Document:

Exhibit 10.1

 

Execution Copy

 

 

AGREEMENT AND PLAN OF MERGER

 

by and among

 

Bookham Technology plc,

 

Budapest Acquisition Corp.

 

and

 

New Focus, Inc.

 

Dated as of September 21, 2003

 

 

TABLE OF CONTENTS

 

 

	
  ARTICLE I

  	
  THE MERGER

  
	
   

  	
  1.1

  	
  Effective Time of the Merger

  
	
   

  	
  1.2

  	
  Closing

  
	
   

  	
  1.3

  	
  Effects of the Merger

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  CONVERSION OF SECURITIES AND DISTRIBUTION
  OF THE CASH AMOUNT

  
	
   

  	
  2.1

  	
  Conversion of Capital Stock

  
	
   

  	
  2.2

  	
  Exchange of Certificates and Distribution
  of Cash Amount

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  
	
   

  	
  3.1

  	
  Organization, Standing and Power;
  Subsidiaries.

  
	
   

  	
  3.2

  	
  Capitalization.

  
	
   

  	
  3.3

  	
  Authority; No Conflict; Required Filings
  and Consents.

  
	
   

  	
  3.4

  	
  SEC Filings; Financial Statements;
  Information Provided.

  
	
   

  	
  3.5

  	
  No Undisclosed Liabilities; Indebtedness.

  
	
   

  	
  3.6

  	
  Absence of Certain Changes or Events

  
	
   

  	
  3.7

  	
  Taxes.

  
	
   

  	
  3.8

  	
  Owned and Leased Real Properties.

  
	
   

  	
  3.9

  	
  Intellectual Property.

  
	
   

  	
  3.10

  	
  Agreements, Contracts and Commitments;
  Government Contracts.

  
	
   

  	
  3.11

  	
  Litigation; Product Liability

  
	
   

  	
  3.12

  	
  Environmental Matters.

  
	
   

  	
  3.13

  	
  Employee Benefit Plans.

  
	
   

  	
  3.14

  	
  Compliance With Laws

  
	
   

  	
  3.15

  	
  Permits

  
	
   

  	
  3.16

  	
  Labor Matters.

  
	
   

  	
  3.17

  	
  Insurance

  
	
   

  	
  3.18

  	
  [Intentionally Omitted]

  
	
   

  	
  3.19

  	
  Assets

  
	
   

  	
  3.20

  	
  Warranty

  
	
   

  	
  3.21

  	
  Customers and Suppliers

  
	
   

  	
  3.22

  	
  Opinion of Financial Advisor

  
	
   

  	
  3.23

  	
  Section 203 of the DGCL Not Applicable

  
	
   

  	
  3.24

  	
  Rights Agreement

  
	
   

  	
  3.25

  	
  Brokers; Schedule of Fees and
  Expenses.

  
	
   

  	
  3.26

  	
  No Existing Discussions

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS AND WARRANTIES OF THE
  PARENT AND THE TRANSITORY SUBSIDIARY

  
	
   

  	
  4.1

  	
  Organization, Standing and Power.

  
	
   

  	
  4.2

  	
  Capitalization.

  
	
   

  	
  4.3

  	
  Authority; No Conflict; Required Filings
  and Consents.

  

 

i

 

	
   

  	
  4.4

  	
  SEC Filings; Financial Statements;
  Information Provided; LSE.

  
	
   

  	
  4.5

  	
  No Undisclosed Liabilities

  
	
   

  	
  4.6

  	
  Agreements, Contracts and Commitments;
  Government Contracts.

  
	
   

  	
  4.7

  	
  Absence of Certain Changes or Events

  
	
   

  	
  4.8

  	
  Litigation; Product Liability

  
	
   

  	
  4.9

  	
  Intellectual Property.

  
	
   

  	
  4.10

  	
  Taxes.

  
	
   

  	
  4.11

  	
  Environmental Matters.

  
	
   

  	
  4.12

  	
  Compliance With Laws

  
	
   

  	
  4.13

  	
  Assets

  
	
   

  	
  4.14

  	
  Broker

  
	
   

  	
  4.15

  	
  Operations of the Transitory Subsidiary

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CONDUCT OF BUSINESS

  
	
   

  	
  5.1

  	
  Covenants of the Company

  
	
   

  	
  5.2

  	
  Covenants of the Parent

  
	
   

  	
  5.3

  	
  Confidentiality

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  ADDITIONAL AGREEMENTS

  
	
   

  	
  6.1

  	
  Company No Solicitation.

  
	
   

  	
  6.2

  	
  Parent Notices; Additional Negotiations

  
	
   

  	
  6.3

  	
  Joint Proxy Statement/Prospectus;
  Registration Statement; Shareholder Circular; Listing Particulars.

  
	
   

  	
  6.4

  	
  NASDAQ and LSE Quotation

  
	
   

  	
  6.5

  	
  Access to Information

  
	
   

  	
  6.6

  	
  Stockholders Meetings.

  
	
   

  	
  6.7

  	
  [Intentionally Omitted]

  
	
   

  	
  6.8

  	
  Legal Conditions to the Merger.

  
	
   

  	
  6.9

  	
  Public Disclosure

  
	
   

  	
  6.10

  	
  Section 368(a) Reorganization

  
	
   

  	
  6.11

  	
  Affiliate Legends

  
	
   

  	
  6.12

  	
  Listing Applications

  
	
   

  	
  6.13

  	
  Company Stock Plans.

  
	
   

  	
  6.14

  	
  Stockholder Litigation

  
	
   

  	
  6.15

  	
  Indemnification.

  
	
   

  	
  6.16

  	
  Notification of Certain Matters

  
	
   

  	
  6.17

  	
  Exemption from Liability Under
  Section 16(b).

  
	
   

  	
  6.18

  	
  Board of Directors of Parent

  
	
   

  	
  6.19

  	
  Service Credit

  
	
   

  	
  6.20

  	
  Employee Communications

  
	
   

  	
  6.21

  	
  401(k) Plan

  
	
   

  	
  6.22

  	
  Distribution

  
	
   

  	
  6.23

  	
  Transfer Taxes

  

 

ii

 

	
  ARTICLE VII

  	
  CONDITIONS
  TO MERGER

  
	
   

  	
  7.1

  	
  Conditions to Each Party’s Obligation To
  Effect the Merger

  
	
   

  	
  7.2

  	
  Additional Conditions to Obligations of the
  Parent and the Transitory Subsidiary

  
	
   

  	
  7.3

  	
  Additional Conditions to Obligations of the
  Company

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  TERMINATION
  AND AMENDMENT

  
	
   

  	
  8.1

  	
  Termination

  
	
   

  	
  8.2

  	
  Effect of Termination

  
	
   

  	
  8.3

  	
  Fees and Expenses.

