Surviving
Corporation will make any work papers and back-up materials necessary for the
preparation of the Estimated Closing Balance Sheet or the Closing Balance
Sheet, and any books, records and financial staff of the Surviving Corporation,
available to the Stockholder Representative and his accountants and other
representatives, and, in the event of a dispute involving the Closing Net
Worth, to the Arbitrating Accountant, at reasonable times and upon reasonable
notice at any time during the preparation and resolution by the Surviving
Corporation and the Stockholder Representative and/or the Arbitrating
Accountant of any objections to the Closing Balance Sheet.

 

(h)                                 [Intentionally left
blank].

 

(i)                                     Fractional
Shares.  No fraction of a share of
Parent Common Stock will be issued by virtue of the Merger, and each Major
Stockholder who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock
that otherwise would be received by such holder) shall receive from Parent, in
lieu of such fractional share, one (1) share of Parent Common Stock.

 

1.8                                 Required
Withholding.  The Parent, the
Surviving Corporation and/or the Stockholder Representative shall be entitled
to deduct and withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement to any holder or former holder of Company Stock such
amounts as are required to be deducted or withheld therefrom under the Code or
under any provision of state, local or foreign tax law or under any other
applicable legal requirement.  To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.

 

5

 

1.9                                 No Further
Ownership Rights in Company Stock. 
All Merger Consideration issued and/or paid in accordance with the terms
hereof shall be in full satisfaction of all rights pertaining to the Company
Stock and there shall be no further registration of transfers on the records of
the Parent or the Surviving Corporation of shares of Company Stock that were
outstanding immediately prior to the Effective Time.  If, after the Effective Time, any shares of
Company Stock are presented to the Parent or Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.

 

1.10                           Taking of Necessary
Action; Further Action.  If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Company, the appropriate officers and
directors of the Parent, SI (USA) and the Surviving Corporation will take all
such lawful and necessary action.

 

1.11                           Closing Deliveries.  The following items shall be delivered by the
Parties at Closing:

 

(a)                                  By
the Company and the Stockholder Representative.  At the Closing, the Company and the Stockholder
Representative shall execute and deliver to, or cause to be executed and
delivered to, the Merger Sub the following:

 

(i)                                     certificates
evidencing shares of Company Stock, together with a duly executed letter of
transmittal from each Company Stockholder in a form attached hereto as Exhibit A containing the
following provisions:  (A) such
representations, warranties and covenants as are reasonably required in
connection with the transactions contemplated hereby; (B) a release of all
claims against the Company, its successors and assigns and any of their
Affiliates; (C) an acknowledgement of the validity and enforceability of
this Agreement and the Merger; (D) an acknowledgement of the appointment
of the Stockholder Representative; and (E) an acknowledgement of the
Merger Consideration to be received by the Company Stockholder (the “Letters of Transmittal”);

 

(ii)                                  a
certificate reasonably acceptable to the Merger Sub and its counsel, dated as
of the Closing Date, executed by the Secretary of the Company certifying on
behalf of the Company (A) the adoption of resolutions of the Board of
Directors of the Company and the Company Stockholders authorizing the
execution, delivery and performance of this Agreement, the Merger and the
related agreements, documents and instruments referred to herein and the
respective transactions contemplated hereby and thereby, (B) a true and
complete copy certified articles of organization (as filed with the Secretary
of State of the State of Delaware) and the by-laws of the Company, each as
amended through the Closing; and (C) an incumbency certificate signed by
an officer or officers of the Company certifying the signature and office of
each officer executing this Agreement or any other agreement, certificate or
other instrument executed pursuant hereto;

 

6

 

(iii)                               each
Company Stockholder shall have delivered a Substitute Form W-9 or Form W-8
to SI (USA);

 

(iv)                              the
Consent to Change of Control and Agreement to Terminate Lease, allowing the
Surviving Corporation (at its expense) to occupy the Leased Real Property after
the Closing and providing that the Company may terminate the Leased Real
Property upon not less than 15 days written notice to landlord upon payment to
the landlord of the rent due through January 31, 2009, the expiration date
of the current lease term in the form attached hereto as Exhibit F
(the “Lease Termination Agreement”);

 

(v)                                 a
good standing certificate from the jurisdiction of the Company’s organization
and from any other jurisdiction, if any, in which the Company is required to be
qualified to do business as a foreign corporation dated not more than seven (7) days
prior to the Closing Date;

 

(vi)                              a
certificate in form and substance reasonably acceptable to the Merger Sub
establishing that the transactions contemplated by this Agreement are not
subject to withholding under Section 1445 of the Code;

 

(vii)                           an
executed Lock-Up Agreement from each of the Major Stockholders and the Electing
Stockholders in the form annexed hereto as Exhibit B;

 

(viii)                        an
executed Registration Rights Agreement from each of the Major Stockholders and
the Electing Stockholders in the form annexed hereto as Exhibit C;

 

(ix)                                the
executed Employment Agreements from J. Chris Snedeker and Kristen Peterson
Snedeker in the forms annexed hereto as Exhibits D-1 and D-2,
respectively, (the “Employment Agreements”);

 

(x)                                   final
executed payoff letters in a form reasonably satisfactory to the Merger Sub in
connection with the payment by Merger Sub of the indebtedness set forth on Section 1.11(a)(x) of
the Company Disclosure Schedule attached hereto and any other debt for borrowed
money that is secured by the assets of the Company;

 

(xi)                                waivers,
permits, licenses, consents, approvals or other authorizations or the
registrations, filings and notices referred to in Section 4.4 which
are required on the part of the Company, including, but not limited to, each of
the approvals, consents, licenses, and waivers set forth on Section 1.11(a)(xi)
of the Company Disclosure Schedule (the “Material Consents”);

 

(xii)                             Tax
good standing certificates issued by the States of Delaware and Kansas;

 

7

 

(xiii)                          the
Escrow Agreement, duly executed by the Stockholder Representative, in the form
annexed hereto as Exhibit E;
and

 

(xiv)                         the Independent Contractor Agreement for Graphic
Design Services with Dissimo, l.l.c. and Anni Wildung  in
the form attached hereto as  Exhibit G  (the “Dissimo Independent Contractor Agreement”).

 

(b)                                 By
the Merger Sub.  At the Closing, the
Merger Sub shall execute and deliver to, or cause to be executed and delivered
to, the Company the following:

 

(i)                                     a
certificate reasonably acceptable to the Company, dated the Closing Date,
executed by an officer of the Merger Sub, certifying, on behalf of the Merger
Sub (A) the adoption of resolutions of the Board of Directors of the
Merger Sub authorizing the execution, delivery and performance of this
Agreement and the related agreements, documents and instruments referred to
herein and the respective transactions contemplated hereby and thereby; (B) a
true and complete copy of the Certificate of Incorporation of the Merger Sub
(as filed with the Secretary of State of Rhode Island) and the by-laws of the
Merger Sub, each as amended through the Closing Date; and (C) an
incumbency certificate signed by an officer or officers of the Merger Sub
certifying the signature and office of each officer executing this Agreement or
any other agreement, certificate or other instrument executed pursuant hereto;

 

(ii)                                  [intentionally
left blank];

 

(iii)                               a
good standing certificate from the jurisdiction of Merger Sub’s organization
and from any other jurisdiction, if any, in which Merger Sub is required to be
qualified to do business as a foreign corporation dated not more than seven (7) days
prior to the Closing Date;

 

(iv)                              payment
by wire transfer of the Cash Portion of the Merger Consideration to the
Stockholder Representative, as adjusted in accordance with Section 1.7
of this Agreement, if applicable, less the Cash Escrow Amount (deposited with
the Escrow Agent);

 

(v)                                 evidence
of payment of the Payoff Amounts;

 

(vi)                              delivery
of the Merger Shares to the Stockholder Representative, less the Escrow Shares;

 

(vii)                           the
Employment Agreements executed by SI (USA);

 

(viii)                        the
Lock-Up Agreement executed by the Parent;

 

(ix)                                the
Escrow Agreement, duly executed by SI (USA); and

 

(x)                                   the
Registration Rights Agreement executed by the Parent.

 

8

 

ARTICLE II

STOCKHOLDER REPRESENTATIVE

 

2.1                                 Designation of
Stockholder Representative.  Thomas
K. Manning (the “Stockholder Representative”) is
hereby designated by each of the Major Stockholders, by the execution of this
Agreement, and each of the Other Stockholders, by the approval of the Merger
and adoption of this Agreement, to serve as the representative of the
Stockholders with respect to the matters expressly set forth in this Agreement
to be performed by the Stockholder Representative.

 

2.2                                 Authority.  Each of the Major Stockholders, by the
execution of this Agreement, and each of the Other Stockholders, by the
approval of the Merger and adoption of this Agreement, hereby irrevocably
appoints the Stockholder Representative as the agent, proxy and attorney-in-fact
for such Company Stockholder for all purposes of this Agreement (including the
full power and authority on such Company Stockholder’s behalf (a) to
consummate the transactions contemplated herein; (b) to pay such Company
Stockholder’s expenses incurred in connection with the negotiation and
performance of this Agreement (whether incurred on or after the date hereof); (c) to
disburse any funds received hereunder to such Company Stockholder and each
other Company Stockholder; (d) to endorse and deliver any certificates or
instruments representing the Company Stock, and to execute such further
instruments of assignment as Merger Sub or Surviving Corporation (as
applicable) shall reasonably request; (e) to execute and deliver on behalf
of such Company Stockholder any amendment or waiver hereto; (f) to take
all other actions to be taken by or on behalf of such Company Stockholder in
connection herewith; (g) to withhold funds to pay Company
Stockholder-related expenses and obligations; (h) to do each and every act
and exercise any and all rights which such Company Stockholder is permitted or
required to do or exercise under this Agreement; (i) to execute and
deliver the Escrow Agreement on behalf of such Company Stockholder and each
other Company Stockholder and to take all actions required thereunder; (j) to
resolve claims under this Agreement and the Escrow Agreement; and (k) to
establish such reserves as the Stockholder Representative may from time to time
determine, in his sole discretion, to be necessary and desirable in connection
with the expenses and other costs that may be borne by the Stockholder
Representative or the Company Stockholders hereunder, and to pay such reserves
from the Escrow Fund only upon the release of the Escrow Funds in accordance
with the terms of the Escrow Agreement or to withhold such reserves from the
Merger Consideration payable under Section 1.6(b)); provided,
however, that, notwithstanding the foregoing, the Stockholder Representative
shall not have the authority to increase the liability or obligations of the
Company Stockholders or to reduce the Merger Consideration without the prior
written consent of Company Stockholders owning a majority of each class of the
Company Stock prior to the Closing.  Each
of the Company Stockholders agrees that such agency and proxy are coupled with
an interest, are therefore irrevocable without the consent of the Stockholder
Representative and shall survive the death, incapacity, bankruptcy, dissolution
or liquidation of any Stockholder.  All
decisions and actions by the Stockholder Representative (to the extent
authorized by this Agreement) shall be binding upon all of the Stockholders,
and no Stockholder shall have the right to object, dissent, protest or
otherwise contest the same.

 

2.3                                 Indemnification.  Each Company Stockholder hereby severally,
for himself, herself or itself only and not jointly, agrees to indemnify and
hold harmless the 

 

9

 

Stockholder Representative
against all expenses (including reasonable attorneys’ fees), judgments, fines,
liabilities, losses, damages, penalties, costs, fees and amounts paid in
settlement actually and reasonably incurred by the Stockholder Representative
in connection with any action, suit or proceeding to which the Stockholder
Representative is made a party (whether or not involving a third party) by
reason of the fact he is or was acting as the Stockholder Representative
pursuant to the terms of this Agreement.

 

2.4                                 No Liability.  Neither the Stockholder Representative nor
any agent employed by him shall incur any liability to any Company Stockholder
by virtue of the failure or refusal of the Stockholder Representative for any
reason to consummate the transactions contemplated hereby or relating to the
performance of his other duties hereunder, except for actions or omissions
constituting fraud, bad faith or gross negligence.  Further, notwithstanding anything in this
Agreement to the contrary, the Stockholder Representative is serving in that
capacity solely for purposes of administrative convenience and shall have no
personal liability to Merger Sub, Surviving Corporation, SI (USA), Parent or
otherwise under this Agreement with respect to his actions as Stockholders
Representative on behalf of the Company Stockholders and the Stockholder
Representative’s sole and exclusive obligation and liability shall be limited
to funds provided directly or indirectly via the Escrow Account to the
Stockholder Representative. 
Notwithstanding the foregoing or anything to the contrary in this
Agreement, none of the foregoing will in any way limit the indemnification
obligation of the Stockholder Representative, set forth in Article X, in
his capacity as a Company Stockholder, and/or in any way modify the
representations, warranties and covenants made by the Stockholders
Representative as a Company Stockholder.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY 

STOCKHOLDERS

 

3.1                                 Representations and
Warranties of the Stockholders.  As a
material inducement to Parent, SI (USA) and Merger Sub to enter into this
Agreement and consummate the transactions contemplated hereby, each stockholder
of the Company, by approval of the Merger and the adoption of this Agreement
(collectively, the “Company Stockholders”),
hereby severally (and not jointly) represents and warrants to the Parent, SI
(USA) and the Merger Sub that, as of the date of this Agreement and as of the
Closing Date, as follows:

 

(a)                                  Title
to Company Stock.  Such Company
Stockholder has good and marketable title to the Company Stock which is to be
exchanged by such Company Stockholder pursuant to this Agreement, free and
clear of any and all Security Interests, option or rights of any nature.  Section 3.1(a) of the
Company Disclosure Schedule (as defined below) sets forth a true and correct
description of all Company Stock owned by such Company Stockholder.

 

(b)                                 Authority.  Such Company Stockholder does not, and the
performance of his, her or its obligations hereunder will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, or prevent consummation of the Merger or otherwise
prevent the parties hereto from performing their obligations under this
Agreement, and such Company Stockholder 

 

10

 

has the full right, power and authority to
approve the Merger and to execute and deliver all agreements instruments and
documents, (the “Company Stockholder Agreements”)
entered into in connection herewith by such Company Stockholder and to perform
such Company Stockholder’s obligations thereunder.  The Company Stockholder Agreements to which
each Company Stockholder is a party constitute the valid and legally binding
obligations of such Company Stockholder in accordance with their respective
terms.

 

(c)                                  Non-Contravention.  Such Company Stockholder is not a party to,
subject to or bound by any agreement or any judgment, order, writ, law, rule,
prohibition, injunction or decree of any court or other governmental body which
conflicts with, would be breached by or defaulted under, or would prevent or
impair the execution or delivery of this Agreement or the Company Stockholder Agreements
by such Company Stockholder, the performance of such Company Stockholder’s
obligations under this Agreement or the Company Stockholder Agreements and the
transactions contemplated thereunder, or the sale or transfer of the Company
Stockholder’s Shares pursuant hereto.

 

3.2                                 Representations and
Warranties of the Major Stockholders. 
As a material inducement to Parent, 
SI (USA)  Merger Sub to enter into
this Agreement and consummate the transactions contemplated hereby, each Major
Stockholder hereby jointly and severally represents and warrants to the
Parent,  SI (USA) and the Merger Sub that,
as of the date of this Agreement and as of the Closing Date, all of the
statements contained in this Section 3.2 are true, correct and
complete with respect to such Major Stockholder as of the date of this
Agreement and as of the Closing Date:

 

(a)                                  Authority.  Such Major Stockholder has the full right,
power and authority to execute and deliver this Agreement and all of the other
agreements, instruments and documents (the “Related
Agreements”) entered into in connection herewith by such Major
Stockholder and to perform such Major Stockholder’s obligations hereunder and
thereunder.  This Agreement and the
Related Agreements to which each Major Stockholder is a party constitute the
valid and legally binding obligations of such Major Stockholder, enforceable
against such Major Stockholder in accordance with their respective terms.

 

(b)                                 Accredited
Investor.  Such Major Stockholder is
an “accredited investor” as defined in Rule 501(a) of Regulation D,
as amended, under the Securities Act (“Regulation D”).  Such Major Stockholder understands that the
Merger Shares are being offered and sold in reliance on specific exemptions
from the registration and qualification requirements of United States federal
and state securities laws and that the Merger Sub and Parent are relying upon
the truth and accuracy of, and the Company’s and the Major Stockholders’
compliance with, the representations, warranties, agreements, acknowledgements
and understandings set forth herein in order to determine the availability of
such exemptions and its eligibility to receive the Merger Shares.

 

(c)                                  Purchase
Entirely for Own Account.  The Merger
Shares, if any, to be received by each Major Stockholder hereunder will be
acquired by such Major Stockholder for his or her own account, not as nominee
or agent, for investment, and not with a view to, or for sale in connection
with, the distribution of the Merger Shares, or 

 

11

 

with any present intention of selling or
otherwise disposing of all or any part of the Merger Shares, except in
accordance with the terms of the Lock-Up Agreement.  No Major Stockholder has any agreement or
understanding, whether or not legally binding, direct or indirect, with any other
Person to sell or otherwise distribute the Merger Shares.  Such Major Stockholder understands that the
Merger Shares are not being registered under the Securities Act because the
issuance and sale of the Merger Shares is intended to be exempt from registration
under Section 4(2) of the Securities Act and the rules and
regulations promulgated thereunder, including Regulation D, as not involving a
public offering.  The Major Stockholders
acknowledge that the Merger Shares cannot be sold or otherwise transferred
except (i) in compliance with the terms of this Agreement and the Lock-Up
Agreement, and (ii) unless (A) such securities have been registered
for sale pursuant to the Securities Act, (B) such securities are sold
pursuant to Rule 144 promulgated under the Securities Act, or (C) the
Company and/or such Major Stockholder, as applicable, have received an opinion
of counsel reasonably satisfactory to him, her or it that such transfer may
lawfully be made without registration under the Securities Act or qualification
under applicable state securities laws.