  
	
   

  	
  8.4

  	
  Amendment

  
	
   

  	
  8.5

  	
  Extension; Waiver

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  
	
   

  	
  9.1

  	
  Nonsurvival of Representations and
  Warranties

  
	
   

  	
  9.2

  	
  Notices

  
	
   

  	
  9.3

  	
  Entire Agreement

  
	
   

  	
  9.4

  	
  No Third Party Beneficiaries

  
	
   

  	
  9.5

  	
  Assignment

  
	
   

  	
  9.6

  	
  Severability

  
	
   

  	
  9.7

  	
  Counterparts and Signature

  
	
   

  	
  9.8

  	
  Interpretation

  
	
   

  	
  9.9

  	
  Governing Law

  
	
   

  	
  9.10

  	
  Remedies

  
	
   

  	
  9.11

  	
  Submission to Jurisdiction

  
	
   

  	
  9.12

  	
  Waiver of Jury Trial

  
	
   

  	
   

  	
   

  
	
  Schedule A

  	
  Parties to Company Stockholder
  Agreements

  
	
   

  	
   

  
	
  Schedule B

  	
  Parties to Parent Shareholder
  Agreements

  
	
   

  	
   

  
	
  Schedule 6.18

  	
  Board of Directors of Parent

  
	
   

  	
   

  
	
  Exhibit A

  	
  Form of Company Stockholder Agreement

  
	
   

  	
   

  
	
  Exhibit B

  	
  Form of Parent Shareholder Agreement

  
				

 

iii

 

TABLE OF DEFINED TERMS

 

	
  Terms

  	
   

  	
  Reference
  in

  Agreement

  
	
   

  	
   

  	
   

  
	
  Affiliate

  	
   

  	
  Section 3.2(d)

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Alternative Acquisition
  Agreement

  	
   

  	
  Section 6.1(b)

  
	
  Antitrust Laws

  	
   

  	
  Section 6.8(b)

  
	
  Antitrust Order

  	
   

  	
  Section 6.8(b)

  
	
  Bankruptcy and Equity
  Exception

  	
   

  	
  Section 3.3(a)

  
	
  Cash Amount

  	
   

  	
  Section 2.2(j)

  
	
  Cash Amount Per Share

  	
   

  	
  Section 2.2(j)

  
	
  CERCLA

  	
   

  	
  Section 3.12(g)

  
	
  Certificate of Merger

  	
   

  	
  Section 1.1

  
	
  Certificates

  	
   

  	
  Section 2.2(a)

  
	
  Closing

  	
   

  	
  Section 1.2

  
	
  Closing Date

  	
   

  	
  Section 1.2

  
	
  Code

  	
   

  	
  Preamble

  
	
  Company

  	
   

  	
  Preamble

  
	
  Company Acquisition
  Proposal

  	
   

  	
  Section 6.1(f)

  
	
  Company Balance Sheet

  	
   

  	
  Section 3.4(b)

  
	
  Company Board

  	
   

  	
  Section 3.3(a)

  
	
  Company Common Stock

  	
   

  	
  Section 2.1(b)

  
	
  Company Disclosure
  Schedule

  	
   

  	
  Article III

  
	
  Company Designees

  	
   

  	
  Section 6.18

  
	
  Company Employee Plan

  	
   

  	
  Section 3.13(a)

  
	
  Company ESPP

  	
   

  	
  Section 5.1(q)

  
	
  Company Insiders

  	
   

  	
  Section 6.17(c)

  
	
  Company Intellectual
  Property

  	
   

  	
  Section 3.9(b)

  
	
  Company Leases

  	
   

  	
  Section 3.8(d)

  
	
  Company Material
  Adverse Effect

  	
   

  	
  Section 3.1(a)

  
	
  Company Material
  Contracts

  	
   

  	
  Section 3.10(a)

  
	
  Company Permits

  	
   

  	
  Section 3.15

  
	
  Company Preferred Stock

  	
   

  	
  Section 3.2(a)

  
	
  Company Products

  	
   

  	
  Section 3.9(e)

  
	
  Company Rights

  	
   

  	
  Section 3.2(d)

  
	
  Company Rights Plan

  	
   

  	
  Section 3.2(d)

  
	
  Company SEC Reports

  	
   

  	
  Section 3.4(a)

  
	
  Company Stock Options

  	
   

  	
  Section 3.2(c)

  
	
  Company Stock Plans

  	
   

  	
  Section 3.2(c)

  
	
  Company Stockholder
  Agreements

  	
   

  	
  Preamble

  
	
  Company Stockholder
  Approval

  	
   

  	
  Section 3.3(a)

  
	
  Company Stockholders
  Meeting

  	
   

  	
  Section 3.4(c)

  
	
  Company Third Party
  Intellectual Property

  	
   

  	
  Section 3.9(b)

  
	
  Company Voting Proposal

  	
   

  	
  Section 3.3(a)

  
	
  Confidentiality
  Agreement

  	
   

  	
  Section 5.3

  

 

iv

 

	
  Terms

  	
   

  	
  Reference
  in

  Agreement

  
	
   

  	
   

  	
   

  
	
  Continuing Employees

  	
   

  	
  Section 6.19

  
	
  Deposit Agreement

  	
   

  	
  Section 2.1(c)

  
	
  Depository

  	
   

  	
  Section 2.1(c)

  
	
  DGCL

  	
   

  	
  Preamble

  
	
  Distribution

  	
   

  	
  Preamble

  
	
  Distribution Record
  Date

  	
   

  	
  Section 2.2(j)

  
	
  Effective Time

  	
   

  	
  Section 1.1

  
	
  Employee Benefit Plan

  	
   

  	
  Section 3.13(a)

  
	
  Environmental Law

  	
   

  	
  Section 3.12(g)

  
	
  ERISA

  	
   

  	
  Section 3.13(a)

  
	
  ERISA Affiliate

  	
   

  	
  Section 3.13(a)

  
	
  Exchange Agent

  	
   

  	
  Section 2.2(a)

  
	
  Exchange Fund

  	
   

  	
  Section 2.2(a)

  
	
  Exchange Act

  	
   

  	
  Section 3.3(c)

  
	
  Exchange Ratio

  	
   

  	
  Section 2.1(c)

  
	
  FSMA

  	
   

  	
  Section 4.4(d)

  
	
  GAAP

  	
   

  	
  Section 3.4(b)

  
	
  Governmental Entity

  	
   

  	
  Section 3.3(c)

  
	
  Governmental
  Regulations

  	
   

  	
  Section 3.8(b)

  
	
  HSR Act

  	
   

  	
  Section 3.3(c)

  
	
  Indemnified Parties

  	
   

  	
  Section 6.15(a)

  
	
  Insurance Policies

  	
   

  	
  Section 3.17

  
	
  Intellectual Property

  	
   

  	
  Section 3.9(a)

  
	
  Joint Proxy
  Statement/Prospectus

  	
   