 

(d)                                 Restricted
Securities.  Each Major Stockholder
understands that the Merger Shares are characterized as “restricted securities”
under the U.S. federal securities laws inasmuch as they are being acquired from
the Parent in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances and
that no federal or state agency has passed upon the Merger Shares or made any
findings or determination as to the fairness of an investment in the Merger
Shares.

 

(e)                                  Investment
Experience.  By reason of the
business and financial experience of such Major Stockholders and/or of the
business and financial experience of the persons that such Major Stockholder
has retained to advise him or her with respect to investment in the Merger
Shares, such Major Stockholder has the capacity to protect his or her
respective interest in investments of the nature of the Merger Shares.  Each Major Stockholder has carefully
evaluated his, her or its respective financial resources and investment
position and the risks associated with this investment in the Merger Shares and
is able to bear the economic risks, including a total loss, of his, her or its
respective investment in the Merger Shares. 
Each Major Stockholder understands that the purchase of the Merger
Shares involves substantial risk.

 

(f)                                    Disclosure
of Information.  Each Major
Stockholder has had the opportunity to ask questions of, and receive answers
from, officers of the Parent and the Merger Sub regarding the terms and
conditions of this Agreement and other documents and materials, and the
transactions contemplated thereby, as well as the affairs of the Parent and the
Merger Sub and related matters.

 

(g)                                 Access
to Professionals.  Each Major
Stockholder has had the opportunity to consult with counsel, tax and other
professionals of its, his or her choosing in connection with an investment in
the Merger Shares and has relied solely upon the 

 

12

 

advice of advisors with respect to the tax
and other legal aspects of this investment in the Merger Shares.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE MAJOR 

STOCKHOLDERS

 

The Company and the Major Stockholders represent and warrant to Parent,
SI (USA) and the Merger Sub that, except as set forth in the Company Disclosure
Schedule, the statements contained in this Article IV are true and correct
as of the Closing. The Company Disclosure Schedule
shall be arranged in sections and subsections corresponding to the numbered and
lettered sections and subsections contained in each section and subsection of
this Article IV.  The disclosures in
any section or subsection of the Company Disclosure Schedule shall qualify
other sections and subsections in this Article IV only to the extent it is
reasonably apparent from a reading of the disclosure that such disclosure is
applicable to such other sections and subsections.   For purposes of this Article IV, the
phrase “to the knowledge of the Company” or any
phrase of similar import shall be deemed to refer to the actual knowledge of
the Major Stockholders as well as any other knowledge which such person would
have possessed had they made reasonable inquiry of appropriate employees and
agents of the Company with respect to the matter in question.  The phrases “in any
material respect” or “in all material respects”
or any phrase of similar import shall mean, to the extent applicable, an event
of or lack of event, that (i) gives a third party the right to
automatically terminate an agreement, (ii) results in monetary damages of
a material amount or (iii) the Company has received notice of a breach or
event of default that could result in either of the foregoing.

 

4.1                                 Organization,
Qualification and Corporate Power. 
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.  The Company is duly qualified to conduct
business and is in standing under the laws of each jurisdiction listed in Section 4.1
of the Company Disclosure Schedule, which jurisdictions constitute the only
jurisdictions in which the nature of the Company’s businesses or the ownership
or leasing of its properties requires such qualification.  The Company has all requisite 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. 
The Company has furnished to the Merger Sub complete and accurate copies
of the Company’s formation and organizational documents.  The Company is not in default under or in
violation of any provision of its formation or organizational documents.

 

4.2                                 Capitalization.

 

(a)                                  The
authorized capital stock of the Company consists of (i) 5,000,000 shares
of Series A Preferred Stock $0.0001 par value per share, of which, as of
the date of this Agreement and as of the Closing Date, 4,090,021 are issued and
outstanding (the “Company Preferred Stock”),
and (ii) 10,000,000 shares of common stock $0.0001 par value per share, of
which, as of the date of this Agreement and as of the Closing Date, 5,000,000
shares are issued and outstanding to the Company Stockholders only (the “Company Common Stock” and together with the “Company
Preferred Stock”, the “Company Stock”).

 

13

 

(b)                                 Section 4.2
of the Company Disclosure Schedule sets forth a complete and accurate list, as
of the date of the Agreement, of the holders of the Company Stock, showing the
number of shares of capital stock held by such stockholder.  All of the issued and outstanding shares of
the Company Stock have been duly authorized and validly issued and are fully
paid and nonassessable.  All of the
issued and outstanding shares of the Company Stock have been offered, issued and
sold by the Company in compliance in all material respects with all applicable
Laws.

 

(c)                                  There are no Company
stock plans and except as set forth in Section 4.2 of the Company
Disclosure Schedule, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or outstanding, (ii) the
Company has no obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security or other such right, or to issue or
distribute to any holders of the Company Stock any evidences of indebtedness or
assets of the Company, (iii) the Company has no obligation (contingent or
otherwise, including any powers of attorney granted to the Board of Directors
of the Company) to purchase, redeem or otherwise acquire any shares of the
Company Stock or any interest therein or to pay any dividend or to make any
other distribution in respect thereof, and (iv) there are no outstanding
or authorized stock appreciation, phantom stock or similar rights with respect
to the Company.

 

(d)                                 Except as set forth in
Section 4.2 of the Company Disclosure Schedule, there is no
agreement, written or oral, between the Company and any holder of its
securities, or, to the Company’s knowledge, among any holders of its
securities, relating to the sale, transfer (including agreements relating to
rights of first refusal, co-sale rights or “drag-along” rights), registration
or voting, of the Company Stock.

 

4.3                                 Authorization
of Transaction.  The execution and
delivery by the Company of this Agreement and all other agreements contemplated
hereby, and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of
the Company.  This Agreement and each
other agreement to which the Company is a party constitute the valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their respective terms. Without limiting the foregoing, the
Company has obtained all consents, approvals and other authorizations from the
Company’s Board of Directors and/or the Company Stockholders under the Company’s
organizational documents or any other document pursuant to which the Company is
required to obtain any such consent or approval.

 

4.4                                 Noncontravention.  Except as disclosed in Section 4.4
of the Company Disclosure Schedule, neither the execution and delivery by the
Company of this Agreement, nor the consummation of the transactions
contemplated hereby, will (a) conflict with or violate any provision of
the formation and organizational documents of the Company, (b) require on
the part of the Company any notice to or filing with, or any permit,
authorization, consent or approval of, any Governmental Entity, (c) conflict
with, result in a breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of obligations under,
create in any party the right to terminate, modify or cancel, or require any
notice, consent or 

 

14

 

waiver under, any contract or
agreement required to be disclosed on Section 4.4 of the Company
Disclosure Schedule, (d) conflict with, result in a breach of, constitute
(with or without due notice or lapse of time or both) a default under, result
in the acceleration of obligations under, create in any party the right to
terminate, modify or cancel, or require any notice, consent or waiver under,
any contract or instrument to which the Company is a party or by which the
Company is bound or to which any of its respective assets is subject (other
than contracts and agreements required to be disclosed on Section 4.4
of the Company Disclosure Schedule), (e) result in the imposition of any
Security Interest upon any assets of the Company or (f) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the
Company or any of their respective properties or assets.

 

4.5                                 Company
Subsidiaries.  Other than as set
forth in Section 4.5 of the Company Disclosure Schedule, the
Company does not control directly or indirectly or have any direct or indirect
equity participation or similar interest in any corporation, partnership,
limited liability company, joint venture, trust or other business association
or entity.

 

4.6                                 Company
Financial Statements.  The Company
has provided or made available to SI (USA) and Merger Sub the Company Financial
Statements attached hereto as Section 4.6 of the Company Disclosure
Schedules.  The Company Financial
Statements (a) were prepared in accordance with GAAP applied on a
consistent basis (except as may be indicated in the notes to such financial
statements) and (b) fairly present the financial position of the Company
as of the dates thereof and the results of its operations and cash flows for
the periods indicated, consistent with the books and records of the Company,
except that the unaudited interim financial statements are subject to normal
and recurring year-end adjustments which will not be material in amount or
effect and do not include footnotes.

 

4.7                                 Absence
of Certain Changes.  Since the
Company Most Recent Balance Sheet Date, (a) there has occurred no event or
development which, individually or in the aggregate, has had, or would
reasonably be expected to have in the future, a Company Material Adverse Effect
and (b) the Company has not taken any of the actions set forth in
paragraphs (a) through (n) of Section 6.3.

 

4.8                                 Undisclosed
Liabilities.  The Company does not
have any Liabilities (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), except
for (a) Liabilities shown on the Company Most Recent Balance Sheet, (b) Liabilities
which have arisen since the Company Most Recent Balance Sheet Date in the
Ordinary Course of Business, (c) contractual and other Liabilities
incurred in the Ordinary Course of Business which are not required by GAAP to be
reflected on a balance sheet and (d) those Liabilities listed on Section 4.8
of the Company Disclosure Schedule.

 

4.9                                 Tax
Matters.

 

(a)                                  Except as set forth in Section 4.9
of the Company Disclosure Schedule, all Tax Returns and tax reports required to
be filed with respect to the income, operations, business or assets of the
Company or each affiliated, combined or unitary group (“Tax Group”) of which the Company has been a
member (i) have been timely filed (or will be timely filed) with the
appropriate Governmental Entities for all periods 

 

15

 

ended on or prior to the Closing Date, (ii) are
correct and complete in all material respects and reflect accurately all
liability for Taxes of the Company or the Company’s Tax Group, as the case may
be, for the periods to which such returns relate and (iii) all Taxes shown
as payable on such Tax Returns have been paid (or will be timely paid),
including, any and all Taxes incurred or imposed as a result of the
consummation of any of the transactions contemplated by this Agreement.  Except as set forth in Section 4.9
of the Company Disclosure Schedule, no Governmental Authority of a jurisdiction
in which the Company does not file Tax Returns has notified the Company that
the Company may be liable to file Tax Returns in such jurisdiction.

 

(b)                                 All Taxes that the
Company or its Tax Group are required by Law to withhold or collect for all
periods ending on or prior to the Closing Date have been timely withheld or
collected, or adequately reserved for on the books and records of the Company,
and to the extent required by Law have been paid to the appropriate
Governmental Entity.

 

(c)                                  The Company has
previously delivered or made available to the SI (USA) and Merger Sub or its
agents or representatives true, correct and complete copies of each of the federal,
state, local, and other Tax Returns filed by the Company or its Tax Group for
the past three fiscal years which were due, without regard to any extensions
granted, on or before the date hereof.

 

4.10                           Assets.

 

(a)                                  The Company is the
true and lawful owner, and has good title to, all of the Company’s assets, free
and clear of all Security Interests, except as set forth in Section 4.10(a) of
the Company Disclosure Schedule.  The
Company owns or leases all of its assets and they are sufficient for the conduct
of its business as presently conducted.

 

(b)                                 Each item of equipment
and other asset that the Company has possession of pursuant to a lease
agreement or other contractual arrangement is in such condition that, upon its
return to its lessor or owner under the applicable lease or contract listed on Section 4.10(b) of
the Company Disclosure Schedule, the obligations of the Company to such lessor
or owner will have been discharged in full.

 

4.11                           Owned
Real Property.  The Company does not
own any real property in its own name.

 

4.12                           Real
Property Leases.  The Company’s only
Lease is the Leased Real Property Lease. 
The Company has delivered or made available to the SI (USA) Merger Sub a
complete and accurate copy of the Leased Real Property Lease.  With respect to the Leased Real Property
Lease:

 

(a)                                  it is legal, valid,
binding, enforceable and in full force and effect;

 

(b)                                 assuming no breach
thereof by Surviving Corporation following the Closing, the Leased Real
Property Lease, as amended, will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in 

 

16

 

accordance with the terms thereof as in effect immediately prior to the
Closing; neither the Company nor to the knowledge of the Company any other
party, is in breach or violation of, or default under, the Leased Real Property
Lease in any material respect, and no event has occurred, is pending or, is to
the knowledge of the Company threatened, which, after the giving of notice,
with lapse of time, or otherwise, would constitute a breach or default by the
Company or, any other party in any material respect under the Leased Real
Property Lease, and all rents due to date on the Leased Real Property Lease have
been paid;

 

(c)                                  there are no
disputes, oral agreements or forbearance programs in effect as to the Leased
Real Property Lease;

 

(d)                                 the Company has not
assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any
interest in the Leased Real Property Lease;

 

(e)                                  all facilities leased
or subleased thereunder are supplied with utilities and other services adequate
for the operation of said facilities as currently operated; and

 

(f)                                    the Company is not
aware of any Security Interest, easement, covenant or other restriction
applicable to the real property subject to the Leased Real Property Lease which
would reasonably be expected to materially impair the current uses or the
occupancy by the Company of the property subject thereto.

 

4.13                           Intellectual
Property.

 

(a)                                  Company
Registrations.  Section 4.13(a) of
the Company Disclosure Schedule lists (i) all Company Registrations, in
each case enumerating specifically the applicable filing or registration
number, title, jurisdiction in which filing was made or from which registration
issued, date of filing or issuance, names of all current applicant(s) and
registered owners(s), as applicable, and (ii) all other Company
Intellectual Property.  Except as set
forth in Section 4.13(a) of the Company Disclosure Schedule,
all assignments of Company Registrations to the Company have been properly
executed and recorded.  All Company
Registrations are valid and enforceable and all issuance, renewal, maintenance
and other payments that are or have become due with respect thereto have been
timely paid by or on behalf of the Company.

 

(b)                                 Prosecution Matters.  There are no inventorship challenges,
opposition or nullity proceedings or interferences declared or commenced or to
the knowledge of the Company threatened, with respect to any material Patent
Rights included in the Company Registrations. 
To the knowledge of the Company, the Company has complied with their
duty of candor and disclosure to all relevant domestic and foreign patent
offices with respect to all patent and trademark applications filed by or on
behalf of the Company in all material respects and has made no material
misrepresentation in such applications. 
Except as set forth on Section 4.13(b) of the Company
Disclosure Schedule, the Company has no knowledge of any information that 

 

17

 

would preclude the Company from having clear title to the Company
Registrations or affecting the patentability or enforceability of any Company
Registrations.

 

(c)                                  Ownership;
Sufficiency.  Each item of Company
Intellectual Property will be owned or available for use by the Company
immediately following the Closing on substantially identical terms and
conditions as it was immediately prior to the Closing.  The Company is the sole and exclusive owner
of, or has a valid license to use all Company Owned Intellectual Property, free
and clear of any Security Interests and all license or joint owners of the
Company Owned Intellectual Property are listed in Section 4.13(c) of
the Company Disclosure Schedule.  The
Company Intellectual Property constitutes all Intellectual Property necessary
to conduct the Company’s business in all material respects in the manner
currently conducted.

 

(d)                                 Infringement by
Company.  To the knowledge of the
Company, the Company Owned Intellectual Property does not infringe or violate,
or constitute a misappropriation of, any Intellectual Property rights of any
third party.  Section 4.13(d) of
the Company Disclosure Schedule lists any complaint, claim or notice, or threat
of any of the foregoing (including any notification that a license under any
patent is or may be required), received by the Company alleging any such
infringement, violation or misappropriation and any request or demand for
indemnification or defense received by the Company from any reseller,
distributor, customer, user or any other third party; and copies of all such
complaints, claims, notices, requests, demands or threats, as well as any legal
opinions, studies, market surveys and analyses relating to any alleged or
potential infringement, violation or misappropriation have been provided or
made available to the Merger Sub.

 

(e)                                  Infringement of
Company Rights.  Except as set forth
in Section 4.13(e) of the Company Disclosure Schedule, to the
knowledge of the Company, no person (including, without limitation, any current
or former employee or consultant of the Company) is infringing, violating or
misappropriating any of the Company Owned Intellectual Property or any Company
Licensed Intellectual Property which is exclusively licensed to the Company.

 

(f)                                    Outbound IP
Agreements.  Section 4.13(f) of
the Company Disclosure Schedule identifies each license, covenant or other
agreement pursuant to which the Company has assigned, transferred, licensed,
distributed or otherwise granted any right or access to any person, or
covenanted not to assert any right, with respect to any past, existing or
future Company Intellectual Property. 
Except for the sale of Company Products in the Ordinary Course of Business,
the Company has not agreed to indemnify any person against any infringement,
violation or misappropriation of any Intellectual Property rights with respect
to any third party Intellectual Property rights.

 

(g)                                 Employee and
Contractor Assignments.  Except as
set forth in Section 4.13(g) of the Company Disclosure
Schedule, all current and former employees, managers, stockholders, founders
and independent contractors of the Company have executed a valid and binding
written confidentiality/inventions agreement assigning to the Company all
right, title and interest in any inventions and works of authorship related 

 

18

 

to the Company’s business, whether or not patentable, invented,
created, developed, conceived and/or reduced to practice during the term of
such employee’s or manager’s employment or such stockholder’s or founder’s
association with the Company or such independent contractor’s work for the
Company, and all Intellectual Property rights therein.

 

4.14                           Contracts.

 

(a)                                  Section 4.14
of the Company Disclosure Schedule lists by corresponding subsection the
following Contracts to which the Company is a party as of the date of this
Agreement:

 

(i)                                     any agreement (or
group of related agreements) under which it has created, incurred, assumed or
guaranteed (or may create, incur, assume or guarantee) an obligation (including
capitalized lease obligations) which may not be terminated on 90 days written
notice involving more than $50,000;

 

(ii)                                  any agreement for the
disposition of any portion of the assets or business of the Company;

 

(iii)                               any agreement imposing
confidentiality obligations on the Company;

 

(iv)                              any agreement which
contains any provisions requiring the Company to indemnify any other party
(excluding indemnities contained in agreements for the purchase, sale or
license of Company Products entered into in the Ordinary Course of Business);
and

 

(v)                                 any agreement under
which the Company is restricted from selling, licensing or otherwise
distributing any of its technology or Company Products, or providing services
to, customers or potential customers or any class of customers, in any
geographic area, during any period of time or any segment of the market or line
of business; or in which the Company has granted manufacturing rights, “most favored nation” pricing provisions or
marketing or distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party.

 

(b)                                 The Company has
delivered or made available to SI (USA) and the Merger Sub a complete and
accurate copy of each agreement listed in Section 4.13 or Section 4.14
of the Company Disclosure Schedule.  With
respect to each agreement so listed, except as set forth in Section 4.14(b) of
the Company Disclosure Schedule:  (i) the
agreement is legal, valid, binding and enforceable and in full force and
effect; (ii) assuming no breach thereof by Surviving Corporation following
the Closing, the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the
Closing; and (iii) neither the Company nor, to the knowledge of the
Company, any other party, is in breach or violation of, or default under, any
such 

 

19

 

agreement in any material respect, and no event has occurred, is
pending or, to the knowledge of the Company, is threatened, which, after the
giving of notice, with lapse of time, or otherwise, would constitute a breach
or default by the Company or, to the knowledge of the Company, any other party
under such agreement.

 

(c)                                  All agreements,
written or oral, between the Company and any holder of its securities, or among
any holders of its securities, relating to the sale, transfer (including
agreements relating to rights of first refusal, co-sale rights or “drag-along”
rights), registration or voting, of the capital stock of the Company, are
listed on Section 4.14(c) of the Company Disclosure Schedule,
and all such agreements will terminate as of the Closing without any further
action of any party thereto.

 

4.15                           Accounts
Receivable.  All accounts receivable
of the Company reflected on the Company Most Recent Balance Sheet (other than
those paid since such date) are valid receivables and except as set forth in Section 4.15
of the Company Disclosure Schedule, are subject to no setoffs, credits, allowances,
discounts, charge-backs or counterclaims and are current and not in excess of
the Company’s reserves for bad debts on the Company Most Recent Balance
Sheet.  A complete and accurate list of
the accounts receivable reflected on the Company Most Recent Balance Sheet,
showing the aging thereof, is included in Section 4.15 of the
Company Disclosure Schedule.  All
accounts receivable of the Company that have arisen since the Company Most
Recent Balance Sheet Date are valid receivables and except as set forth in Section 4.15
of the Company Disclosure Schedule, are subject to no setoffs, credits,
allowances, discounts, charge-backs or counterclaims and are current and not in
excess of the Company’s reserves for bad debts on the Company’s Most Recent
Balance Sheet.  The Company has not
received any written notice from an account debtor stating that any account
receivable in an amount in excess of $25,000 is subject to any contest, claim
or setoff by such account debtor.

 

4.16                           Powers
of Attorney.  There are no
outstanding powers of attorney executed on behalf of the Company.

 

4.17                           Insurance.  Section 4.17 of the Company Disclosure
Schedule lists each insurance policy (including fire, theft, casualty,
comprehensive general liability, workers compensation, pension, group life,
business interruption, environmental, product liability and automobile
insurance policies and bond and surety arrangements) to which the Company is a
party, all of which are in full force and effect.  There is no claim pending under any such
policy as to which coverage has been questioned, denied or disputed by the
underwriter of such policy.  All premiums
due and payable under all such policies have been paid; to the knowledge of the
Company, the Company is not liable for retroactive premiums or similar
payments; and the Company is otherwise in compliance in all material respects
with the terms of such policies.  The
Company has no knowledge of any threatened termination of, or premium increase
with respect to, any such policy. 
Assuming no violation thereof by the Surviving Corporation following the
Closing, each such policy will continue to be enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof
as in effect immediately prior to the Closing.

 

4.18                           Litigation.  Except as set forth in Section 4.18
of the Company Disclosure Schedule, there is no Legal Proceeding which is
pending or to the knowledge of the Company 

 

20

 

has been threatened
against the Company which (a) seeks either damages in excess of $25,000 or
equitable relief or (b) in any manner challenges or seeks to prevent,
enjoin, alter or delay the transactions contemplated by this Agreement.  There are no judgments, orders or decrees
outstanding against the Company.

 

4.19                           Product
Warranties; Products Liability; Product Quality.

 

(a)                                  A true and complete
list of all Company Products is set forth in Section 4.19(a) of
the Company Disclosure Schedule.

 

(b)                                 No Company Product or
service manufactured, sold, leased, licensed or delivered by the Company is
subject to any guaranty, warranty, right of return, right of credit or other
indemnity other than (i) the applicable standard terms and conditions of
sale of the Company, which are set forth in Section 4.19(b) of
the Company Disclosure Schedule and (ii) manufacturers’ warranties for
which the Company does not have any liability.

 

(c)                                  Except as set forth
on Section 4.19(c) of the Company Disclosure Schedule, no
material claim for product liability injury to persons or damage to property
caused by the Company’s products has ever been made or threatened against the
Company.

 

(d)                                 All Company Products
manufactured, sold, leased, licensed or delivered by the Company are free from
significant defects in design, workmanship and materials and conform in all
material respects to the written Documentation and specifications
therefor.  The Company has not received
any warranty claims, contractual terminations or requests for settlement or
refund due to the failure of any of its Company Products to meet their
specifications or otherwise to satisfy end user needs or for harm or damage to
any third party in any material amount. 
The Company has also not received notice of any, and to the knowledge of
the Company there are not any, set of facts that (i) would reasonably be
likely to furnish a basis for the recall, withdrawal or suspension of any
Company Product, approval or consent of any Governmental Entity with respect to
any Company Product, (ii) would reasonably be likely to furnish a basis
for the recall, withdrawal or suspension of any Company Product or service by
Order of any state, federal or foreign court of law, or (iii) would
reasonably be likely to otherwise cause the Company or the Business to recall,
withdraw or suspend any of the Company Products from the market or to change
the marketing classification of any of its Company Products.  The Company has not received written notice
of any, and to the knowledge of the Company there are not any, Defects in any
of the Company Products that is reasonably likely to give rise to any Damages
in excess of insurance or that will cause such Company Product not to be
useable as intended or marketed.

 

4.20                           Employees.

 

(a)                                  Section 4.20
of the Company Disclosure Schedule contains a list of all employees of the
Company, along with the position of each employee.  The Company has provided or made available to
the Merger Sub a list showing the annual rate of 

 

21

 

compensation (including salary, bonus and fringe benefits) of each such
person.  Except as set forth in Section 4.20
of the Company Disclosure Schedule, each employee is an “at will” employee.
Assuming no breach thereof by Surviving Corporation following the Closing, all
of the agreements referenced in the preceding sentence will continue to be
legal, valid, binding and enforceable and in full force and effect immediately
following the Closing in accordance with the terms thereof as in effect
immediately prior to the Closing.  Section 4.20
of the Company Disclosure Schedule contains a list of all employees of the
Company who are not a party to a non-competition agreement with the
Company.  The Company is in compliance in
all material respects with all applicable laws relating to the hiring and
employment of employees.

 

(b)                                 The Company is and has
been in compliance in all material respects with all applicable statutes
regarding employment related matters (including, but not limited to those
related to employment practices, terms and conditions of employment, wages and
hours and occupational health and safety) with respect to its current and
former personnel.

 

(c)                                  The Company (i) has
withheld and reported all amounts required by statute or by agreement to be
withheld and reported with respect to salaries and other payments to its
current and former personnel; (ii) is not liable for any arrears of
salaries, other payments, Taxes, or any penalty for failure to comply with any
of the foregoing; and (iii) is not liable for any payment to any
government authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for its current and former
personnel (other than routine payments to be made in the normal course of
business and consistent with past practice).

 

(d)                                 The Company is not a
party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices or other
collective bargaining disputes.  The
Company has no knowledge of any organizational effort made or threatened,
either currently or within the past two years, by or on behalf of any labor
union with respect to employees of the Company.

 

4.21                           Employee
Benefits.

 

(a)                                  Section 4.21(a) of
the Company Disclosure Schedule contains a complete and accurate list of all
Company Plans.  Complete and accurate
copies of (i) all Company Plans which have been reduced to writing, (ii) written
summaries of all unwritten Company Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) any
annual reports filed with a Governmental Entity and (for all funded plans) all
plan financial statements for the last five plan years for each Company Plan,
have been delivered or made available to the Merger Sub.

 

(b)                                 Each Company Plan has
been administered in all material respects in accordance with its terms and the
Company has in all respects met its obligations with respect to each Company
Plan and has made all required contributions thereto.  All material filings and reports as to each
Company Plan required to have been submitted to 

 

22

 

any Governmental Entity have been duly submitted.  No Company Plan has assets that include
securities issued by the Company.

 

(c)                                  There are no Legal
Proceedings against or involving any Company Plan or asserting any rights or
claims to benefits under any Company Plan that could give rise to any material
liability.

 

(d)                                 Except for amounts to
be paid pursuant to the Severance Plan and Retention Bonus Plan, there are no
unfunded obligations under any Company Plan providing benefits after
termination of employment to any employee of the Company (or to any beneficiary
of any such employee), including but not limited to retiree health coverage and
deferred compensation.

 

(e)                                  No act or omission
has occurred and no condition exists with respect to any Company Plan that
would subject the Company to (i) any material fine, penalty, tax or
liability of any kind imposed under any applicable statute, law or regulation
or (ii) any contractual indemnification or contribution obligation
protecting any fiduciary, insurer or service provider with respect to any
Company Plan.

 

(f)                                    Each Company Plan
is amendable and terminable unilaterally by the Company at any time without
liability or expense to the Company or such Company Plan as a result thereof
and no Company Plan, plan documentation or agreement, summary plan description
or other written communication distributed generally to employees by its terms
prohibits the Company from amending or terminating any such Company Plan.

 

(g)                                 Section 4.21(g) of
the Company Disclosure Schedule discloses each: (i) agreement with any
Company Stockholder, director, executive officer or other employee of the
Company (A) the benefits of which are contingent, or the terms of which
are altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee or (C) providing
severance benefits or other benefits or other benefits after the termination of
employment of such director, executive officer or key employee; and (ii) agreement
or plan binding the Company including any stock option plan, stock appreciation
right plan, restricted stock plan, stock purchase plan, severance benefit plan
or Company Plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.

 

(h)                                 Section 4.21(h) of
the Company Disclosure Schedule sets forth the policy of the Company with
respect to accrued vacation, accrued sick time and earned time off and the
amount of such liabilities (including accrued but unpaid holiday salary and
holiday payments) as of March 31, 2008

 

23

 

4.22         Environmental
Matters.

 

(a)           To
the knowledge of the Company, the Company is and has been in compliance in all
material respects with all applicable Environmental Laws.  There is no pending or, to the knowledge of
the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company.

 

(b)           The
Company currently holds and has in the past held all Permits related to
environmental matters necessary for its operations as currently conducted and
as currently planned or contemplated to be conducted.

 

(c)           To
the knowledge of the Company, the Company does not have any liabilities or obligations
arising from the release of any Materials of Environmental Concern into the
environment.  To the knowledge of the
Company, the Company (i) is not and will not be liable for any clean-up or
other remediation acts regarding soil or groundwater with respect to any
activities that have taken place before the Closing Date, and (ii) has not
or will not in the future have any other liability related to the environment
(including under statutes related to compensation for damage caused on the
environment, on the property of third parties, or on the health of individuals)
with respect to any activities that have taken place before the Closing Date.

 

(d)           The
Company is not a party to or bound by any court order, administrative order,
consent order or other agreement between the Company and any Governmental
Entity entered into in connection with any legal obligation or liability
arising under any Environmental Law.

 

(e)           To
the knowledge of the Company, set forth in Section 4.22(e) of the
Company Disclosure Schedule is a list of all documents (whether in hard copy or
electronic form) that contain any environmental reports, investigations and
audits relating to premises currently or previously owned or operated by the
Company (whether conducted by or on behalf of the Company or a third party, and
whether done at the initiative of the Company or directed by a Governmental
Entity or other third party) which the Company has possession of or access
to.  A complete and accurate copy of each
such document has been provided or made available to the Merger Sub.

 

(f)            The
Company is not aware of any material environmental liability of any solid or
hazardous waste transporter or treatment, storage or disposal facility that has
been used by the Company.

 

4.23         Legal Compliance.  The Company is currently conducting, and has
at all times conducted, its business in compliance in all material respects
with all applicable Laws.  The Company
has not received any notice or communication from any Governmental Entity or
any other party alleging material noncompliance with any applicable law, rule or
regulation.

 

4.24         Customers and
Suppliers.  Section 4.24
of the Company Disclosure Schedule sets forth a list of (a) each customer
that accounted for more than 1% of the consolidated revenues of the Company
during the last full fiscal year or the interim period 

 

24

 

through the
Company Most Recent Balance Sheet Date and the amount of revenues accounted for
by such customer during each such period, (b) the seven (7) largest
suppliers of Company Products or services to the Company for the twelve-month
period ending December 31,  2007 and
(c) the seven (7) largest suppliers of Company Products or services
to the Company for the three-month period ending March 31, 2008.  No such customer or supplier has indicated
within the past year that it will stop, or decrease the rate of, buying Company
Products or supplying Company Products, as applicable, to the Company.  No purchase order or commitment of the
Company is in excess of normal requirements, nor are prices provided therein in
excess of current market prices for the Company Products or services to be
provided thereunder.  Except as disclosed
on Section 4.24 of the Company Disclosure Schedule, no customer has
notified the Company that it will discontinue any of its Company Products or
programs.

 

4.25         Permits.  Section 4.25 of the Company
Disclosure Schedule sets forth a list of all Permits issued to or held by the
Company.  Such listed Permits are the
only Permits that are required for the Company to conduct its business as
presently conducted.  To the knowledge of
the Company, each such Permit is in full force and effect; to the knowledge of
the Company, the Company is in compliance in all material respects with the
terms of each such Permit; and, to the knowledge of the Company, no suspension
or cancellation of such Permit has been overtly threatened.

 

4.26         Certain Business
Relationships With Affiliates. 
Except as disclosed in Section 4.26 of the Company
Disclosure Schedule, no Affiliate of the Company (a) has any claim or
cause of action against the Company or (b) owes any money to, or is owed
any money by, the Company, except for salaries, reimbursements and payments in
the Ordinary Course of Business.  Section 4.26
of the Company Disclosure Schedule describes any commercial transactions or
relationships between the Company and any Affiliate thereof which occurred or
have existed since the beginning of the time period covered by the Company
Financial Statements.

 

4.27         Brokers’ Fees.  Except for the fees due to Christenberry
Collet & Company, Inc., the Company does not have any liability
or obligation to pay any fees or commissions to any other broker, finder or
agent with respect to the transactions contemplated by this Agreement.

 

4.28         Books and Records.  The minute books and other similar records of
the Company contain complete and accurate records of all actions taken at any
meetings of the Company’s stockholders, Board of Directors or any committee
thereof and of all written consents executed in lieu of the holding of any such
meeting.  Section 4.28 of the
Company Disclosure Schedule contains a list of all bank accounts and safe
deposit boxes of the Company and the names of persons having signature
authority with respect thereto or access thereto.

 

4.29         Inventory.  To the knowledge of the Company, except as
set forth in Section 4.29 of the Company Disclosure Schedule, the
inventory of finished goods of the Company has been manufactured in accordance
with all applicable manufacturing specifications, and if applicable, purchase
order specifications.  Except as set
forth in Section 4.29 of the Company Disclosure Schedule, since December 31,
2007, no inventory items have been sold or disposed of except in the Ordinary
Course of Business, and none of the Company’s inventory is 

 

25

 

slow moving or
obsolete.  Additionally, except as set
forth in Section 4.29 of the Company Disclosure Schedule, to the
knowledge of the Company, the Company has not received notice from any of its
customers that the items held in its inventory are being discontinued or will
not be purchased by such customer and to the knowledge of the Company no items
held in inventory are subject to any recall or product liability claim.

 

4.30         Preparation
of Disclosure and Solicitation Materials.   The Company’s board of directors
submitted to the Company Stockholders, a proxy statement describing the terms
of the Merger and this Agreement, the Company, its business and operations, the
Parent and SI (USA) and their respective businesses and operations, which
included, among other things, (a) notice of a shareholders meeting to
approve the transactions contemplated by this Agreement, (b) a written consent
to the Merger and/or waiver by such Company Stockholder of such Company
Stockholder’s right to elect to receive payment in accordance with dissenter’s
rights under the Delaware General Corporation Law, (c) the dissenter’s
rights notice sent in accordance with the Delaware General Corporation Law, and
(d) an “election form” to be executed by each Company Stockholder which
indicates if such Company Stockholder will accept his, her or its portion of
the Merger Consideration in either (i) all cash (the “First Option”), or (ii) half cash and
the other half comprised of the Parent Common Stock, the exact number of
which to be determined in accordance with the methodologies and procedures
set forth in Schedule 1.6(a) (the “Second Option”).  With the exception of the Major
Stockholders, all of the Company Stockholders elected the First Option and each
and every Company Stockholder executed the written consent approving the
Merger.  Each of the Company Stockholders
waived their respective dissenter’s rights under the Delaware General
Corporation Law.