  	
  Section 3.4(c)

  
	
  Liens

  	
   

  	
  Section 3.2(f)

  
	
  Listing Rules

  	
   

  	
  Section 4.4(d)

  
	
  LSE

  	
   

  	
  Section 4.3(a)

  
	
  Materials of
  Environmental Concern

  	
   

  	
  Section 3.12(h)

  
	
  Merger

  	
   

  	
  Preamble

  
	
  Non-U.S. Plan

  	
   

  	
  Section 3.13(j)

  
	
  Ordinary Course of
  Business

  	
   

  	
  Section 3.2(d)

  
	
  Outside Date

  	
   

  	
  Section 8.1(b)

  
	
  Parent

  	
   

  	
  Preamble

  
	
  Parent Acquisition
  Proposal

  	
   

  	
  Section 6.2

  
	
  Parent ADRs

  	
   

  	
  Section 2.1(c)

  
	
  Parent ADSs

  	
   

  	
  Section 2.1(c)

  
	
  Parent Balance Sheet

  	
   

  	
  Section 4.4(b)

  
	
  Parent Board

  	
   

  	
  Section 4.3(a)

  
	
  Parent Circular

  	
   

  	
  Section 6.3(b)

  
	
  Parent Disclosure
  Schedule

  	
   

  	
  Article IV

  
	
  Parent Employee Benefit
  Plan

  	
   

  	
  Section 6.19

  
	
  Parent Intellectual
  Property

  	
   

  	
  Section 3.10(d)

  
	
  Parent Listing Document

  	
   

  	
  Section 6.3(b)

  

 

v

 

	
  Terms

  	
   

  	
  Reference
  in

  Agreement

  
	
   

  	
   

  	
   

  
	
  Parent Material Adverse
  Effect

  	
   

  	
  Section 4.1(a)

  
	
  Parent Material
  Contracts

  	
   

  	
  Section 4.6(a)

  
	
  Parent Ordinary Shares

  	
   

  	
  Section 2.1(c)

  
	
  Parent Products

  	
   

  	
  Section 4.9(e)

  
	
  Parent SEC Reports

  	
   

  	
  Section 4.4(a)

  
	
  Parent Share Plans

  	
   

  	
  Section 4.2(b)

  
	
  Parent Shareholder
  Agreements

  	
   

  	
  Preamble

  
	
  Parent Shareholder
  Approval

  	
   

  	
  Section 4.3(a)

  
	
  Parent Shareholders
  Meeting

  	
   

  	
  Section 3.4(c)

  
	
  Parent Third Party
  Intellectual Property

  	
   

  	
  Section 4.9(b)

  
	
  Parent UK Documents

  	
   

  	
  Section 6.3(b)

  
	
  Parent Voting Proposal

  	
   

  	
  Section 3.4(c)

  
	
  Patents

  	
   

  	
  Section 3.9(a)

  
	
  PRC

  	
   

  	
  Section 3.1(c)

  
	
  Qualifying Proposal

  	
   

  	
  Section 6.1(f)

  
	
  Real Estate

  	
   

  	
  Section 3.8(a)

  
	
  Registration Statement

  	
   

  	
  Section 3.4(c)

  
	
  Regulation M-A Filing

  	
   

  	
  Section 3.4(c)

  
	
  Representatives

  	
   

  	
  Section 6.1(a)

  
	
  Rights Agreement
  Amendment

  	
   

  	
  Section 3.24

  
	
  Rule 145 Affiliates

  	
   

  	
  Section 6.11

  
	
  SEC

  	
   

  	
  Section 3.3(c)

  
	
  Section 16
  Information

  	
   

  	
  Section 6.17(b)

  
	
  Securities Act

  	
   

  	
  Section 3.2(d)

  
	
  Specified Time

  	
   

  	
  Section 6.1(a)

  
	
  Subsidiary

  	
   

  	
  Section 3.1(b)

  
	
  Superior Proposal

  	
   

  	
  Section 6.1(f)

  
	
  Surviving Corporation

  	
   

  	
  Section 1.3

  
	
  Tax Returns

  	
   

  	
  Section 3.7(a)

  
	
  Taxes

  	
   

  	
  Section 3.7(a)

  
	
  Transitory Subsidiary

  	
   

  	
  Preamble

  
	
  UK GAAP

  	
   

  	
  Section 4.4(b)

  
	
  UKLA

  	
   

  	
  Section 4.4(d)

  

 

vi

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”),
dated as of September 21, 2003, is entered into by and among Bookham
Technology plc, a public limited company incorporated under the laws of England
and Wales (the “Parent”), Budapest Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of the Parent (the “Transitory Subsidiary”), and
New Focus, Inc., a Delaware corporation (the “Company”).

 

WHEREAS, the Boards of Directors of the Parent and the
Company deem it advisable and in the best interests of each corporation and
their respective stockholders that the Parent combine with the Company in order
to advance the long-term business interests of the Parent and the Company;

 

WHEREAS, the business combination of the Company shall
be effected through a merger (the “Merger”) of the Transitory Subsidiary into the
Company in accordance with the terms of this Agreement and the General
Corporation Law of the State of Delaware (the “DGCL”), as a result of which the
Company shall become a wholly owned subsidiary of the Parent;

 

WHEREAS, concurrently with the execution and delivery
of this Agreement and as a condition and inducement to the Parent’s willingness
to enter into this Agreement, the stockholders of the Company listed on Schedule A
have entered into Stockholder Agreements, dated as of the date of this Agreement,
in the form attached hereto as Exhibit A (the “Company Stockholder
Agreements”), pursuant to which such stockholders have, among other things,
agreed to give the Parent a proxy to vote all of the shares of capital stock of
the Company that such stockholders own;

 

WHEREAS, concurrently with the execution and delivery
of this Agreement and as a condition and inducement to the Company’s
willingness to enter into this Agreement, the shareholders of the Parent listed
on Schedule B have entered into Shareholder Agreements, dated as of
the date of this Agreement, in the form attached hereto as Exhibit B
(the “Parent Shareholder Agreements”), pursuant to which such shareholders
have, among other things, agreed to give the Company a proxy to vote all of the
shares of capital stock of the Parent that such shareholders own;

 

WHEREAS, for United States federal income tax
purposes, it is intended that the Merger shall qualify as a reorganization
within the meaning of Section 368(a) of the United States Internal Revenue
Code of 1986, as amended (the “Code”); and

 

WHEREAS, immediately prior to the Effective Time, the
Company intends to distribute the Cash Amount (as defined herein) to the
holders of Company Common Stock outstanding on the Distribution Record Date, as
defined below (the “Distribution”).

 

NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and agreements set forth
below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parent, the Transitory
Subsidiary and the Company agree as follows:

 

 

ARTICLE I

THE MERGER

 

1.1                                 Effective Time of the Merger.  Subject to the provisions of this Agreement,
prior to the Closing, the Parent shall prepare, and on the Closing Date or as
soon as practicable thereafter the Parent shall cause to be filed with the
Secretary of State of the State of Delaware, a certificate of merger (the
“Certificate of Merger”) in such form as is required by, and executed by the Surviving
Corporation in accordance with, the relevant provisions of the DGCL and shall
make all other filings or recordings required under the DGCL.  The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware or at such later time as is established by the Parent and the Company
and set forth in the Certificate of Merger (the “Effective Time”).

 

1.2                                 Closing.  The
closing of the Merger (the “Closing”) shall take place at 10:00 a.m., Eastern
time, on a date to be specified by the Parent and the Company (the “Closing
Date”), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than delivery
of items to be delivered at the Closing and other than satisfaction of those
conditions that by their nature are to be satisfied at the Closing, it being
understood that the occurrence of the Closing shall remain subject to the
delivery of such items and the satisfaction or waiver of such conditions at the
Closing), at the offices of Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation, 650 Page Mill Road, Palo Alto, California, unless
another date, place or time is agreed to in writing by the Parent and the Company.

 

1.3                                 Effects of the Merger.  At the Effective Time (i) the separate
existence of the Transitory Subsidiary shall cease and the Transitory
Subsidiary shall be merged with and into the Company (the Company following the
Merger is sometimes referred to herein as the “Surviving Corporation”),
(ii) the Certificate of Incorporation of the Company as in effect on the
date of this Agreement shall be amended so that Article FOURTH of such
Certificate of Incorporation reads in its entirety as follows:  “The total number of shares of all classes
of stock which the Corporation shall have authority to issue is 1,000, all of
which shall consist of common stock, $.01 par value per share,” and, as so
amended, such Certificate of Incorporation shall be the Certificate of Incorporation
of the Surviving Corporation, until further amended in accordance with the
DGCL, and (iii) the directors and officers of the Transitory Subsidiary
immediately prior to the Effective Time shall be the initial directors and
officers of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and By-laws of the Surviving Corporation.  In addition, the Parent shall cause the
By-laws of the Company to be amended and restated in their entirety immediately
following the Effective Time so that they are identical to the By-laws of the
Transitory Subsidiary as in effect immediately prior to the Effective Time,
except that all references to the name of the Transitory Subsidiary therein
shall be changed to refer to the name of the Company, and, as so amended and
restated, such By-laws shall be the By-laws of the Surviving Corporation, until
further amended in accordance with the DGCL and such By-laws.  The Merger shall have the effects set forth
in Section 259 of the DGCL.

 

2

 

ARTICLE II

CONVERSION OF SECURITIES AND

DISTRIBUTION OF THE CASH AMOUNT

 

2.1                                 Conversion of Capital Stock.  As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
capital stock of the Company or capital stock of the Transitory Subsidiary:

 

(a)                                  Capital
Stock of the Transitory Subsidiary. 
Each share of the common stock of the Transitory Subsidiary issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one fully paid and nonassessable share of common stock, US $.01 par
value per share, of the Surviving Corporation.

 

(b)                                 Cancellation
of Treasury Stock and Parent-Owned Stock. 
All shares of common stock, US $0.001 par value per share, of the
Company (“Company Common Stock”) that are owned by the Company as treasury
stock or by any wholly owned Subsidiary of the Company and any shares of
Company Common Stock owned by the Parent, the Transitory Subsidiary or any
other wholly owned Subsidiary of the Parent immediately prior to the Effective
Time shall be cancelled and shall cease to exist and no stock of the Parent or
other consideration shall be delivered in exchange therefor.

 

(c)                                  Exchange
Ratio for Company Common Stock. 
Subject to Section 2.2, each share of Company Common Stock (other
than shares to be cancelled in accordance with Section 2.1(b)) issued and
outstanding immediately prior to the Effective Time shall be automatically
converted into and represent the right to receive 1.2015 shares (the “Exchange
Ratio”) of Parent American Depositary Shares (“Parent ADSs”), each Parent ADS
representing one ordinary share, par value 1/3 p per share, of the Parent
(“Parent Ordinary Shares”) or, at the election of the holder of Company Common
Stock, the equivalent number of Parent Ordinary Shares in registered
certificated or uncertificated form, upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in Section 2.2;
provided that if a holder of Company Common Stock does not make such
election on the letter of transmittal forwarded to such holder pursuant to
Section 2.2(b), such holder shall be deemed to have elected to receive
Parent ADSs.  The Parent ADSs shall be
evidenced by one or more American Depository Receipts (“Parent ADRs”) issued in
accordance with the Deposit Agreement dated as of April 11, 2000 by and
among the Parent, The Bank of New York (the “Depository”) and the holders from
time to time of Parent ADRs (the “Deposit Agreement”).  As of the Effective Time, all such shares of
Company Common Stock shall no longer be outstanding and shall automatically be
cancelled and shall cease to exist, and each holder of a certificate
representing any such shares of Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Parent ADSs
pursuant to this Section 2.1(c), any cash in lieu of fractional Parent
ADSs to be issued or paid in consideration therefor and any dividends or
distributions payable pursuant to Section 2.2(c) upon the surrender of
such certificate in accordance with Section 2.2, without interest.  For purposes of this Agreement, references
to Parent ADSs shall also mean Parent Ordinary Shares that holders of Company
Common Stock may elect to receive in lieu of Parent ADSs pursuant to the
Merger.

 

3

 

(d)                                 Adjustments
to Exchange Ratio.  The Exchange
Ratio shall be adjusted to reflect fully the effect of any reclassification,
stock split, consolidation, reverse split, stock dividend (including any
dividend or distribution of securities convertible into Parent Ordinary Shares,
Parent ADSs or Company Common Stock), reorganization, capital redemption or
repayment, bonus issue, recapitalization or other like change with respect to
Parent Ordinary Shares, Parent ADSs or Company Common Stock occurring (or for
which a record date is established) after the date hereof and prior to the
Effective Time, other than the Distribution.

 

(e)                                  Unvested
Stock.  At the Effective Time, any
Parent ADSs issued in accordance with Section 2.1(c) with respect to any
unvested shares of Company Common Stock awarded to employees, directors or
consultants pursuant to any of the Company’s plans or arrangements and
outstanding immediately prior to the Effective Time shall remain subject to the
same terms, restrictions and vesting schedule as in effect immediately
prior to the Effective Time, except to the extent by their terms as in effect
as of the date hereof such unvested shares of Company Common Stock vest at the
Effective Time.  The Company shall not
take or permit any action, which would accelerate vesting of any unvested
shares, except to the extent required by their terms as in effect on the date
hereof.  Copies of the relevant
agreements governing such shares and the vesting thereof have been provided to
the Parent.  All outstanding rights
which the Company may hold immediately prior to the Effective Time to
repurchase unvested shares of Company Common Stock shall be assigned to the
Parent in the Merger and shall thereafter be exercisable by the Surviving
Corporation upon the same terms and conditions in effect immediately prior to
the Effective Time, except that the shares purchasable and the purchase price
payable per share pursuant to such rights shall be appropriately adjusted to
reflect the Exchange Ratio.  The Company
shall take all steps necessary to cause the foregoing provisions of this Section 2.1(e)
to occur.