 

4.31         Disclosure.  No
representation or warranty by the Company, or the Major Stockholders contained
in this Agreement, and no statement contained in the Company Disclosure
Schedule or in any other document, certificate or other instrument executed by
the Company Stockholders or the Company pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading.

 

ARTICLE
V

REPRESENTATIONS AND WARRANTIES OF THE MERGER SUB AND SI (USA)

 

The Merger Sub
and SI (USA) represents and warrants to the Company and the Major Stockholders
that, except as set forth in the Merger Sub Disclosure Schedule, the statements
contained in this Article V are true and correct as of the date of this
Agreement and will be true and correct as of the Closing as though made as of
the Closing, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties will be true and correct as of such date).  The Merger Sub Disclosure Schedule shall be
arranged in sections and subsections corresponding to the numbered and lettered
sections and subsections contained in this Article V.  The disclosures in any section or subsection
of the Merger Sub Disclosure Schedule shall qualify other sections and
subsections in this Article V only to the extent it is reasonably apparent
from a reading of the disclosure that such disclosure is applicable to such
other sections and subsections.  For purposes 

 

26

 

of this Article V, the phrase “to the knowledge of the Merger Sub or SI (USA)”
or any phrase of similar import shall be deemed to refer to the actual
knowledge of the individuals identified on Schedule 5, as well as any
other knowledge which such persons would have possessed had they made
reasonable inquiry of appropriate employees and agents of the Merger Sub or SI
(USA) with respect to the matter in question.

 

5.1           Organization,
Qualification and Corporate Power. 
The Merger Sub and SI (USA) are corporations duly organized, validly
existing and in corporate and tax good standing under the laws of the State of
Rhode Island.  The Merger Sub and SI
(USA) are duly qualified to conduct business and are in good standing under the
laws of each jurisdiction listed in Section 5.1 of the Merger Sub
Disclosure Schedule, which jurisdictions constitute the only jurisdictions in
which the nature of the Merger Sub’s or SI (USA)’s businesses or the ownership
or leasing of their properties requires such qualification, except for those
jurisdictions in which the failure to be so qualified or in good standing,
individually or in the aggregate, has not had and would not reasonably be
expected to have a material adverse effect on the Merger Sub or SI (USA).  The Merger Sub and SI (USA) have all requisite
corporate power and authority to carry on the businesses in which they are
engaged and to own and use the properties owned and used by them.  The Merger Sub and SI (USA) have furnished to
the Company complete and accurate copies of their corporate formation and
organizational documents.  Neither the
Merger Sub nor SI (USA) is in default under or in violation of any provision of
its corporate formation or organizational documents.

 

5.2           Capitalization.  The authorized capital stock of the Parent
consists of (a) 1,000,000 shares of preferred stock, $.0001 par value per
share, of which no shares are issued or outstanding or held in the Parent’s
treasury, and 100,000,000 shares of Common Stock, of which, as of January 31,
2008, 13,907,892 shares were validly issued and outstanding, fully paid and
nonassessable, (b) 1,600,000 shares were reserved for issuance pursuant to
Parent’s stock option plan for its employees and directors and (c) 3,633,953
shares were reserved for issuance upon the conversion of the Parent’s
outstanding warrants.  Except for options
and rights relating to shares described in clauses (b) and (c) of the
preceding sentence, and except as set forth in Section 5.2 of the Merger
Sub Disclosure Schedule, there are no options, warrants or other rights,
agreements or commitments (contingent or otherwise) obligating the Parent to
issue shares of its capital stock or any other securities convertible into or
evidencing the right to subscribe to shares of its capital stock.  All of the issued and outstanding capital
stock of the Merger Sub is owned by SI (USA).

 

5.3           Authorization of
Transaction.  The Merger Sub and SI
(USA) have all requisite power and authority to execute and deliver this
Agreement and to perform their obligations hereunder.  The execution and delivery by the Merger Sub
and SI (USA) of this Agreement and the consummation by the Merger Sub and SI
(USA) of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Merger Sub and
SI (USA).  This Agreement has been duly
and validly executed and delivered by the Merger Sub and SI (USA) and
constitutes the valid and binding obligations of the Merger Sub and SI (USA),
enforceable against the Merger Sub and SI (USA) in accordance with its terms.

 

27

 

5.4           Noncontravention.  Neither the execution and delivery by the
Merger Sub and SI (USA) of this Agreement, nor the consummation by the Merger
Sub and SI (USA) of the transactions contemplated hereby, will (a) conflict
with or violate any provision of the corporate formation or organizational
documents of the Merger Sub or SI (USA), (b) require on the part of the
Merger Sub or SI (USA) any notice to or filing with, or any permit, authorization,
consent or approval of, any Governmental Entity, (c) conflict with, result
in a breach of, constitute (with or without due notice or lapse of time or
both) a default under, result in the acceleration of obligations under, create
in any party the right to terminate, modify or cancel, or require any notice,
consent or waiver under, any contract or instrument to which the Merger Sub or
SI (USA) is a party or by which the Merger Sub or SI (USA) is bound or to which
any of their respective assets is subject, (d) result in the imposition of
any Security Interest upon any assets of the Merger Sub or SI (USA) or (e) violate
any order, writ, injunction, decree, statute, rule or regulation
applicable to the Merger Sub or SI (USA) or any of their respective properties
or assets.

 

5.5           Litigation.  There is no Legal Proceeding which is pending
or, to the Merger Sub’s or SI (USA)’s knowledge, has been threatened against
the Merger Sub or SI (USA) which (a) seeks either damages in excess of
$25,000 or equitable relief or (b) in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement.  There are no judgments,
orders or decrees outstanding against the Merger Sub or SI (USA).

 

5.6           Legal Compliance.  Merger Sub is currently conducting, and has
at all times conducted its business in compliance with each applicable law
(including rules and regulations thereunder) of any federal, state, local
or foreign government, or any Governmental Entity.  Merger Sub has not received any notice or
communication from any Governmental Entity alleging noncompliance with any
applicable law, rule or regulation.

 

5.7           Reports and
Financial Statements. Merger Sub has previously made available to the
Company true and correct copies of (i) Parent’s Form 10-K for
the yeaer ended December 31, 2007 (the “Form 10-K”), and (ii) all
reports filed by Parent with the Securities and Exchange Commission (the “Commission”) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)
since the Form 10-K.  As of its
date, the Form 10-K complied in all material respects with then applicable
published rules and regulations of the Commission with respect thereto at
the date of their issuance and did not contain any untrue statement of a material
fact or omit 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. 
Since the Form 10-K, there is no action, suit, claim, investigation
or proceeding pending against or, to the knowledge of Merger Sub or SI (USA),
threatened against Merger Sub, SI (USA) and/or Parent or their respective
properties and assets before any court or arbitrator or any governmental
entity, that, if adversely determined, would have a Material Adverse
Effect.  Neither Merger Sub, SI (USA) nor
Parent is not subject to any order, writ, judgment, decree, or injunction that
has had a Material Adverse Effect.  Each
of the consolidated financial statements included in the Form 10-K has
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly presents the financial position of the entity or
entities to which it relates as at its date or the results of operations,
stockholders’ equity or cash flows of such 

 

28

 

entity or
entities.  The Parent has made all
filings required by the Exchange Act since January 1, 2007.

 

5.8           Validity of Common
Stock.  The Merger Shares to be
issued in the transaction will, when issued, be validly issued, fully paid and
nonassessable.

 

5.9           Consents and
Approvals of Governmental Entities. 
Except for (a) the requirements of state securities (or “blue sky”)
laws, (b) the filing of appropriate documents with the Nasdaq Stock
Market, and (c) the filing of a Form D and a Form 8-K with the
Commission, if applicable, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental entity is required
to be made or obtained by Merger Sub, SI (USA) or Parent in connection with the
execution, delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby.

 

5.10         Absence of Certain
Changes or Events.  Since the Form 10-Q,
there has not been a material adverse effect on the business of the Merger Sub,
SI (USA) or Parent.

 

5.11         Disclosure.  Neither the representations or warranties
made by Merger Sub and SI (USA) in this Agreement, nor the Merger Sub
Disclosure Schedule or any other certificate executed and delivered by Merger
Sub or SI (USA) pursuant to this Agreement, when taken together and with
knowledge of the contents of the Form 10-Q and Form 8-K, contains any
untrue statement of a material fact, or omits to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.

 

ARTICLE
VI

[INTENTIONALLY LEFT BLANK]

 

ARTICLE
VII

MUTUAL COVENANTS AND AGREEMENTS

 

7.1           Publicity.  All notices, releases, statements and
communications generally directed to employees, suppliers, customers, the
public or the press relating to the transactions contemplated by this Agreement
shall be made only at such times and in such manner as may be mutually agreed
upon by the Company and the Merger Sub; provided, however, that any Party may
make a public announcement of the proposed transaction if such Party reasonably
deems such public announcement or filing is necessary to comply with any Law or
any rule or regulation of any securities exchange or securities quotation
system and such Party shall, to the extent practicable, consult with the other
Party with respect to such announcements and give reasonable prior written
notice of its intent to issue such announcement.

 

7.2           Confidentiality.  Except as otherwise required in the
performance of its obligations under this Agreement and except as otherwise
required pursuant to Law or as may be required in connection with any filing by
the Parent with the Commission pursuant to the Securities Act or Exchange Act,
any non-public information received by the Merger Sub, Company, the Company
Stockholders or the advisors of any of the foregoing from another party 

 

29

 

hereto shall
be kept confidential.  Further, each of
the Merger Sub, the Company and the Company Stockholders acknowledge that the
Confidential Information of the Company and the Merger Sub is valuable, special
and unique assets that shall be kept confidential by the Company and the
Company Stockholders after the Closing Date, if the Closing occurs, and if the
Closing does not occur, by the Merger Sub and after the termination of this
Agreement pursuant to the terms hereof. 
The Merger Sub, the Company and the Company Stockholders shall be
responsible for any disclosure by their respective Affiliates, employees,
agents, contractors, officers, managers, members or partners.  Upon any termination of this Agreement, each
of the Merger Sub, the Company and the Company Stockholders shall, upon the
request of the Person that provided such Confidential Information, promptly
return any Confidential Information received from the other party and, upon
request, shall destroy all copies of such information in its possession.  The Company and the Company Stockholders
agree that the remedy at law for any breach of this Section 7.2
would be inadequate and that the Merger Sub shall be entitled to injunctive
relief in addition to any other remedy it may have upon breach of any provision
of this Section 7.2.

 

7.3           Employees.

 

(a)           It
is understood and agreed that (i) to the extent the Merger Sub expressed
intentions to extend offers of employment to any of the Company’s existing
Employees, that such intentions shall not constitute any commitment, contract
or understanding (express or implied) or any obligation on the part of the
Surviving Corporation to an employment relationship of any fixed term or
duration after Closing or upon any terms or conditions other than those that
the Surviving Corporation may establish pursuant to individual offers of
employment, and (ii) except as provided in any agreement with such
employees, employment offered by the Surviving Corporation is “at will” and may be terminated by the
Surviving Corporation or an employee at any time for any reason (subject to any
written commitments to the contrary made by the Surviving Corporation or an
employee and applicable law and regulation). 
Nothing in this Agreement shall be deemed to prevent or restrict in any
way the right of the Surviving Corporation to terminate, reassign, promote or
demote any of the Company’s Employees that the Surviving Corporation may hire
after the Closing or to change adversely or favorably the title, powers,
duties, responsibilities, functions, locations, salaries, other compensation or
terms or conditions of employment of such employees.  Except as otherwise agreed in this Section 7.3,
the Surviving Corporation will set its own initial terms and conditions of
employment for said Employees and others it may hire, including work rules,
benefits and salary and wage structure, all as permitted by Law.

 

(b)           The
Company agrees to cooperate with the Merger Sub in organizing interviews of the
Employees by the Merger Sub and its representatives and to otherwise coordinate
ongoing communications with the Employees. 
The Company further covenants and agrees, prior to the Closing, not to
promote or advance any Employee without the prior written consent of the Merger
Sub.

 

(c)           The
Company has provided or made available to the Merger Sub on or prior to the
Closing Date properly completed and executed I-9 forms and 

 

30

 

attachments with respect to all Employees, except for such Employees as
the Company certifies in writing to the Merger Sub are exempt from such
requirement.

 

(d)           The
Company shall pay, discharge and be responsible for all salaries, wages and
bonuses (including, vacation pay and personal leave pay) that have accrued as
of the Closing Date.

 

7.4           Approvals and
Consents.  To the extent that the
consummation of the Merger shall require the approval or consent of a party
thereto and such approval or consent has not been obtained by the Closing, if
the Merger Sub and the Company agree to consummate the transactions
contemplated by this Agreement, this Agreement shall not constitute an
agreement to assign the same if an attempted assignment without such approval
or consent would constitute a breach thereof and such Contract shall not be
deemed to be assigned under any other provision hereof.

 

7.5           Expenses.  Each of the Parties shall bear its own costs
and expenses (including legal, accounting and banking fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. Merger Sub shall be responsible for the payment of the Escrow Fees to
the Escrow Agent in excess of $2,500. The Company Stockholders acknowledge and
agree that they will pay such costs and expenses and not use Company funds for
such purposes.

 

7.6           Payment or Accrual
of Payoff Amounts.  At the Closing,
the Merger Sub shall pay the Company’s Line of Credit and the Additional
Coverage and thereafter shall pay and discharge the remaining Payoff Amounts as
the same become due and payable. 
Confirmation of such payment or accrual shall be made to the Stockholder
Representative.

 

ARTICLE
VIII

POST-CLOSING COVENANTS

 

8.1           Securities Act
Matters.  The Major Stockholders, by
the approval of the Merger and the adoption of this Agreement, acknowledge and
agree that the Parent Common Stock to be issued to the Major Stockholders, has
not been (and at the time of Merger will not have been) registered under the
Securities Act of 1933, as amended, or any similar federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder (collectively,
the “Securities Act”), or under
the securities laws of any state, in reliance upon certain exemptive provisions
of such statutes, and has not been registered under or qualified under the
securities or other laws of any other jurisdiction.  The Major Stockholders recognize and
acknowledge that such claims of exemption are based, in part, upon the Major
Stockholders’ representations contained in this Agreement.  The Major Stockholders further recognize and
acknowledge that, because the Parent Common Stock is not registered under
federal and state laws, it is not presently eligible for public resale and may
only be resold, assigned, transferred, pledged or otherwise disposed of
pursuant to an effective registration statement under the Securities Act and
any applicable state securities laws, or pursuant to a valid exemption from
such registration requirements.  The
Major Stockholders recognize and acknowledge that Rule 144 promulgated
under the Securities Act (which facilitates routine sales of securities in
accordance with the terms and conditions of that Rule, including a holding
period requirement) is 

 

31

 

not now
available to the Major Stockholders due only to the holding period
requirements, for resale of the Parent Common Stock, and the Major Stockholders
recognize and acknowledge that, in the absence of the availability of Rule 144,
a sale pursuant to a claim of exemption from registration under the Securities
Act would require compliance with some other exemption under the Securities
Act, none of which may be available for resale or other disposition of the
Parent Common Stock by the Major Stockholders. 
Except as set forth in the Registration Rights Agreement, the Company
and the Major Stockholders recognize and acknowledge that the Merger Sub is
under no obligation to register the Common Stock, either pursuant to the
Securities Act or the securities laws of any state or to supply the information
which may be necessary to enable the Company or the Major Stockholders, as the
case may be, to sell the Common Stock. 
The Major Stockholders agree that the Surviving Corporation, at its
discretion, may cause stop transfer orders to be placed with its transfer agent
with respect to the certificates representing the shares of Parent Common Stock
issued to the Major Stockholders, and may place legends on such certificates in
the form provided in Section 8.2 hereof.

 

8.2           Restrictive Legend.  Each certificate representing Parent Common
Stock shall, except as otherwise provided in this Section 8.2 or in
Section 8.3 below, be stamped or otherwise imprinted with a legend
substantially in the following form:

 

“THIS
SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “ACT”), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF UNLESS: (i) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION; (ii) THE CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH TRANSACTION IS EXEMPT FROM SUCH
REGISTRATION OR (iii) THE CORPORATION IS OTHERWISE SATISFIED THAT SUCH
TRANSACTION IS EXEMPT FROM SUCH REGISTRATION. 
THE HOLDER OF THIS SECURITY IS SUBJECT TO CERTAIN RESTRICTIONS ON SALE,
PLEDGE OR DISPOSITION OF THIS SECURITY AS SET FORTH IN A LOCK-UP AGREEMENT AS MAY BE
AMENDED AND IN EFFECT FROM TIME-TO-TIME, COPIES OF WHICH MAY BE OBTAINED
FROM THE SECRETARY OF THE CORPORATION”.

 

Such
certificates shall not bear such legend if in the opinion of counsel
satisfactory to Surviving Corporation the securities being sold thereby may be
publicly sold without registration under the Securities Act and applicable
state securities laws or if such securities have been sold pursuant to Rule 144
or an effective registration statement.