 

(f)                                    Treatment
of Company Stock Options.  Following
the Effective Time, Company Stock Options shall be treated in the manner set
forth in Section 6.13.

 

2.2                                 Exchange of Certificates and
Distribution of Cash Amount. 
The procedures for exchanging outstanding shares of Company Common Stock
for Parent ADSs pursuant to the Merger and the Distribution of the Cash Amount
are as follows:

 

(a)                                  Exchange
Agent.  As of the Effective Time,
the Parent shall deposit with the Depository, for the benefit of the holders of
shares of Company Common Stock, the number of Parent Ordinary Shares as are
represented by the Parent ADSs to be issued in connection with
Section 2.1.  In addition, as of
the Effective Time, the Depository shall deposit with Capita plc or another
bank or trust company designated by the Parent and reasonably acceptable to the
Company (the “Exchange Agent”), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Section 2.2,
through the Exchange Agent, Parent ADSs (such Parent ADSs, together with any
dividends or distributions with respect to the Parent Ordinary Shares
underlying such Parent ADSs with a record date after the Effective Time, being
hereinafter referred to as the “Exchange Fund”) issuable pursuant to
Section 2.1 in exchange for certificates evidencing shares of Company
Common Stock outstanding as of the Effective Time (“Certificates”).  At the Effective Time, the Parent shall also
deposit with the Exchange Agent for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance

 

4

 

with
this Section 2.2, through the Exchange Agent cash in an amount sufficient
to make payments for fractional shares required pursuant to
Section 2.2(e).

 

(b)                                 Exchange
Procedures.  As soon as reasonably
practicable and in any event within ten (10) business days after the Effective
Time, the Parent shall cause the Exchange Agent to mail to each holder of
record of a Certificate (i) a letter of transmittal (which shall (A)
include a form of election by which each such holder may elect to receive the
merger consideration to which such holder is entitled in the form of Parent
ADSs or Parent Ordinary Shares in registered form and (B) specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as the Parent may reasonably specify)
and (ii) instructions for effecting the surrender of the Certificates in
exchange for Parent ADRs (plus cash in lieu of fractional shares, if any, of
Parent ADSs and any dividends or distributions as provided below) or
certificates representing Parent Ordinary Shares.  Upon surrender of a Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by the Parent,
together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor a Parent ADR
representing that number of whole Parent ADSs or a certificate representing
that number of Parent Ordinary Shares which such holder has the right to
receive pursuant to the provisions of this Article II plus cash in lieu of
fractional shares pursuant to Section 2.2(e) and any dividends or
distributions then payable pursuant to Section 2.2(c), and the Certificate
so surrendered shall immediately be cancelled. 
In the event of a transfer of ownership of Company Common Stock which is
not registered in the transfer records of the Company, a Parent ADR
representing the proper number of Parent ADSs or a certificate representing the
proper number of Parent Ordinary Shares issuable in exchange therefor pursuant
to this Article II plus cash in lieu of fractional shares pursuant to
Section 2.2(e) and any dividends or distributions then payable pursuant to
Section 2.2(c) may be issued or paid to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid.  Until
surrendered as contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Parent ADR representing Parent ADSs or
certificates representing Parent Ordinary Shares plus cash in lieu of
fractional shares pursuant to Section 2.2(e) and any dividends or
distributions then payable pursuant to Section 2.2(c) as contemplated by
this Section 2.2.

 

(c)                                  Distributions
with Respect to Unexchanged Shares. 
No dividends or other distributions declared or made after the Effective
Time with respect to Parent ADSs with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate until the holder
of record of such Certificate shall surrender such Certificate.  Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be issued and paid to
the record holder of the Certificate, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
previously paid with respect to such whole Parent ADSs, without interest, and,
at the appropriate payment date, the amount of dividends or other distributions
having a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender that are payable with respect to such
whole Parent ADSs.

 

5

 

(d)                                 No
Further Ownership Rights in Company Common Stock.  All Parent ADSs issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash or
dividends or other distributions paid pursuant to Sections 2.2(c) or
2.2(e)) shall be deemed to have been issued (and paid) in full satisfaction of
all rights pertaining to such shares of Company Common Stock, and from and
after the Effective Time there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of Company
Common Stock which were outstanding immediately prior to the Effective
Time.  If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be cancelled and exchanged as provided in this
Article II.

 

(e)                                  No
Fractional Shares.  No Parent ADRs
or scrip representing fractional shares of Parent ADSs, or if applicable
certificates representing Parent Ordinary Shares,  shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests shall not entitle the owner thereof to vote
or to any other rights of a shareholder of the Parent.  Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock converted pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
Parent ADS (after taking into account all Certificates delivered by such holder
and the aggregate number of shares of Company Common Stock represented thereby)
shall receive, in lieu thereof, cash (without interest) in an amount equal to
such fractional part of a Parent ADS multiplied by the average of the last
reported sales prices of Parent ADSs at the 4:00 p.m., Eastern time, end of
regular trading hours on The NASDAQ Stock Market during the ten consecutive
trading days ending on the last trading day prior to the Effective Time.

 

(f)                                    Termination
of Exchange Fund.  Any portion of
the Exchange Fund which remains undistributed to the holders of Company Common
Stock for 12 months after the Effective Time shall be delivered to the Parent,
upon demand, and any holder of Company Common Stock who has not previously
complied with this Section 2.2 shall thereafter look only to the Parent,
as a general unsecured creditor, for payment of its claim for Parent ADSs, any
cash in lieu of fractional shares of Parent ADSs and any dividends or
distributions with respect to Parent ADSs.

 

(g)                                 No
Liability.  To the extent permitted
by applicable law, none of the Parent, the Transitory Subsidiary, the Company,
the Surviving Corporation or the Exchange Agent shall be liable to any holder
of shares of Company Common Stock, Parent Ordinary Shares or Parent ADSs, as
the case may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.  If
any Certificate shall not have been surrendered prior to the date that is 18
months after the Effective Time (or immediately prior to such earlier date on
which any Parent ADSs and any cash payable to the holder of such Certificate or
any dividends or distributions payable to the holder of such Certificate
pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity), any such Parent ADSs and the underlying
Parent Ordinary Shares, or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Parent, free and clear of all claims or interest of any person previously
entitled thereto.

 

6

 

(h)                                 Withholding
Rights.  Notwithstanding any other
provision in this Agreement, each of the Parent, the Surviving Corporation and
the Company shall be entitled to deduct and withhold from the payments to be
made pursuant to this Agreement such amounts as it reasonably determines that
it is required to deduct and withhold with respect to the making of such
payments under the Code or any other applicable provision of law and to collect
Forms W-8 or W-9, as applicable, or similar information from the holders of
Company Common Stock and any other recipients of payments hereunder.  To the extent that amounts are so withheld
by the Company, the Surviving Corporation or the Parent, as the case may be,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the shares of Company Common Stock in respect
of which such deduction and withholding was made by the Company, the Surviving
Corporation or the Parent, as the case may be.

 

(i)                                     Lost
Certificates.  If any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such
person of a bond in such reasonable amount as the Surviving Corporation may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Parent ADSs and any cash in lieu of
fractional shares, and unpaid dividends and distributions on Parent Ordinary
Shares deliverable in respect thereof pursuant to this Agreement.

 

(j)                                     Distribution
of the Cash Amount.  Subject to the
provisions of Section 6.22, (A) prior to the Effective Time, the Company
shall deliver the Cash Amount to EquiServe and (B) immediately prior to the
Effective Time, the Company shall effect the Distribution and EquiServe shall
deliver to each holder of Company Common Stock on the Distribution Record Date,
a check in the amount of the Cash Amount Per Share.  For the purposes of this Agreement, the following terms shall have
the following meanings:

 

(i)                                     “Cash
Amount” shall equal the product of (A) the Cash Amount Per Share and (B) the
number of shares of Company Common Stock issued and outstanding as of the
Distribution Record Date.

 

(ii)                                  “Cash
Amount Per Share” shall equal US $2.19.

 

(iii)                               “Distribution
Record Date” means the close of business on the date to be determined by the
Board of Directors of the Company as the record date for determining
stockholders of the Company entitled to receive a share of the Distribution.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to the Parent and
the Transitory Subsidiary that the statements contained in this
Article III are true and correct, except as expressly set forth herein or
in the disclosure schedule delivered by the Company to the Parent and the
Transitory Subsidiary on or before the date of this Agreement (the “Company
Disclosure Schedule”).  The Company
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered

 

7

 

and lettered paragraphs contained in this Article III and the
disclosure in any paragraph shall qualify (1) the corresponding paragraph in
this Article III and (2) the other paragraphs in this Article III
only to the extent such disclosure reasonably appears on its face to be
applicable to such other paragraphs.

 

3.1                                 Organization, Standing and Power;
Subsidiaries.

 

(a)                                  Each
of the Company and its Subsidiaries is a corporation duly organized, validly
existing and, where applicable as a legal concept, in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate
power and authority to own, lease and operate its properties and assets and to
carry on its business as now being conducted and as proposed to be conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction listed in Section 3.1 of the Company
Disclosure Schedule, which jurisdictions constitute the only jurisdictions in
which the character of the properties it owns, operates or leases or the nature
of its activities makes such qualification necessary, except for such failures
to be so organized, qualified or in good standing, individually or in the
aggregate, that have not had a Company Material Adverse Effect.  For purposes of this Agreement, the term
“Company Material Adverse Effect” means any material adverse change, event,
circumstance or development with respect to, or material adverse effect on (i)
the business, assets, liabilities, capitalization, financial condition, or
results of operations of the Company and its Subsidiaries, taken as a whole, or
(ii) the ability of the Company to consummate the transactions contemplated by
this Agreement; provided, however, that in the case of clause
(i), in no event shall any of the following, alone or in combination, be deemed
to constitute, nor shall any of the following be taken into account in
determining whether there has occurred, a Company Material Adverse Effect:  any adverse change, event, circumstance or
development with respect to, or effect resulting from (A) general economic
conditions or conditions generally affecting the semiconductor capital
equipment and the test and measurement industries, except to the extent the
Company is materially disproportionately affected thereby, (B) the announcement
or pendency of the Merger or any other transactions expressly contemplated
hereby, (C) compliance with the express terms and conditions of this Agreement,
(D) a change in the stock price or trading volume of the Company (or any
failure of the Company to meet published revenue or earnings projections), provided
that clause (D) shall not exclude any underlying effect which may have caused
such change in stock price or trading volume or failure to meet published
revenue or earnings projections, (E) any change in accounting requirements or
principles or any change in applicable laws, rules or regulations or the
interpretation thereof or (F) the continued incurrence of losses by the
Company.  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 meanings
ascribed to Company Material Adverse Effect in the prior sentence of this
paragraph or Parent Material Adverse Effect in Section 4.1.

 

(b)                                 Section 3.1(b)
of the Company Disclosure Schedule sets forth a complete and accurate list
of all of the Company’s Subsidiaries and the Company’s direct or indirect
equity interest therein.  Except as set
forth in Section 3.1(b) of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries directly or indirectly owns any equity,
membership, partnership or similar interest in, or any interest convertible
into or exchangeable or exercisable for any equity, membership, partnership or
similar interest in, any corporation,

 

8

 

partnership,
joint venture, limited liability company or other business association or
entity, whether incorporated or unincorporated, and neither the Company, nor
any of its Subsidiaries, has, at any time, been a general partner or managing
member of any general partnership, limited partnership, limited liability
company or other entity.  As used in
this Agreement, the term “Subsidiary” means, with respect to a party, any
corporation, partnership, joint venture, limited liability company or other
business association or entity, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general
partner or a managing member (excluding partnerships, the general partnership
interests of which held by such party and/or one or more of its Subsidiaries do
not have a majority of the voting interest in such partnership), (ii) such
party and/or one or more of its Subsidiaries holds voting power to elect a
majority of the board of directors or other governing body performing similar
functions, or (iii) such party and/or one or more of its Subsidiaries, directly
or indirectly, owns or controls more than 50% of the equity, membership,
partnership or similar interests.

 

(c)                                  The
Company has timely paid in its capital contribution to the registered capital
of the Company’s subsidiaries in The People’s Republic of China (the “PRC”) as
such capital contributions have become due.

 

(d)                                 The
Company has delivered to the Parent complete and accurate copies of the
Certificate of Incorporation and By-laws of the Company and of the charter,
by-laws or other organizational documents of each Subsidiary of the Company.

 

3.2                                 Capitalization.

 

(a)                                  The
authorized capital stock of the Company consists of 250,000,000 shares of
Company Common Stock and 10,000,000 shares of preferred stock, $.001 par value
per share (the “Company Preferred
Stock”), of which 250,000 shares are designated Series A Participating
Preferred Stock.  The rights and
privileges of each class of the Company’s capital stock are as set forth in the
Company’s Certificate of Incorporation. 
As of the close of business on September 18, 2003: (i) 64,140,847
shares of Company Common Stock were issued and outstanding, (ii) no shares of
Company Common Stock were held in the treasury of the Company or by
Subsidiaries of the Company, and (iii) no shares of Company Preferred Stock
were issued or outstanding.  No material
change in such capitalization has occurred between September 18, 2003 and
the date of this Agreement.