 

8.3           Notice of Proposed
Transfer.  Subject to the terms and
limitations set forth in the Lock-Up Agreement, prior to any proposed transfer
of any Parent Common Stock other than pursuant to an effective registration
statement, the holder thereof shall give written notice to 

 

32

 

Surviving
Corporation of its intention to effect such transfer.  Each such notice shall describe the manner of
the proposed transfer and, if requested by Surviving Corporation, shall be
accompanied by an opinion of counsel satisfactory to Surviving Corporation to
the effect that the proposed transfer may be effected without registration
under the Securities Act and applicable state securities laws, whereupon, if
such proposed transfer is otherwise in accordance with the terms hereof, the
holder of such security shall be entitled to transfer such security in
accordance with the terms of its notice. 
If requested by Surviving Corporation, a transferee of Parent Common
Stock (other than Parent Common Stock sold pursuant to an effective registration
statement under the Securities Act or pursuant to Rule 144) will execute,
as a condition of such transfer, an agreement to be bound by the terms of the
Lock-Up Agreement, to the extent applicable or an other similar agreement, in a
form acceptable to Surviving Corporation and provide such other information and
representations as Surviving Corporation may reasonably request.  Each certificate for Parent Common Stock
transferred as above provided shall bear the legend set forth in Section 8.2,
except that such certificate shall not bear such legend if (i) such
transfer is in accordance with the provisions of Rule 144 or (ii) the
opinion of counsel referred to above is to the further effect that the
transferee and any subsequent transferee (other than an affiliate of Merger
Sub) would be entitled to transfer such securities in a public sale without
registration under the Securities Act and applicable state securities
laws.  The restrictions provided for in
this Section 8.3 shall not apply to securities which are not
required to bear the legend prescribed by Section 8.2 in accordance
with the provisions of Section 8.2.

 

8.4           Stockholder
Representative Access.  For a period
of five (5) years following the Closing Date, the Surviving Corporation
shall, from time to time but at no expense to the Stockholder Representative,
upon reasonable advance notice from Stockholder Representative, provide
Stockholder Representative and its representatives, agents and accountants with
access to the Company’s books and records for all reasonable purposes.

 

8.5           Further Assurances.  At any time and from time to time after the
Closing, at the Surviving Corporation’s request and without further
consideration, the Company Stockholders and the Stockholder Representative
shall promptly execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, as the Surviving Corporation may
reasonably request, more effectively to transfer, convey and assign to
Surviving Corporation, and to confirm Surviving Corporation’s title to, all of
the Company’s assets.

 

8.6           Taxes.

 

(a)           Except
to the extent resulting from any item reflected on the Estimated Closing
Balance Sheet, any refunds or
credits of Taxes (including any interest paid or credited with respect thereto)
of, or with respect to, the Company that are attributable or allocable to any
period (or portion thereof) of the Company ending before the Closing Date, will
be for the account of the Company Stockholders. 
The Surviving Corporation will promptly inform the Stockholder
Representative of any refunds or credits to which the Company Stockholders may
be entitled hereunder and, if the Stockholder Representative so requests and at
the Stockholder Representative’s expense, cause the Surviving Corporation to
file for and obtain any such refunds or credits, including through the
prosecution of any proceeding which the Stockholder Representative chooses to
direct such entity to pursue.  The
Surviving Corporation will 

 

33

 

permit the Stockholder Representative to control (at the Stockholder
Representative’s expense and sole discretion) the prosecution and content of
any such refund or credit claim (including, but not limited to, any position to
be taken on such claim).

 

(b)           The
parties agree that the Merger is intended to be treated for tax purposes as a
purchase of the Company’s stock and will file all Tax Returns consistent with
such treatment and will not take any position or action inconsistent with such
treatment.

 

(c)           The
Surviving Corporation shall prepare all Tax Returns for the Company for
calendar year 2008 periods ending on or prior to the Closing Date and make all
payments required thereby.  Such Tax
Returns shall be prepared consistent with past practice to the extent permitted
by Law.  The Surviving Corporation shall
provide such Tax Returns to the Stockholder Representative at least 30 days
prior to the due date for filing such Tax Returns and shall incorporate any
comments reasonably requested by the Stockholder Representative on such Tax
Returns prior to filing and, once filed, the Surviving Corporation shall not
amend such Tax Return or any other Tax Return covering a pre-Closing period of
the Company unless agreed to in writing by the Stockholder Representative.

 

ARTICLE
IX

[INTENTIONALLY LEFT BLANK]

 

ARTICLE
X

INDEMNIFICATION

 

10.1         Indemnification by the
Company, the Major Stockholders and the Company Stockholders. Subject to Sections
10.4 and 10.5, the Company Stockholders shall (severally and not jointly)
and the Major Stockholders shall (jointly and severally) indemnify the Parent
and SI (USA) in respect of, and hold the Parent and SI (USA) harmless against,
any and all Damages incurred or suffered by the Parent and SI (USA) or any of
their Affiliates resulting from, relating to or constituting:

 

(a)           any
breach, as of the date of this Agreement or as of the Closing Date (unless such
breach has been waived in writing or as otherwise provided in this Agreement by
the Merger Sub), of any representation or warranty of the Company or the
Company Stockholders contained in this Agreement or any other agreement or
instrument executed by the Company, or Company Stockholders to the Parent, SI
(USA) and/or the Merger Sub pursuant to this Agreement;

 

(b)           any
failure to perform any covenant or agreement of the Company Stockholders or
before Closing the Company contained in this Agreement or any agreement or
instrument executed by the Company Stockholders or the Company pursuant to this
Agreement; and

 

34

 

(c)           any
claim by a stockholder or former stockholder of the Company, or any other
person or entity, seeking to assert, or based upon: (i) ownership or
rights to ownership of any shares of capital stock or other securities of the
Company; (ii) any rights of a stockholder, including any option,
preemptive rights or rights to notice or to vote; (iii) any rights under
the formation or organizational documents of the Company; (iv) any claim
that any Company Stock was wrongfully repurchased by the Company; (v) any
claim that the Merger Consideration was improperly allocated; or (vi) the
content, validity and/or legality of the provisions of this Agreement and any
schedules or appendices thereto.

 

10.2         Indemnification by SI
(USA).  SI (USA) shall indemnify the
Company Stockholders and the Major Stockholders in respect of, and hold them
harmless against, any and all Damages incurred or suffered by such Company
Stockholders or Major Stockholders resulting from, relating to or constituting:

 

(a)           any
breach, as of the date of this Agreement or as of the Closing Date, of any
representation or warranty of the Merger Sub or SI (USA) contained in this
Agreement or any other agreement or instrument furnished by the Merger Sub or
SI (USA) pursuant to this Agreement;

 

(b)           any
failure to perform any covenant or agreement of the Merger Sub, SI (USA) or
Parent before Closing or Surviving Corporation, SI (USA) or Parent following
Closing contained in this Agreement or any agreement or instrument executed by
any such party pursuant to this Agreement.

 

10.3         Indemnification Claims.

 

(a)           An
Indemnified Party shall give written notification to the Indemnifying Party of
the commencement of any Third Party Action. 
Such notification shall be given within 20 days after receipt by the
Indemnified Party of notice of such Third Party Action, and shall describe in
reasonable detail (to the extent known by the Indemnified Party) the facts
constituting the basis for such Third Party Action and the amount of the
claimed Damages; provided, however,
that no delay or failure on the part of the Indemnified Party in so notifying
the Indemnifying Party shall relieve the Indemnifying Party of any liability or
obligation hereunder except to the extent of any damage or liability caused by
or arising out of such failure.  Within
90 days after delivery of such notification, the Indemnifying Party may, upon
written notice thereof to the Indemnified Party, assume control of the defense
of such Third Party Action with counsel reasonably satisfactory to the
Indemnified Party provided that (i) the Indemnifying Party may only assume
control of such defense if (A) it acknowledges in writing to the
Indemnified Party that any damages, fines, costs or other liabilities that may
be assessed against the Indemnified Party in connection with such Third Party
Action constitute Damages for which the Indemnified Party shall be indemnified
pursuant to this Article X and (B) if the ad damnum is less than or equal to the amount of Damages for
which the Indemnifying Party is liable under this Article X; the
Indemnifying Party may not assume control of the defense of a Third Party
Action involving criminal liability or in which equitable relief is sought
against the Indemnified Party.  If the
Indemnifying Party does 

 

35

 

not, or is not permitted under the terms hereof to, so assume control
of the defense of a Third Party Action, the Indemnified Party shall control
such defense.  The Non-controlling Party
may participate in such defense at its own expense.  The Controlling Party shall keep the
Non-controlling Party advised of the status of such Third Party Action and the
defense thereof and shall consider in good faith recommendations made by the
Non-controlling Party with respect thereto. 
The Non-controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such Third Party Action (including
copies of any summons, complaint or other pleading which may have been served
on such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such Third Party Action including,
without limitation, providing access to books, records and employees to the
extent such reasonably relate to the matter to which the claim pertains.  The reasonable fees and expenses of counsel
to the Indemnified Party with respect to a Third Party Action shall be
considered Damages for purposes of this Agreement if (i) the Indemnified
Party controls the defense of such Third Party Action pursuant to the terms of
this Section 10.3(a) or (ii) the Indemnifying Party
assumes control of such defense and the Indemnified Party reasonably concludes
that the Indemnifying Party and the Indemnified Party have conflicting
interests or different defenses available with respect to such Third Party
Action.   The Indemnifying Party shall
not agree to any settlement of, or the entry of any judgment arising from, any
Third Party Action without the prior written consent of the Indemnified Party,
which shall not be unreasonably withheld, conditioned or delayed; provided that
the consent of the Indemnified Party shall not be required if the Indemnifying
Party agrees in writing to pay any amounts payable pursuant to such settlement
or judgment and such settlement or judgment includes a complete release of the
Indemnified Party from further liability and has no other adverse effect on the
Indemnified Party.  The Indemnified Party
shall not agree to any settlement of, or the entry of any judgment arising
from, any such Third Party Action without the prior written consent of the
Indemnifying Party, which shall not be unreasonably withheld, conditioned or
delayed.

 

(b)           In
order to seek indemnification under this Article X, an Indemnified Party
shall deliver a Claim Notice to the Indemnifying Party.

 

(c)           Within
90 days after delivery of a Claim Notice, the Indemnifying Party shall deliver
to the Indemnified Party a Response, in which the Indemnifying Party
shall:  (i) agree that the
Indemnified Party is entitled to receive all of the Claimed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party
to the Indemnified Party of the Claimed Amount, by check or by wire transfer or
with a written consent to release of funds held under the Escrow Agreement), (ii) agree
that the Indemnified Party is entitled to receive the Agreed Amount (in which
case the Response shall be accompanied by a payment by the Indemnifying Party
to the Indemnified Party of the Agreed Amount, by check or by wire transfer or
with a written consent to release of funds held under the Escrow Agreement), or
(iii) dispute that the Indemnified Party is entitled to receive any of the
Claimed Amount.  All distributions to the
Surviving Corporation of all or any portion of the Escrow Account with respect
to 

 

36

 

Damages hereunder shall be made in accordance with the terms of the
Escrow Agreement.

 

(d)           During
the 30-day period following the delivery of a Response that reflects a Dispute,
the Indemnifying Party and the Indemnified Party shall use good faith efforts
to resolve the Dispute.  If the Dispute
is not resolved within such 30-day period, the Parties shall at their election
and mutual agreement submit the dispute to private binding arbitration with an
arbitrator of their choice, or to the extent either party objects to private
binding arbitration, submit the dispute for binding arbitration to the American
Arbitration Association (the “AAA”).

 

(e)           If,
as set forth in Section 10.3(d), either the Indemnified Party or
the Indemnifying Party submits any Dispute to binding arbitration, the
arbitration shall be conducted by a single arbitrator (the “Arbitrator”) in accordance with the
Arbitration Rules and the following provisions:

 

(i)            In
the event of any conflict between the Arbitration Rules and the provisions
of this Agreement, the provisions of this Agreement shall prevail and be
controlling.

 

(ii)           Any
party that shall commence arbitration shall do so by filing a written
submission with the AAA in the home jurisdiction of the defending part in
accordance with the Arbitration Rules. 
For purposes of this Agreement, the “home jurisdiction” of the Company
and the Company Stockholders shall be Kansas City, Missouri, and the “home
jurisdiction” for the Parent, SI (USA) and the Merger Sub/Surviving Corporation
shall be Providence, Rhode Island.

 

(iii)          Each
party will be entitled to obtain relevant documents from the other party,
including electronic documents, as well as to take a total of five depositions
of officers or employees of the other party and/or third party witnesses.

 

(iv)          The
arbitration hearings shall take place in the home jurisdiction of the non-moving
party.  Not later than 30 days after the
conclusion of the arbitration hearing, the Arbitrator shall prepare and
distribute to the parties a writing setting forth the arbitral award and the
Arbitrator’s reasons therefor.  Any award
rendered by the Arbitrator shall be final, conclusive and binding upon the
parties, and judgment thereon may be entered and enforced in any court of
competent jurisdiction.

 

(v)           The
Arbitrator shall have no power or authority to grant injunctive relief,
specific performance or other equitable relief. 
The Arbitrator shall have no power or authority, under the Arbitration Rules or
otherwise, to (A) modify or disregard any provision of this Agreement,
including the provisions of this Section 10.3(e), or (B) address
or resolve any issue not submitted by the parties.

 

37

 

(vi)          In
connection with any arbitration proceeding pursuant to this Agreement, each
party shall bear its own costs and expenses, except that the fees and costs of
the Arbitration and the Arbitrator, the costs and expenses of obtaining the
facility where the arbitration hearing is held, and such other costs and
expenses as the Arbitrator may determine to be directly related to the conduct
of the arbitration and appropriately borne jointly by the parties (which shall
not include any party’s attorneys’ fees or costs, witness fees (if any), costs
of investigation and similar expenses) shall be shared equally by the
Indemnified Party and the Indemnifying Party.

 

(f)            Notwithstanding
the other provisions of this Section 10.3, if a third party asserts (other
than by means of a lawsuit) that an Indemnified Party is liable to such third
party for a monetary or other obligation which may constitute or result in
Damages for which such Indemnified Party may be entitled to indemnification
pursuant to this Article X, and such Indemnified Party reasonably
determines that it has a valid business reason to fulfill such obligation, then
(i) such Indemnified Party shall be entitled to satisfy such obligation,
without prior notice to or consent from the Indemnifying Party, (ii) such
Indemnified Party may subsequently make a claim for indemnification in
accordance with the provisions of this Article X, and (iii) such
Indemnified Party shall be reimbursed, in accordance with the provisions of
this Article X, for any such Damages for which it is entitled to
indemnification pursuant to this Article X (subject to the right of the
Indemnifying Party to dispute the Indemnified Party’s entitlement to
indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article X).

 

10.4         Survival of
Representations, Warranties and Covenants; Limitations.  The representations, warranties and covenants
of each of the Parties contained in this Agreement shall survive Closing,
subject to the limitations in this Section 10.4.  Subject to Section 7.2 of this
Agreement, the right to indemnification, payment of Damages or other remedy
based on such representations, warranties and covenants will not be affected by
any investigations conducted with respect to or any knowledge acquired (or
capable of being acquired) at any time, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty or
covenant.

 

(a)           Time
Limitations.  All representations and
warranties that are covered by the indemnification agreements in Section 10.1(a) and
Section 10.2(a) shall (i) survive the Closing for a
period of 12 months after the Closing Date except that (A) the time limit
for a claim to be made by the Parent, SI (USA) or the Surviving Corporation for
a breach of the representations and warranties made in Sections 4.9 and 4.19
shall be until the expiration of the statute of limitations applicable to a
claim for breach of such representation and warranty, (B) there shall be
no time limit for any claim by the Parent, SI (USA) or the Surviving
Corporation for a breach of the representations and warranties made in Sections
3.1, 3.2, 4.1, 4.2, 4.3, 4.10 and 4.13 or for a breach of any Company or
Company Stockholder covenant, and (C) there shall be no time limit for any
claim by any Party for Damages resulting from fraudulent misrepresentations (“Fraud Claims”).   Notwithstanding the foregoing, if an
Indemnified Party delivers to an Indemnifying Party, before expiration of a
representation or warranty or the 

 

38

 

termination of the indemnification provisions of this Article X,
as applicable, either a Claim Notice based upon a breach of such representation
or warranty or other matter with respect to which the Indemnified Party is
entitled to indemnification hereunder, or an Expected Claim Notice based upon a
breach of such representation or warranty or other matter with respect to which
the Indemnified Party is entitled to indemnification hereunder, then the applicable
representation or warranty shall survive or the indemnification obligations
under this Article X shall not terminate, as applicable, until, but only
for purposes of, the resolution of any claims arising from or related to the
matter covered by such notice.  If the
legal proceeding or written claim with respect to which an Expected Claim
Notice has been given is definitively withdrawn or resolved in favor of the
Indemnified Party, the Indemnified Party shall promptly so notify the
Indemnifying Party.

 

(b)           Dollar
Limitations-Minimum. Neither the Company Stockholders, on the one hand, nor
the Parent, SI (USA) and Merger Sub, on the other hand, shall be liable to the
other for indemnification under this Article X for breaches of any
representation, warranty or covenant of the other party unless and until the
aggregate Damages incurred by such party as a result of all such breaches
exceeds $135,000 (the “Basket”),
provided that in the event that the amount of Damages incurred by such party
exceed the Basket, such party shall be indemnified by the other party for the
full amount of such Damages from the first dollar of such Damages.  The limitations in this Section 10.4(b) shall
not apply to Damages relating to or arising from (i) Fraud Claims, (ii) non-compliance
or un-fulfillment of any covenants or (iii) the breach of the
representations in Sections 3.1 and 3.2 in this Agreement.

 

(c)           Dollar
Limitations - Maximum.  Except with
respect to Fraud Claims, notwithstanding anything to the contrary herein the
aggregate liability of the Company and/or the Company Stockholders for Damages
under Sections 10.1(a) and 10.1(c) (other than Damages
resulting form a breach of Sections 3.1 or 3.2 of this Agreement) shall
not exceed $4,000,000 and the aggregate liability of the Merger Sub for Damages
under Section 10.2(a) shall not exceed the Merger
Consideration.