 

(b)                                 Section 3.2(b)
of the Company Disclosure Schedule lists all issued and outstanding shares
of Company Common Stock that constitute restricted stock or that are otherwise
subject to a repurchase or redemption right or right of first refusal in favor
of the Company, indicating the name of the applicable stockholder, the lapsing
schedule for any such shares, including the extent to which any such
repurchase or redemption right or right of first refusal has lapsed as of the
date of this Agreement, whether (and to what extent) the lapsing will be
accelerated in any way by the transactions contemplated by this Agreement or by
termination of employment or change in position following consummation of the
Merger, and whether such holder has the sole power to vote and dispose of such
shares.

 

(c)                                  Section 3.2(c)
of the Company Disclosure Schedule lists the number of shares of Company
Common Stock reserved for future issuance pursuant to stock options

 

9

 

granted
and outstanding as of the date of this Agreement and the plans or other
arrangements under which such options were granted (collectively, the “Company
Stock Plans”) and sets forth a complete and accurate list, as of the date
hereof, of all holders of outstanding options to purchase shares of Company
Common Stock (such outstanding options, the “Company Stock Options”),
indicating with respect to each Company Stock Option, the number of shares of
Company Common Stock subject to such Company Stock Option, the relationship of
the holder to the Company, and the exercise price, the date of grant, vesting
schedule and the expiration date thereof, including the extent to which
any vesting has occurred as of the date of this Agreement, and whether (and to
what extent) the vesting of such Company Stock Options will be accelerated in
any way by the transactions contemplated by this Agreement or by the
termination of employment or engagement or change in position of any holder
thereof following consummation of the Merger. 
There are no warrants or other outstanding rights (other than Company
Stock Options) to purchase shares of Company Common Stock outstanding as of the
date of this Agreement.  The Company has
provided to the Parent accurate and complete copies of all Company Stock Plans
and the forms of all stock option agreements evidencing Company Stock Options.

 

(d)                                 Except
(x) as set forth in this Section 3.2, (y) as reserved for future grants
under Company Stock Plans, and (z) the rights (the “Company Rights”) issued and
issuable under the Rights Agreement dated as of July 26, 2001 between the
Company and Equiserve Trust Company, N.A. (the “Company Rights Plan”), (i)
there are no equity securities of any class of the Company or any of its
Subsidiaries (other than equity securities of any such Subsidiary that are
directly or indirectly owned by the Company), or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding and (ii) there are no options, warrants, equity securities, calls,
rights, commitments or agreements of any character to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound obligating the Company or any of its Subsidiaries to
issue, exchange, transfer, deliver or sell, or cause to be issued, exchanged,
transferred, delivered or sold, additional shares of capital stock or other
equity interests of the Company or any of its Subsidiaries or any security or
rights convertible into or exchangeable or exercisable for any such shares or
other equity interests, or obligating the Company or any of its Subsidiaries to
grant, extend, accelerate the vesting of, otherwise modify or amend or enter
into any such option, warrant, equity security, call, right, commitment or
agreement.  Neither the Company nor any
of its Subsidiaries has outstanding any stock appreciation rights, phantom
stock, performance based rights or similar rights or obligations.  There are no obligations, contingent or
otherwise, of the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or the capital stock of the Company
or any of its Subsidiaries or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in the
Company or any Subsidiary of the Company or any other entity, other than
guarantees of bank obligations of Subsidiaries of the Company entered into in
the ordinary course of business consistent with past practice (the “Ordinary
Course of Business”) and listed in Section 3.2(d) of the Company
Disclosure Schedule.  Other than the
Company Stockholder Agreements, neither the Company nor any of its Affiliates
is a party to or is bound by any, and to the knowledge of the Company, there
are no, agreements or understandings with respect to the voting (including
voting trusts and proxies) or sale or transfer (including agreements imposing
transfer restrictions) of any shares of capital stock or other equity interests
of the Company or any of its Subsidiaries. 
For purposes of this Agreement, the term “Affiliate” when used with

 

10

 

respect
to any party shall mean any person who is an “affiliate” of that party within
the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended
(the “Securities Act”).  Except as
contemplated by this Agreement, there are no registration rights, and there is
no rights agreement, “poison pill” anti-takeover plan or other agreement or
understanding to which the Company or any of its Subsidiaries is a party or by
which it or they are bound with respect to any equity security of any class of
the Company or any of its Subsidiaries or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
Subsidiaries.

 

(e)                                  All
outstanding shares of Company Common Stock are, and all shares of Company
Common Stock subject to issuance as specified in Section 3.2(c) above,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, duly authorized, validly issued, fully
paid and nonassessable and not subject to or issued in violation of any
purchase option, call option, right of first refusal, preemptive right,
subscription right or any similar right under any provision of the DGCL, the
Company’s Certificate of Incorporation or By-laws or any agreement to which the
Company is a party or is otherwise bound.

 

(f)                                    All
of the outstanding shares of capital stock and other equity securities or
interests of each of the Company’s Subsidiaries are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights and all such
shares (other than directors’ qualifying shares in the case of non-U.S.
Subsidiaries, all of which the Company has the power to cause to be transferred
for no or nominal consideration to the Parent or the Parent’s designee) are
owned, of record and beneficially, by the Company or another Subsidiary of the
Company free and clear of all mortgages, security interests, claims, pledges,
liens, charges or encumbrances of any nature (“Liens”) and agreements in
respect of, or limitations on, the Company’s voting rights.

 

(g)                                 No
consent of the holders of Company Stock Options is required in connection with
the actions contemplated by Section 6.13.

 

3.3                                 Authority; No Conflict; Required
Filings and Consents.

 

(a)                                  The
Company has all requisite corporate power and authority to enter into this
Agreement and, subject only to the adoption of this Agreement and the approval
of the Merger (the “Company Voting Proposal”) by the Company’s stockholders
under the DGCL (the “Company Stockholder Approval”), to consummate the
transactions contemplated by this Agreement. 
Without limiting the generality of the foregoing, the Board of Directors
of the Company (the “Company Board”), at a meeting duly called and held on or
prior to the date hereof, by the unanimous vote of all directors (i) determined
that the Merger is fair to and in the best interests of the Company and its
stockholders, (ii) approved this Agreement and declared its advisability in
accordance with the provisions of the DGCL, (iii) directed that this Agreement
and the Merger be submitted to the stockholders of the Company for their
adoption and approval and resolved to recommend that the stockholders of the
Company vote in favor of the adoption of this Agreement and the approval of the
Merger, and (iv) to the extent necessary, adopted a resolution having the
effect of causing the Company not to be subject to any state takeover law or
similar law that might otherwise apply to the Merger and any other transactions
contemplated by this Agreement.  The
execution and delivery of this Agreement and the consummation of the

 

11

 

transactions
contemplated by this Agreement by the Company have been duly authorized by all
necessary corporate action on the part of the Company, subject only to the
required receipt of the Company Stockholder Approval.  This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles (the “Bankruptcy and Equity Exception”).