 

(d)           Materiality
Disregarded.  In determining whether
a representation, warranty or covenant has been breached for purposes of the
Company’s or the Company Stockholders’ obligations to indemnify the Parent, SI
(USA) or the Merger Sub under Sections 10.1(a) through (c) and
determining the amount of any Damages under this Article X, materiality,
Company Material Adverse Effect or other similar qualifiers contained in any representation,
warranty or covenant will be disregarded.

 

(e)           Exclusive
Remedy.  Except with respect to (i) Fraud
Claims and (ii) the right to specific enforcement to enforce the
non-competition provisions contained in the Employment Agreements and the confidentiality
obligations set forth in Section 7.3, in each case, against the
party breaching such covenant, after the Closing, the rights of the Indemnified
Parties under this Article X shall be the exclusive remedy of the
Indemnified Parties with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.

 

39

 

(f)            Availability
of Escrow. All Damages payable by the Company Stockholders under this Article X
shall first be paid from the Escrow Account and only after the Escrow Account
is completely depleted may the Surviving Corporation, SI (USA) or Parent seek
recovery from the Company Stockholders.

 

(g)           Insurance
Off-Set.  The amount of Damages for
which indemnification is available under this Article X shall be
calculated net of any amounts actually recovered by the Indemnified Party under
insurance policies with respect to such Damages.  If the Indemnifying Party makes any payment
hereunder in respect of any Damages, such Indemnifying Party shall be
subrogated, to the extent of such payment to the rights of such Indemnified
Party against any insurer or other third Person with respect to such Damages.  In addition, the amount of Damages for which
indemnification is available under this Article X shall be (i) net of
all related liabilities and reserves reflected on the Financial Statements or
taken into account in calculating the Closing Net Worth or the Closing Net
Worth Adjustment, and (ii) reduced to take account of any net Tax benefit
reasonably expected to be realized by such Indemnified Party arising from the
incurrence or payment of any such Damage (or from a correlative adjustment) and
used to reduce its otherwise payable Taxes.

 

(h)           No
Contribution or Circular Recovery. 
None of the Company Stockholders shall have any right of contribution
against the Parent, SI (USA) or the Company/Surviving Corporation
with respect to any Damages suffered by the Parent, SI (USA) or
the Company/Surviving Corporation. 
Each Company Stockholder hereby agrees that such Company Stockholder
will not make any Claim Notice for indemnification against
the Parent, SI (USA) or the Company/Surviving Corporation by reason of the
fact that such Company Stockholder or any of such Company Stockholder’s
agents or other representatives was a controlling person, director, officer,
employee, agent or other representative of the Company or was serving as such
for another Person at the request of the Company (whether such
Claim Notice is for losses of any kind or otherwise and whether
such Claim Notice is pursuant to any statute, Certificate or Articles
of Incorporation, By-law, contractual obligation or otherwise) with respect to
any Claim Notice brought by the Parent or SI
(USA) against such Company Stockholder (whether such Claim Notice is
pursuant to this Agreement, applicable law, or otherwise).

 

ARTICLE
XI

[INTENTIONALLY LEFT BLANK]

 

ARTICLE
XII

DEFINITIONS

 

For purposes
of this Agreement, each of the following terms shall have the meaning set forth
below.

 

“AAA” shall have the meaning specified
in Section 10.3(d) of this Agreement.

 

40

 

“Additional
Coverage” shall mean the additional product
liability insurance policy for a term of not less than two years, providing
coverage of $1,000,000 per occurrence and a $250,000 deductible and naming the
Company and SI (USA) as additional insureds, that will cover all Company
Products bearing a manufactured date prior to the Closing Date  at a premium cost of $132,500.00.

 

“Affiliate” shall mean, with respect to
an indicated person or entity, any other person or entity that directly or
indirectly controls, is controlled by or is under common control with such
indicated person or entity.

 

“Agreed Amount” shall mean part, but not
all, of the Claimed Amount.

 

“Agreement” shall have the meaning
specified in Section 1.2.

 

“Arbitration Rules” means the Commercial
Arbitration Rules of the American Arbitration Association.

 

“Arbitrator” shall have the meaning
specified in Section 10.3(e) of this Agreement.

 

“Basket” shall have the meaning
specified in Section 10.5(a) of this Agreement.

 

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

 

“Cash Escrow Amount” shall mean the
difference of $1,350,000 less the value of the Escrow Shares.

 

“Cash Portion” shall have the meaning
specified in Section 1.6(a) of this Agreement.

 

“Claim Notice” shall mean written
notification which contains (a) a description of the Damages incurred or
reasonably expected to be incurred by the Indemnified Party and the Claimed
Amount of such Damages, to the extent then known, (b) a statement that the
Indemnified Party is entitled to indemnification under Article X for such
Damages and a reasonable explanation of the basis therefor, and (c) a
demand for payment in the amount of such Damages.

 

“Claimed Amount” shall mean the amount of
any Damages incurred or reasonably expected to be incurred by the Indemnified
Party.

 

“Closing” shall mean the closing of the
transactions contemplated by this Agreement.

 

“Closing Balance Sheet” shall have the
meaning specified in Section 1.7(c) of this Agreement.

 

41

 

“Closing Date” shall mean the date two
business days after the satisfaction or waiver of all of the conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(excluding the delivery at the Closing of any of the documents set forth in Article I),
or such other date as may be mutually agreeable to the Parties.

 

“Closing Net Worth”
      shall mean Total Capital of the
Company as set forth in the Closing Balance Sheet plus the
outstanding balance of the Company’s Line of Credit in the amount of
$217,934.44.

 

“Code” shall mean the Internal Revenue
Code of 1986, as amended.

 

“Commission” shall have the meaning
specified in Section 5.7 of this Agreement.

 

“Company” shall have the meaning set
forth in the first paragraph of this Agreement.

 

“Company Disclosure Schedule” shall mean
the disclosure schedule provided by the Company to the Merger Sub on the date
hereof.

 

“Company Financial Statements” shall
mean:

 

(a)           the
consolidated balance sheets and statements of income, changes in stockholders’
equity and cash flows of the Company as of the end of and for each of the last
two fiscal years; and

 

(b)           the
Company Most Recent Balance Sheet and the consolidated statements of income,
changes in stockholders’ equity and cash flows for the 12 months ended as of
the Company Most Recent Balance Sheet Date.

 

“Company Intellectual Property” shall
mean shall the Company Owned Intellectual Property and the Company Licensed
Intellectual Property.

 

“Company Licensed Intellectual Property”
shall mean all Intellectual Property that is licensed to the Company by any
third party or an Affiliate of the Company.

 

“Company Material Adverse Effect” shall
mean any material adverse change, event, circumstance or development with
respect to, or material adverse effect on, (a) the business, assets,
liabilities, capitalization, condition (financial or other), or results of
operations of the Company, or (b) the ability of Surviving Corporation to
operate the business of the Company (as such business is currently operated or
currently proposed by the Company to be operated) immediately after the
Closing, provided that none of the following shall be deemed to constitute, and
none of the following shall be taken into account in determining whether there
has been, a Company Material Adverse Effect: (x) any adverse change,
event, development or effect arising from or relating to (i) general
economic conditions (including those in one or more of the geographic markets
in which the Company conducts business), including such conditions related to
the industry of the Company, (ii) regional, national or international
political or social conditions, including the engagement by the United States
of America in hostilities, whether or not pursuant to the declaration of a
national emergency or war, or the occurrence of any military 

 

42

 

or terrorist attack upon the United States of
America, or any of its territories, possessions or diplomatic or consular
offices or upon any military installation, equipment or personnel of the United
States of America or any other national or international hostilities, acts of
terror or acts of war, (iii) financial, banking or securities markets
(including any disruption thereof and any decline in the price of any security
or any market index), (iv) changes in GAAP, (v) changes in applicable
Law or Orders, (vi) an increase in gasoline, diesel fuel or other energy
costs, (vii) the execution or announcement of this Agreement, the
consummation of the transactions contemplated by this Agreement, or the taking
of any action contemplated by this Agreement, or (y) any adverse change in
or effect on the business of the Company that is cured before the earlier of (i) the
Closing Date and (ii) the date on which this Agreement is terminated
pursuant to Article XI.  For the
avoidance of doubt, the parties agree that the terms “material”, “materially”
or “materiality” as used in this Agreement with an initial lower case “m” shall
have their respective customary and ordinary meanings, without regard to the
meaning ascribed to Company Material Adverse Effect.

 

“Company Most Recent Balance Sheet”
shall mean the unaudited balance sheet of the Company as of the Company Most
Recent Balance Sheet Date.

 

“Company Most Recent Balance Sheet Date”
shall mean March 31, 2008.

 

“Company Owned Intellectual Property”
shall mean all the Intellectual Property owned or purported to be owned by the
Company or an Affiliate of the Company, in whole or in part.

 

“Company Plan” shall mean any Employee
Benefit Plan maintained, or contributed to, by the Company.

 

“Company Products” shall mean (a) the
products (including Documentation) that the Company (i) currently
develops, manufactures, markets, distributes, makes available, sells or
licenses to or from third parties, or (ii) has developed, manufactured,
marketed, distributed, made available, sold or licensed to or from third
parties within the previous six (6) years, or (iii) currently plans
to develop, manufacture, market, distribute, make available, sell or license to
third parties in the future and (b) the services that the Company (i) currently
provides or makes available to third parties, or (ii) has provided or made
available to third parties within the previous six (6) years, or (iii) currently
plans to provide or make available to third parties in the future.

 

“Company Registrations” shall mean
Intellectual Property Registrations that are registered or filed in the name of
the Company, alone or jointly with others.

 

“Company Stock” shall mean shares of the
Company’s issued and outstanding common and preferred stock.

 

“Company Stockholders” shall have the
meaning specified in Section 3.1 of this Agreement.

 

“Confidential Information” shall mean
any confidential or proprietary information of the Company, including (a) trade
secrets, designs, formulae, drawings, intangible 

 

43

 

property, diagrams, techniques, research and
development, specifications, data, know-how, formats, marketing plans, business
plans, budgets, strategies, forecasts and client data; (b) information
relating to the Company Products developed by the Company; (c) (i) the
names of the Company’s customers and contacts, (ii) the Company’s
marketing strategies, (iii) the names of the Company’s vendors and
suppliers, (iv) the Company’s cost of materials and labor, (v) the
Company’s prices obtained for services sold (including the methods used in
price determination, manufacturing and sales costs), (vi) compensation
paid to employees and consultants and other terms of employment, (vii) production
operation techniques or any other confidential information of, about or
pertaining to the business of the Company, and (viii) any other material
business information and materials relating to material customers or vendors of
the Company; (d) all tangible material that embodies any confidential and
proprietary information as well as all records, files, memoranda, reports,
price lists, drawings, plans, sketches and other written and graphic records,
documents, equipment, and the like, relating to the business of the Company and
(e) any other confidential information or trade secrets relating to the
business or affairs of the Company; provided, however, that “Confidential
Information” shall not include any information (v) that is or shall become
generally available to the public other than as a result of an unauthorized
disclosure by a party to this Agreement or a Person to whom a party has
provided such information, (w) that was available to a party to this
Agreement on a non-confidential basis prior to its disclosure by one party to
the other pursuant to this Agreement as evidenced by such other party’s records
on the date of such disclosure, (x) that is disclosed by the other party
in any legal proceeding requiring any such disclosure, (y) as otherwise
required by Law, or (z) as is reasonably necessary for any party hereto to
enforce its rights under this Agreement; provided, that in each instance of
(x), (y) and (z) the party disclosing such information shall provide
such other party with notice and a reasonable opportunity to obtain a
protective order preventing or limiting the disclosure of such information.

 

“Confidentiality Agreement” means that
certain Confidentiality Agreement between the Company and SI (USA) dated October 5,
2007.

 

“Contracts” shall mean (a) all
outstanding purchase and sales orders for the Company entered into by the
Company in the Ordinary Course of Business, and (b) the other contracts,
leases and agreements (whether oral or written) listed on Sections 4.13 and
4.14 of the Company Disclosure Schedule.

 

“Controlling Party” shall mean the party
controlling the defense of any Third Party Action.

 

“Damages” shall mean any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations, deficiencies,
losses and expenses (including amounts paid in settlement, interest, court
costs, costs of investigators, reasonable fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation, arbitration or other dispute resolution proceedings relating to a
Third Party Action or an indemnification claim under Article X), other
than those costs and expenses of arbitration of a Dispute which are to be
shared equally by the Indemnified Party and the Indemnifying Party as set forth
in Section 10.3(e)(vi). 
Specifically, Damages shall not include any special, incidental,
consequential, punitive or 

 

44

 

exemplary damages or amounts calculated based
on a multiple of earnings, revenues or other amounts.

 

“Defect” shall mean a defect or
impurity, whether in design, manufacture, processing, or otherwise, including
any dangerous propensity associated with any reasonably foreseeable use of any
of the Company Products, or the failure to warn of the existence of any defect,
impurity, or dangerous propensity.

 

“Dissimo
Independent Contractor Agreement” shall have the
meaning set forth in Section 1.11(xiv).

 

“Dispute” shall mean the dispute
resulting if the Indemnifying Party in a Response disputes its liability for
all or part of the Claimed Amount.

 

“Documentation” shall mean printed,
visual or electronic materials, reports, white papers, documentation,
specifications, designs, flow charts, code listings, instructions, user manuals,
frequently asked questions, release notes, recall notices, error logs,
diagnostic reports, marketing materials, packaging, labeling, service manuals
and other information describing the use, operation, installation,
configuration, features, functionality, pricing, marketing or correction of a
Company Product, whether or not provided to end users.

 

“Effective Time” shall have the meaning
specified in Section 1.2 of this Agreement.

 

“Electing Stockholders”  shall mean any Company Stockholder that elects
the Second Option.

 

“Employee Benefit Plan” shall mean any “employee
welfare benefit plan” as defined in Section 3(1) of ERISA, and, “employee
pension plan” as defined in Section 3(2) of ERISA, and any written or
oral plan, agreement or arrangement involving direct or indirect compensation,
including insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, savings plans, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation.

 

“Employees” shall mean the Persons who
are employed by the Company to operate the Company, including without
limitation employees on temporary leave of absence, including family and
medical leave, military leave, temporary disability or sick leave.

 

“Employment Agreements” shall have the
meaning specified in Section 1.11(a)(viii) of this Agreement.

 

“Environmental Law” shall mean any
federal, state or local law, statute, rule, order, directive, judgment, Permit
or regulation (including any applicable Laws) or the common law relating to the
environment, occupational health and safety, or exposure of persons or property
to Materials of Environmental Concern, including any statute, regulation,
administrative decision or order pertaining to: 
(a) the presence of or the treatment, storage, disposal,
generation, transportation, handling, distribution, manufacture, processing,
use, import, export, labeling, recycling, registration, investigation or
remediation of Materials of Environmental 

 

45

 

Concern or documentation related to the
foregoing; (b) air, water and noise pollution; (c) groundwater and
soil contamination; (d) the release, threatened release, or accidental
release into the environment, the workplace or other areas of Materials of
Environmental Concern, including emissions, discharges, injections, spills,
escapes or dumping of Materials of Environmental Concern; (e) transfer of
interests in or control of real property which may be contaminated; (f) community
or worker right-to-know disclosures with respect to Materials of Environmental
Concern; (g) the protection of wild life, marine life and wetlands, and
endangered and threatened species; and (h) storage tanks, vessels,
containers, abandoned or discarded barrels and other closed receptacles.

 

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

 

“Escrow Agent” shall mean Continental
Trust Company, as escrow agent.

 

“Escrow Agreement” means the escrow
agreement among the Company, the Escrow Agent and the Merger Sub in
substantially the form of Exhibit E
attached hereto.

 

“Escrow Fund” means the fund established
pursuant to the Escrow Agreement initially consisting of the Cash Escrow Amount
and the Escrow Shares

 

“Escrow Shares” means shares of the
Parent Common Stock held in escrow by the Escrow Agent.

 

“Estimated Closing Balance Sheet” shall
have the meaning specified in Section 1.6(a) of this
Agreement.

 

“Exchange Act” shall have the meaning
specified in Section 5.7 of this Agreement.

 

“Expected Claim Notice” shall mean a
notice that, as a result of a legal proceeding instituted by or written claim
made by a third party, an Indemnified Party reasonably expects to incur Damages
for which it is entitled to indemnification under Article X.

 

“Exploit” shall mean develop, design,
test, modify, make, use, sell, have made, used and sold, import, reproduce,
market, distribute, commercialize, support, maintain, correct and create
derivative works of.

 

“Final Return” shall have the meaning
specified in Section 7.8 of this Agreement.

 

“Form 8-K” shall have the meaning
specified in Section 5.7 of this Agreement.

 

“Form 10-Q” shall have the meaning
specified in Section 5.7 of this Agreement.

 

“Fraud Claims” shall have the meaning
specified in Section 10.4(a) of this Agreement.

 

46

 

“GAAP” shall mean United States
generally accepted accounting principles.

 

“Governmental Entity” shall mean any
court, arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency.

 

“Indemnified Party” shall mean a party
entitled, or seeking to assert rights, to indemnification under Article X.

 

“Indemnifying Party” shall mean the
party from whom indemnification is sought by the Indemnified Party.

 

“Intellectual Property” shall mean the
following subsisting throughout the world:

 

(a)           Patent Rights;

 

(b)           Trademarks and all
goodwill in the Trademarks;

 

(c)           copyrights, designs,
data and database rights and registrations and applications for registration
thereof, including moral rights of authors;

 

(d)           mask works and
registrations and applications for registration thereof and any other rights in
semiconductor topologies under the laws of any jurisdiction;

 

(e)           inventions, invention
disclosures, statutory invention registrations, trade secrets and confidential
business information, know-how, manufacturing and product processes and
techniques, research and development information, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information, whether patentable or
nonpatentable, whether copyrightable or noncopyrightable and whether or not
reduced to practice;

 

(f)            other proprietary
rights relating to any of the foregoing (including remedies against
infringement thereof and rights of protection of interest therein under the
laws of all jurisdictions); and

 

(g)           domain names and IP
addresses.

 

“Intellectual Property Registrations”
means Patent Rights, registered Trademarks, registered copyrights and designs,
mask work registrations and applications for each of the foregoing.

 

“Law” shall mean, with respect to any
Person, any statute, law, rule, regulation, ordinance, treaty, administrative
action, Order, or other requirement of any Governmental Entity (including those
requirements imposed by common law), applicable to such Person (or any of its
properties or assets) or any of its members, managers, officers, directors,
employees, consultants or agents in connection with activities taken on behalf
of such Person, as amended.

 

47

 

“Lease” shall mean any lease or sublease
pursuant to which the Company leases or subleases from another party any real
property.

 

“Lease Payoff” shall mean $24,205.50

 

“Leased Real Property” shall mean the
real property leased by the Company pursuant to the Leased Real Property Lease.

 

“Leased Real Property Lease” shall mean
the Real Property Lease Agreement dated December 28, 2005 between the
Company, as the tenant, and Real Estate Corporation, Inc., as the
landlord.

 

“Lease
Termination Agreement” shall have the meaning set
forth in Section 1.11(iv).

 

“Legal Proceeding” shall mean any
action, suit, proceeding, claim, arbitration or investigation pending before
any Governmental Entity or before any arbitrator.

 

“Liability” shall mean any direct or
indirect indebtedness, claim, loss, damage, deficiency, obligation or other
liability, known or unknown, fixed or unfixed, choate or inchoate, liquidated
or unliquidated, secured or unsecured, accrued, absolute, contingent or
otherwise, whether or not of a kind required by GAAP to be set forth on a
financial statement.

 

“Line of Credit” shall mean that certain
Business Loan Agreement by and between the Company as borrower and Bank of Blue
Valley as Lender dated August 13, 2007, as amended.

 

“Lock-Up Agreement” shall mean the
Lock-Up Agreement attached hereto as Exhibit B.

 

“Material Consents” shall have the
meaning specified in Section 1.11(a)(ix) of this Agreement.

 

“Material Disclosure Schedule Change”
shall have the meaning specified in Section 7.2 of this Agreement.

 

“Materials of Environmental Concern”
shall mean any: pollutants, contaminants or hazardous substances, pesticides,
solid wastes and hazardous wastes, chemicals, other hazardous, radioactive or
toxic materials, oil, petroleum and petroleum products (and fractions thereof),
or any other material (or article containing such material) listed or subject
to regulation under any Environmental Law or other law, statute, rule,
regulation, order, Permit, or directive due to its potential, directly or
indirectly, to harm the environment or the health of humans or other living
beings.

 

“Merger Certificates” shall have the
meaning specified in Section 1.2 of this Agreement.

 

48

 

“Merger Sub” shall have the meaning set
forth in the first paragraph of this Agreement.

 

“Negative Closing Date Adjustment Amount”
shall have the meaning specified in Section 1.7(b) of this
Agreement.

 

“Net Worth Target”  means
$6,645,196 (determined by taking the Company’s Total Capital in the amount
of $4,895,196 plus the outstanding amount of the Company’s Line of
Credit of $1,750,000, each as set forth on the Company’s December 31, 2007
balance sheet attached hereto as Schedule 1.7(b)).

 

“Non-controlling Party” shall mean the
party not controlling the defense of any Third Party Action.

 

“Objection Notice” shall have the
meaning specified in Section 1.7(d) of this Agreement.

 

“Order” shall mean any judgment, decree,
order, writ, injunction, permit or license of any Governmental Entity.

 

“Ordinary Course of Business” shall mean
the ordinary course of business consistent with past custom and practice
(including with respect to frequency and amount).

 

“Other Stockholders” means the Company
Stockholders other than the Major Stockholders.

 

“Parent Common Stock” shall mean the
unregistered common stock of Summer Infant, Inc.

 

“Parties” shall have the meaning set
forth in the first paragraph of this Agreement.

 

“Patent Rights” shall mean all patents,
patent applications, utility models, Trademarks, design registrations and
certificates of invention and other governmental grants for the protection of
inventions or industrial designs (including all related continuations,
continuations-in-part, divisionals, reissues and reexaminations).

 

“Payoff Amounts” shall mean
collectively, the aggregate amount of the Lease Payoff ($24,205.50), the
Retention Bonus Amounts ($105,500.00), and the principal and interest
outstanding on the Company’s Line of Credit as of March 31, 2008
($217,934.44), Company’s share of the Escrow Agent’s fee ($2,500.00) and the
cost of the Additional Coverage ($132,500.00) which sums total $482,813.08.

 

“Permits” shall mean all permits,
licenses, registrations, certificates, orders, approvals, franchises, variances
and similar rights issued by or obtained from any Governmental Entity
(including those issued or required under Environmental Laws and those relating
to the occupancy or use of owned or leased real property).

 

49

 

“Persons” shall mean a natural person,
corporation, trust, partnership, limited liability company, Governmental
Entity, agency or branch or department thereof, or any other legal entity.

 

“Reasonable Best Efforts” shall mean
best efforts, to the extent commercially reasonable.

 

“Registration Rights Agreement” shall
mean the Registration Rights Agreement attached hereto as Exhibit C.

 

“Regulation D” shall have the meaning
specified in Section 3.1(c) of this Agreement.

 

“Related Agreements” shall have the
meaning specified in Section 3.2(a) of this Agreement.

 

“Response” shall mean a written response
containing the information provided for in Section 10.3(c).

 

“Retention Bonus Amounts” shall mean the
aggregate amounts to be paid under the Retention Bonus Plan.

 

“Retention Bonus Plan” shall mean the
Kiddopotamus & Company Retention Bonus Plan.

 

“Securities Act” shall have the meaning
specified in Section 8.1 of this Agreement.

 

“Security Interest” shall mean any
mortgage, pledge, security interest, encumbrance, charge or other lien (whether
arising by contract or by operation of law), other than (i) mechanic’s,
materialmen’s, and similar liens, (ii) liens arising under worker’s
compensation, unemployment insurance, social security, retirement, and similar
legislation and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business and not material.

 

“Severance Plan” shall mean the
Kiddopotamus & Company Severance Plan.

 

“Severance Plan Amounts” shall mean the
aggregate amounts to be paid under the Severance Plan (including employer’s
share of payroll taxes), which if to be paid as of the Effective Time would not
exceed $80,740.27.

 

“Stockholder Representative” shall have
the meaning set forth in the first paragraph of this Agreement.

 

“Taxes” shall mean any and all taxes,
charges, fees, duties, contributions, levies or other similar assessments or
liabilities in the nature of a tax, including, without limitation, income,
gross receipts, corporation, ad valorem, premium, value-added, net worth,
capital stock, capital gains, documentary, recapture, alternative or add-on
minimum, disability, estimated, 

 

50

 

registration, recording, excise, real
property, personal property, sales, use, license, lease, service, service use,
transfer, withholding, employment, unemployment, pension, insurance, social
security, national insurance, business license, business organization,
environmental, workers compensation, payroll, profits, severance, stamp,
occupation, windfall profits, customs duties, franchise and other taxes of any
kind whatsoever imposed by the United States or any state, local or foreign
government, or any agency or political subdivision thereof, and any interest,
fines, penalties, assessments or additions to tax imposed with respect to such
items or any contest or dispute thereof.

 

“Tax Group” shall have the meaning
specified in Section 4.9(a) of this Agreement.

 

“Tax Returns” shall mean any and all
reports, returns, declarations, or statements relating to Taxes, including any
schedule or attachment thereto and any related or supporting workpapers or
information with respect to any of the foregoing, including any amendment
thereof.

 

“Third Party Action” shall mean any suit
or proceeding by a person or entity other than a Party for which
indemnification may be sought by a Party under Article X.

 

“Trademarks” shall mean all registered
and unregistered trademarks and service marks, logos, Internet domain names,
corporate names and doing business designations and all registrations and
applications for registration of the foregoing, common law trademarks and
service marks and trade dress.

 

“Value” means the valuation of the
Parent Company Common Stock as determined pursuant to Schedule 1.6(a) hereto.

 

ARTICLE
XIII

MISCELLANEOUS

 

13.1         Press Releases and
Announcements.  No Party shall issue
any press release or public announcement relating to the subject matter of this
Agreement without the prior written approval of Merger Sub, the Company and the
Company Stockholders; provided, however,
that any Party may make any public disclosure it believes in good faith is
required by applicable law, regulation or stock market rule (in which case
the disclosing Party shall use reasonable efforts to advise the other Parties
and provide them with a copy of the proposed disclosure prior to making the
disclosure).

 

13.2         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
Parties agree that the Parent is a third party beneficiary to this Agreement.

 

13.3         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, with respect to the subject matter hereof.

 

51

 

13.4         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 any of its rights or delegate any of its performance
obligations hereunder without the prior written approval of the Merger Sub, the
Company and the Stockholder Representative. 
Any purported assignment of rights or delegation of performance
obligations in violation of this Section 13.4 is void.

 

13.5         Counterparts and
Electronic Signature.  This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same
instrument.  Counterpart signature pages to
this Agreement transmitted by facsimile transmission, by electronic mail in
portable document format (.pdf) or by any other electronic means intended to
preserve the original graphic or pictorial appearance of a document, will have
the same effect as physical delivery of the paper document bearing an original
signature.

 

13.6         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.

 

13.7         Notices.  All notices, requests, demands, claims, and
other communications hereunder shall be in writing.  Any notice, request, demand, claim or other
communication hereunder shall be deemed duly delivered four Business Days after
it is sent by registered or certified mail, return receipt requested, postage
prepaid, or one Business Day after it is sent for next Business Day delivery
via a reputable nationwide overnight courier service, in each case to the
intended recipient as set forth below:

 

	
  If to the Company:

  	
  Kiddopotamus & Company

  
	
   

  	
  7360 W. 161st Street

  
	
   

  	
  Stillwell, Kansas 66085

  
	
   

  	
   

  
	
   

  	
  Attn:  J. Chris Snedeker

  
	
   

  	
  Tel:  913-851-2987

  
	
   

  	
  Fax:  913-402-6823

  
	
   

  	
  Email:  chris@kiddopotamus.com

  
	
   

  	
   

  
	
  Copy to:

  	
  Thomas W.
  Van Dyke, Esq.

  
	
   

  	
  Bryan Cave
  LLP

  
	
   

  	
  One Kansas
  City Place

  
	
   

  	
  1200 Main
  Street, Suite 3500

  
	
   

  	
  Kansas City,
  Missouri 64105

  
	
   

  	
  Tel:  816-374-3201

  
	
   

  	
  Fax:  816-855-3201

  
	
   

  	
  Email:  twvandyke@bryancave.com

  

 

52

 

	
  If to the Merger Sub:

  	
  Summer Infant (USA), Inc.

  
	
   

  	
  1275 Park East Drive

  
	
   

  	
  Woonsocket, Rhode Island 02895

  
	
   

  	
   

  
	
   

  	
  Attn:  Jason Macari,
  CEO & President

  
	
   

  	
  Tel:  401-671-6563

  
	
   

  	
  Fax:  401-671-6051

  
	
   

  	
  Email:  jmacari@summerinfant.com

  
	
   

  	
   

  
	
  Copies to:

  	
  Steven
  Rosenbaum, Esq.

  
	
   

  	
  Poore &
  Rosenbaum LLP

  
	
   

  	
  30 Exchange
  Terrace

  
	
   

  	
  Providence,
  RI 02903

  
	
   

  	
  Tel:  401.831.2600

  
	
   

  	
  Fax:  401.831.2220

  
	
   

  	
  Email:  srosenbaum@poorerosenbaum.com

  
	
   

  	
   

  
	
   

  	
  James P.
  Redding, Esq.

  
	
   

  	
  Greenberg
  Traurig, LLP

  
	
   

  	
  One
  International Place

  
	
   

  	
  Boston, MA 02110

  
	
   

  	
  Tel:  617.310.6061

  
	
   

  	
  Fax:  617.897.0961

  
	
   

  	
  Email:  reddingj@gtlaw.com

  
	
   

  	
   

  
	
  If to the Stockholder
  Representative:

  
	
   

  	
   

  
	
   

  	
  Thomas K.
  Manning

  
	
   

  	
  6200 Mission
  Drive

  
	
   

  	
  Mission
  Hills, Kansas  66208

  
	
   

  	
  Tel:
  913-722-6154

  
	
   

  	
  Fax:
  913-362-6383

  
	
   

  	
  Email:
  t.k.manning@worldnet.att.net

  
	
   

  	
   

  
	
  Copy to:

  	
  Thomas W.
  Van Dyke, Esq.

  

 

53

 

	
   

  	
  Bryan Cave
  LLP

  
	
   

  	
  One Kansas
  City Place

  
	
   

  	
  1200 Main
  Street, Suite 3500

  
	
   

  	
  Kansas City,
  Missouri 64105

  
	
   

  	
  Tel:  816-374-3201

  
	
   

  	
  Fax:  816-855-3201

  
	
   

  	
  Email:  twvandyke@bryancave.com

  
	
   

  	
   

  
	
  If to the Major Stockholders:

  	
   

  
	
   

  	
   

  
	
   

  	
  J. Chris Snedeker and Kristen Peterson Snedeker

  
	
   

  	
  7360 W. 161st Street

  
	
   

  	
  Stillwell, Kansas 66085

  
	
   

  	
  Tel:  913-851-2987

  
	
   

  	
  Fax:  913-402-6823

  
	
   

  	
  Email:  chris@kiddopotamus.com;

  
	
   

  	
  kristen@kiddopotamus.com

  
	
   

  	
   

  
	
  Copy to:

  	
  Cam Peterson

  
	
   

  	
  417 Wild
  Horse Circle

  
	
   

  	
  Boulder,
  Colorado 80304

  
	
   

  	
  Tel:
  303-440-3922

  
	
   

  	
  Fax:  303-440-3922

  

 

Any Party may
give any notice, request, demand, claim or other communication hereunder using
any other means (including personal delivery, expedited courier, messenger
service, facsimile, telecopy, 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 party for whom
it is intended.  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.

 

13.8         Governing Law.  All matters arising out of or relating to
this Agreement and the transactions contemplated hereby (including without
limitation its interpretation, construction, performance and enforcement) shall
be governed by and construed in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that
would cause the application of laws of any jurisdictions other than those of
the State of Delaware.

 

13.9         Amendments and Waivers.  This Agreement may only be amended by a written
instrument executed by the Merger Sub, the Stockholder Representative, the
Company, and the Major Stockholders.  No
waiver of any right or remedy hereunder shall be valid unless the same shall be
in writing and signed by the Party giving such waiver.  No waiver by any Party with respect to any
default, misrepresentation or breach of warranty or covenant hereunder 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.

 

54

 

13.10       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.  If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision, and this Agreement shall be enforceable as
so modified.

 

13.11       Construction.

 

(a)           The
language used in this Agreement shall be deemed to be the language chosen by
the Parties to express their mutual intent, and no rule of strict
construction shall be applied against any Party.

 

(b)           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 requires otherwise.

 

(c)           Any
reference herein to “including”
shall be interpreted as “including without
limitation”.

 

(d)           Any
reference to any Article, Section or paragraph shall be deemed to refer to
an Article, Section or paragraph of this Agreement, unless the context
clearly indicates otherwise.

 

[Remainder of Page Intentionally Left
Blank]

 

55

 

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

 

	
   

  	
  SI (USA) :

  
	
   

  	
   

  
	
   

  	
  Summer Infant (USA), Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Jason P.
  Macari

  
	
   

  	
  Name:

  	
  Jason P.
  Macari

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MERGER SUB:

  
	
   

  	
   

  
	
   

  	
  Kiddo Acquisition Co., Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Jason P.
  Macari

  
	
   

  	
  Name:

  	
  Jason P.
  Macari

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  Kiddopotamus &
  Company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/J. Chris
  Snedeker

  
	
   

  	
  Name:

  	
  J. Chris
  Snedeker

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STOCKHOLDER REPRESENTATIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/Thomas K.
  Manning

  
	
   

  	
  Thomas K.
  Manning, solely in his capacity as

  
	
   

  	
  Stockholder
  Representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MAJOR STOCKHOLDERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/J. Chris
  Snedeker

  
	
   

  	
  J. Chris
  Snedeker

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/Kristin
  Peterson Snedeker

  
	
   

  	
  Kristin
  Peterson Snedeker

  
								

 

[Merger
Agreement]Exhibit 10.2

 

REGISTRATION RIGHTS AGREEMENT

 

This Registration Rights Agreement (this “Agreement”) is made
and entered into as of April 18, 2008, by and among Summer Infant, Inc.,
a Delaware corporation (the “Company”), and the investors listed on Schedule
A hereto (the “Investors”).

 

WHEREAS, the Investors, who are stockholders of Kiddopotamus &
Company (“KidCo”), have
received shares of common stock of the Company (“Common  Stock”)
in connection with the merger of KidCo with an indirect subsidiary of the Company
pursuant to that certain Agreement and Plan of Merger, dated April 18,
2008 (the “Merger  Agreement”).

 

The Company and the Investors hereby agree as follows:

 

1.            Definitions.

 

Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Merger Agreement.  As used in this Agreement, the following
terms shall have the following meanings:

 

“Advice” shall have meaning set forth in Section 3(m).

 

“Affiliate” means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person.  For the
purposes of this definition, “control,” when used with respect to any
Person, means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of “affiliated,” “controlling” and “controlled” have
meanings correlative to the foregoing.

 

“Board” shall have meaning set forth in Section 3(n).

 

“Business Day” means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.

 

“Closing Date” means the date of the closing of the transactions
contemplated by the Merger Agreement.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Stock” means the Company’s Common Stock, par value $0.01
per share.

 

“Effectiveness Period” shall have the meaning set forth in Section 2.

 

 

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

 

“Filing Date” means
the date that is six months following the Closing Date.

 

“Holder” or “Holders” means each of the Investors and any
transferee of any of them to whom Registrable Securities have been transferred
in accordance with Section 7(e) of this Agreement, other than a
transferee to whom Registrable Securities have been transferred pursuant to a
Registration Statement under the Securities Act or Rule 144 or Regulation
S under the Securities Act (or any successor rule thereto).

 

“Indemnified Party” shall have the meaning set forth in Section 5(c).

 

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

 

“Losses” shall have the meaning set forth in Section 5(a).

 

“Person” means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.

 

“Proceeding” means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

 

“Prospectus” means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments.

 

“Registration Expenses” shall mean all expenses incurred by the
Company in compliance with Section 2 hereof, including, without
limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for the Company, blue sky fees and
expenses and the expense of any
special audits incident to or required by any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).

 

“Registrable Securities means the shares of Common Stock issued
pursuant to the Merger Agreement; provided, however, that such
shares of Common Stock shall no longer be deemed Registrable Securities if
either (i) such 

 

2

 

shares have been sold pursuant to an effective Registration Statement
or pursuant to Rule 144 or (ii) such shares may be sold without
restriction under Rule 144.

 

“Registration Statement” means the registration statement and
any additional registration statements contemplated by Section 2,
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement.

 

“Rule 144” means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

 

“Rule 158” means Rule 158 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

 

“Rule 415” means Rule 415 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

 

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

 

“Selling Expenses” shall mean, with respect to a given Holder, all
underwriting discounts and selling commissions applicable to the sale of
the Registrable Securities of such Holder and all fees and disbursements of
counsel to such Holder.

 

2.             Shelf Registration.

 

The Company shall use commercially reasonable efforts to prepare and
file with the Commission as soon as practicable after the Closing Date (but in
any event by the Filing Date), a “shelf” Registration Statement covering the
resale of all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415.  The
Registration Statement shall be on Form S-3 (except if the Company is not
then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in
accordance herewith).  The Company shall (i) use
its commercially reasonable efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, and to keep such Registration Statement continuously effective
under the Securities Act until such date as is the earlier of (x) the date
when all Registrable Securities covered by such Registration Statement have
been sold or (y) the date on which the Registrable Securities may be sold without
any restriction pursuant to Rule 144 as determined 

 

3

 

by the counsel to the Company pursuant to a written opinion letter,
addressed to the Company’s transfer agent to such effect (the “Effectiveness
Period”).

 

3.             Registration Procedures.

 

In
connection with the Company’s registration obligations hereunder, the Company
shall:

 

(a)           Use commercially reasonable efforts to
prepare and file with the Commission, as soon as practicable following the
Closing Date (but in any event on or prior to the Filing Date), a Registration
Statement on Form S-3 (or if the Company is not then eligible to register
for resale the Registrable Securities on Form S-3 such registration shall
be on another appropriate form in accordance herewith) including the method or
methods of distribution thereof as specified by the Holders (except if
otherwise directed by the Holders) and in accordance with applicable law, and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than three (3) Business
Days prior to the filing of the Registration Statement or any related
Prospectus or any amendment or supplement thereto, the Company shall (i) furnish
to the Holders, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders, and (ii) cause
its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of counsel to such Holders, to conduct a reasonable review
of such documents.  The Company shall not
file the Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the Registrable
Securities shall reasonably object in writing within three (3) Business
Days of their receipt thereof.

 

(b)           (i) Prepare and file with the Commission
such amendments, including post-effective amendments, to the Registration
Statement as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then
in force) promulgated under the Securities Act; (iii) respond as promptly
as possible to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply in
all material respects with the provisions of the Securities Act and the
Exchange Act with respect to the disposition of all Registrable Securities
covered by the Registration Statement during the applicable period in
accordance with the intended methods of disposition by the Holders thereof set
forth in the Registration Statement as so amended or in such Prospectus as so
supplemented.

 

4

 

(c)           Notify the Holders of Registrable Securities
as promptly as possible (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is filed; (B) when
the Commission notifies the Company whether there will be a “review” of such
Registration Statement and whenever the Commission comments in writing on such
Registration Statement and (C) with respect to the Registration Statement
or any post-effective amendment, when the same has become effective; (ii) of
any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation
or threatening of any Proceedings for that purpose; (iv) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation of any Proceeding
for such purpose; and (v) of the occurrence of any event that makes any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

(d)           Use its commercially reasonable efforts to
avoid the issuance of, or, if issued, obtain the withdrawal of, as promptly as
possible, (i) any order suspending the effectiveness of the Registration
Statement or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable  Securities for
sale in any jurisdiction.

 

(e)           If requested by the Holders of a majority in
interest of the Registrable Securities, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment to the Registration Statement
such information as the Company reasonably agrees should be included therein
and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment.

 

(f)          If requested by any Holder, furnish to such Holder, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.

 

(g)         Promptly deliver to each Holder, without charge, as many copies of the
Prospectus or Prospectuses (including each form of prospectus) and 

 

5

 

each amendment or supplement thereto as such Persons may reasonably
request; and subject to the provisions of Section 3(m), the Company hereby
consents to the use of such Prospectus and each amendment or supplement thereto
by each of the selling Holders in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

 

(h)         Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder requests in writing, to
keep each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by a Registration Statement;
provided, however, that the Company shall not be required to
qualify generally to do business in any jurisdiction where it is not then so
qualified or to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or subject the
Company to any material tax in any such jurisdiction where it is not then so
subject.

 

(i)            Cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable Securities
to be sold pursuant to a Registration Statement, which certificates, to the
extent permitted by the Merger Agreement and applicable federal and state
securities laws, shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any Holder may request in connection with any sale of Registrable
Securities.

 

(j)            Upon the occurrence of any event contemplated
by Section 3(c)(v), as promptly as possible, prepare a supplement or
amendment, including a post-effective amendment, to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration Statement
nor such Prospectus contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

 

(k)           Use its commercially reasonable efforts to
cause all Registrable Securities relating to such Registration Statement to be
listed on The Nasdaq Capital Market or any other securities exchange, quotation
system or market, if any, on which similar securities issued by the Company are
then listed.

 

(l)            Comply in all material respects with all
applicable rules and regulations of the Commission and make generally
available to its security holders earning statements satisfying the provisions
of Section 11(a) of the Securities Act and Rule 158 not later
than 45 days after the end of any 12-month period (or 90 

 

6

 

days after the end of any 12-month period if such period is a fiscal
year) commencing on the first day of the first fiscal quarter of the Company
after the effective date of the Registration Statement, which statement shall
conform to the requirements of Rule 158.

 

(m)          Be permitted to require each selling Holder
to furnish to the Company information regarding such Holder and the
distribution of such Registrable Securities as is required by law to be
disclosed in the Registration Statement, Prospectus, or any amendment or
supplement thereto, and the Company may exclude from such registration the
Registrable Securities of any such Holder who unreasonably fails to furnish
such information within seven (7) Business Days after receiving such
request.

 

Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply
with the prospectus delivery requirements of the Securities Act as applicable
to them in connection with sales of Registrable Securities pursuant to the
Registration Statement.

 

Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(n), such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder’s receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the “Advice”)
by the Company that the use of the applicable Prospectus may be resumed, and,
in either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement.

 

(n)           If (i) there is material non-public
information regarding the Company which the Company’s Board of Directors (the “Board”)
reasonably determines not to be in the Company’s best interest to disclose and
which the Company is not otherwise required to disclose, or (ii) there is
a significant business opportunity (including, but not limited to, the
acquisition or disposition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines not
to be in the Company’s best interest to disclose, then the Company may postpone
or suspend filing or effectiveness of a registration statement for a period not
to exceed 20 consecutive days.

 

(o)           Each
Holder agrees, if requested by the Company and an underwriter of the Common
Stock (or other securities) of the Company, not to sell or otherwise transfer
or dispose of any Common Stock (or other
securities of the 

 

7

 

Company) held by the Holder during the 90-day period following the effective
date of a registration statement of the Company filed under the Securities Act;
provided, however, that the Company
shall not make such a request unless all similarly situated selling
securityholders (regardless of the number of shares owned) are to be restricted
in the same manner (including
duration and nature of transfer restrictions) without discrimination and the
Company accompanies such request with an officer’s certificate identifying the
other securityholders to be bound by
such an agreement.  If requested by the
underwriters, each such Holder shall execute a separate agreement to the
foregoing effect.  The Company may impose
stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of said 90-day period.  The provisions of this Section 3(o) shall
be binding upon any transferee who acquires Registrable Securities, whether or
not such transferee is entitled to the registration rights provided hereunder.

 

4.             Registration Expenses.

 

All
Registration Expenses incurred in connection with any registration,
qualification or compliance
pursuant to this Agreement shall be borne by the Company, and any and all Selling Expenses
of a given Holder shall be borne by such Holder.

 

5.              Indemnification.

 

(a)           Indemnification by the Company.  The
Company shall, notwithstanding any termination of this Agreement, indemnify and
hold harmless each Holder, the officers, directors, agents, brokers (including
brokers who offer and sell Registrable Securities as principal as a result of a
pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls any
such Holder (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) and the officers, directors, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law,
from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, costs of preparation and attorneys’ fees) and
expenses (collectively, “Losses”), as incurred, arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any Prospectus or any form of prospectus or in any
amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein (in
the case of any Prospectus or form of prospectus or supplement thereto), in the
light of the circumstances under which they were made, not misleading, except
to the extent, but only to the extent, that such untrue statements or omissions
arise out of or are based upon information regarding the Holders or such other
Indemnified Party furnished in writing to the Company by a Holder expressly for
use therein, which information was reasonably relied on by the Company for use
therein or to the extent that such information relates to a Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved 

 

8

 

in writing by a Holder expressly for use in the Registration Statement,
such Prospectus or such form of Prospectus or in any amendment or supplement
thereto.  The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding of
which the Company is aware in connection with the transactions contemplated by
this Agreement.

 

(b)           Indemnification by Holders.  Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Company, the directors, officers, agents and employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities
Act and Section 20 of the Exchange Act), and the directors, officers,
agents or employees of such controlling Persons, to the fullest extent
permitted by applicable law, from and against all Losses, as incurred, arising
out of or based upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or based upon any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto), in the light of the circumstances under which they were
made, not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing
by such Holder or other Indemnified Party to the Company expressly for use
therein and that such information was reasonably relied upon by the Company for
use therein, or to the extent that such information relates to such Holder or
such Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or any
amendment or supplement thereto. 
Notwithstanding anything to the contrary contained herein, the Holders
shall be liable under this Section 5(b) for only that amount as does
not exceed the net proceeds to such Holder as a result of the sale of
Registrable Securities pursuant to such Registration Statement. (c)  Conduct of Indemnification Proceedings.  If
any Proceeding shall be brought or asserted against any Person entitled to indemnity
hereunder (an “Indemnified Party”), such Indemnified Party promptly
shall notify the Person from whom indemnity is sought (the “Indemnifying
Party) in writing, and the Indemnifying Party shall be entitled to assume
the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and materially adversely prejudiced
the Indemnifying Party.

 

An Indemnified Party shall
have the right to employ separate counsel in any such Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party or Parties 

 

9

 

unless: (1) the Indemnifying Party has agreed in writing to pay
such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such parties shall
have been advised by counsel that a conflict of interest is likely to exist if
the same counsel were to represent such Indemnified Party and the Indemnifying
Party (in which case, if such Indemnified Party notifies the Indemnifying Party
in writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the
Indemnifying Party).  The Indemnifying
Party shall not be liable for any settlement of any such Proceeding effected
without its written consent, which consent shall not be unreasonably withheld
or delayed.  No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, which consent shall
not be unreasonably withheld, effect any settlement of, or consent order with
respect to, any pending or threatened Proceeding in respect of which any
Indemnified Party is a party and indemnity has been sought hereunder.

 

All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder;  provided, that
the Indemnified Party shall reimburse all such fees and expenses to the extent
it is finally judicially determined that such Indemnified Party is not entitled
to indemnification hereunder).

 

(d)           Contribution.  If
indemnification under Section 5(a) or 5(b) is due but
unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying Party
and Indemnified Party in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying, Party or Indemnified Party, and the  parties’
relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. 
The amount paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations 

 

10

 

set forth in Section 5(c), any reasonable attorneys’ or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in this Section was
available to such party in accordance with its terms.

 

The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding
paragraph.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

 

The indemnity and contribution agreements contained in this Section are
in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties pursuant to the law.

 

6.             Rule 144.

 

As long as any Holder owns Registrable Securities, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of
the Exchange Act.  As long as any Holder
owns Registrable Securities, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will
prepare and furnish to the Holders and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act, as well as any other information required
thereby, in the time period that such filings would have been required to have
been made under the Exchange Act.  The
Company further covenants that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
such Person to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act, including providing any legal opinions
relating to such sale pursuant to Rule 144.  Upon the request of any Holder, the Company
shall deliver to such Holder a written certification of a duly authorized
officer as to whether it has complied with such requirements.

 

7.             Miscellaneous.

 

(a)           No Inconsistent Agreements. 
Simultaneously on the date hereof, the Company and each Holder is
entering into a Lock-Up Agreement, pursuant to which, among other things, such
Holder has agreed not to offer for sale, 

 

11

 

sell, pledge, assign, hypothecate or otherwise create any interest in
or dispose of any Registrable Securities during the one year period commencing
on the Closing Date.  Nothing contained
herein shall be deemed to alter or modify the obligations of such Holder under
such Lock-Up Agreement.  Except for the
Lock-Up Agreement, neither the Company nor any of its subsidiaries has, as of
the date hereof entered into any agreement with respect to its securities that
is inconsistent with the rights granted to the Holders in this Agreement or
otherwise conflicts with the provisions hereof.

 

(b)           Amendments and Waivers.  The
provisions of this Agreement, including the provisions of this sentence, may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in
writing and signed by the Company and each of the Holders.  Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not
be amended, modified, or supplemented except in accordance with the provisions
of the immediately preceding sentence.

 

(c)           Notices.  Any and all notices or other
communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earlier of (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m.,
New York City time, on a Business Day, (ii) the Business Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified for notice later than
5:00 p.m., New York City time, on any date and earlier than 11:59 p.m.,
New York City time, on such date, (iii) the Business Day following the
date of mailing, if sent by overnight delivery by nationally recognized
overnight courier service or (iv) actual receipt by the party to whom such
notice is required to be given.  The
addresses for such communications shall be with respect to each Holder at its
address set forth in the stock register, or with respect to the Company,
addressed to:

 

Summer Infant, Inc.

1275
Park East Drive

Woonsocket, RI

Attention: Joseph Driscoll

Tel. No.: (401) 671-6550

 

or to such other address or addresses or facsimile number or numbers as
any such party may most recently have designated in writing to the other
parties hereto by such notice.  Copies of
notices to the Company shall be sent to Greenberg Traurig, LLP, One
International Place, Boston, MA 02110, Attention: Stephen Faberman Esq., Tel.
No.: (617) 310-6037.

 

12

 

(d)           Successors and Assigns.  This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns.

 

(e)           Assignment.  Neither this Agreement nor any
of the rights, duties, or obligations of any party hereunder may be assigned or
delegated (by operation of law or otherwise)
by either party hereto except with the prior written consent of the other party
hereto; provided, however, that a Holder may assign or delegate its
rights, duties and obligations hereunder to any transferee of such Holder’s
Registrable Securities who agrees in writing to become bound by the terms and conditions of this Agreement, so long as
such assignment or delegation is not
in violation of the Merger Agreement or any applicable law or regulation.

 

(f)            Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. 
In the event that any signature is delivered by facsimile transmission,
such signature shall create a valid binding obligation of the party executing
(or on whose behalf such signature is executed) the same with the same force
and effect as if such facsimile signature were the original thereof.

 

(g)           Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to principles of conflicts of law thereof.

 

(h)           Cumulative Remedies.  The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.

 

(i)            Severability. If any term, provision, covenant or
restriction of this Agreement is held to be invalid, illegal, void or
unenforceable in any respect, the remainder of the terms, provisions, covenants
and restrictions set forth herein shall remain in full force and effect and
shall in no way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. 
It is hereby stipulated and declared  to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.

 

(j)            Headings.  The headings herein are for
convenience only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

13

 

IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed by their respective authorized persons as
of the date first indicated above.

 

	
   

  	
  SUMMER INFANT, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Jason
  M. Macari

  
	
   

  	
   

  	
  Name:
  Jason P. Macari

  
	
   

  	
   

  	
  Title:
  President

  

 

 

Schedule A

 

Schedule of Investors

 

	
  J. CHRIS SNEDEKER

  
	
   

  
	
  /s/
  J. Chris Snedeker

  	
   

  
	
   

  
	
  KRISTEN PETERSON
  SNEDEKER

  
	
   

  
	
   

  
	
  /s/Kristen Peterson
  Snedeker

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