 

(b)                                 The
execution and delivery of this Agreement by the Company do not, and the
consummation by the Company of the transactions contemplated by this Agreement,
including, subject to Section 6.22 of this Agreement, the Distribution,
shall not, (i) conflict with, or result in any violation or breach of, any
provision of the Certificate of Incorporation or By-laws of the Company or of
the charter, by-laws, or other organizational document of any Subsidiary of the
Company, (ii) conflict with, or result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, require a consent or waiver
under, constitute a change in control under, require the payment of a penalty
under or result in the imposition of any Lien on the Company’s or any of its
Subsidiary’s assets under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, lease, license, contract or other agreement,
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be
bound, or (iii) subject to obtaining the Company Stockholder Approval and
compliance with the requirements specified in clauses (i) through (vi) of
Section 3.3(c), conflict with or violate any permit, concession,
franchise, license, judgment, injunction, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of its or their properties or assets, except in the case of
clauses (ii) and (iii) of this Section 3.3(b) for any such conflicts,
violations, breaches, defaults, terminations, cancellations, accelerations or
losses that, individually or in the aggregate, would not have a Company
Material Adverse Effect. 
Section 3.3(b) of the Company Disclosure Schedule lists all
material consents, waivers and approvals under any of the Company’s or any of
its Subsidiaries’ agreements, licenses or leases required to be obtained in
connection with the consummation of the transactions contemplated hereby.

 

(c)                                  No
consent, approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority, agency or instrumentality (a “Governmental Entity”) or any stock
market or stock exchange on which shares of Company Common Stock are listed for
trading is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
by this Agreement, except for (i) the pre-merger notification requirements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
“HSR Act”), (ii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and appropriate corresponding documents with the
appropriate authorities of other states in which the Company is qualified as a
foreign corporation to transact business, (iii) the filing of the Joint Proxy
Statement/Prospectus with the Securities and Exchange Commission (the “SEC”) in
accordance with the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), (iv) the filing of such reports,

 

12

 

schedules
or materials under Section 13 of or Rule 14a-12 under the Exchange Act and
materials under Rule 165 and Rule 425 under the Securities Act as may be
required in connection with this Agreement and the transactions contemplated
hereby, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country and (vi)
in connection with any applicable Antitrust Law.

 

(d)                                 The
affirmative vote of the holders of a majority of the outstanding shares of
Company Common Stock on the record date for the Company Stockholders Meeting is
the only vote of the holders of any class or series of the Company’s capital
stock or other securities necessary for the adoption and approval of this
Agreement and for the consummation by the Company of the other transactions
contemplated by this Agreement.  There
are no bonds, debentures, notes or other indebtedness of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which stockholders of the Company may vote.

 

3.4                                 SEC Filings; Financial Statements;
Information Provided.

 

(a)                                  The
Company has filed all registration statements, forms, reports and other
documents required to be filed by the Company with the SEC since
January 1, 2000, and has made available to the Parent copies of all
registration statements, forms, reports and other documents filed by the
Company with the SEC since such date, all of which are publicly available on
the SEC’s EDGAR system.  All such
registration statements, forms, reports and other documents (including those
that the Company may file after the date hereof until the Closing) are referred
to herein as the “Company SEC Reports.” 
The Company SEC Reports (i) were or will be filed on a timely basis,
(ii) at the time filed, were or will be prepared in compliance in all material
respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Company SEC Reports, including the provision of
all statements and certifications required by (x) the SEC’s order dated
June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act, (y)
Rule 13a-14 or 15d-14 under the Exchange Act or (z) 18 U.S.C. §1350
(Section 906 of the Sarbanes-Oxley Act of 2002), and (iii) did not or will
not at the time they were or are filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Company SEC Reports or necessary in order to make the statements in such
Company SEC Reports, in the light of the circumstances under which they were
made, not misleading.  No Subsidiary of
the Company is subject to the reporting requirements of Section 13(a) or
Section 15(d) of the Exchange Act.

 

(b)                                 Each
of the consolidated financial statements (including, in each case, any related
notes and schedules) contained or to be contained in the Company SEC Reports at
the time filed (i) complied or will comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, (ii) were or will be prepared in accordance
with United States generally accepted accounting principles (“GAAP”) applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC on Form 10-Q under the
Exchange Act) and (iii) fairly presented or will fairly present in all material
respects the consolidated financial position

 

13

 

of the
Company and its Subsidiaries as of the dates indicated and the consolidated
results of its operations and cash flows for the periods indicated, consistent
with the books and records of the Company and its Subsidiaries, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount.  The consolidated,
unaudited balance sheet of the Company as of June 30, 2003 is referred to
herein as the “Company Balance Sheet.”

 

(c)                                  The
information to be supplied by or on behalf of the Company for inclusion or
incorporation by reference in the registration statement on Form F-4 to be
filed by the Parent pursuant to which the Parent Ordinary Shares issued in
connection with the Merger shall be registered under the Securities Act (the
“Registration Statement”), or to be included or supplied by or on behalf of the
Company for inclusion in any filing pursuant to Rule 165 and Rule 425 under the
Securities Act or Rule 14a-12 under the Exchange Act (each a “Regulation M-A
Filing”), shall not at the time the Registration Statement or any such
Regulation M-A Filing is filed with the SEC, at any time it is amended or
supplemented, or at the time the Registration Statement is declared effective
by the SEC, as applicable, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading.  The information to be supplied by or on behalf of the Company for
inclusion in (i) the joint proxy statement/prospectus to be sent to the
stockholders of the Company (the “Joint Proxy Statement/Prospectus”) in
connection with the meeting of the Company’s stockholders to consider the
Company Voting Proposal (the “Company Stockholders Meeting”) (which shall be
deemed to include all information about or relating to the Company, the Company
Voting Proposal and the Company Stockholders Meeting), and (ii) the Parent UK
Documents, to be sent to shareholders of the Parent in connection with the
extraordinary general meeting of the Parent’s shareholders (the “Parent
Shareholders Meeting”) to consider the issue of shares of Parent Ordinary
Shares pursuant to the Merger (the “Parent Voting Proposal”) shall not, on the
date the Joint Proxy Statement/Prospectus is first mailed to stockholders of
the Company or the Parent UK Documents are first mailed to the shareholders of
the Parent, or at the time of the Company Stockholders Meeting or the Parent
Shareholders Meeting or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Joint Proxy
Statement/Prospectus or the Parent UK Documents, as the case may be, not false
or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders Meeting or the Parent Shareholders Meeting
which has become false or misleading. 
If at any time prior to the Effective Time any fact or event relating to
the Company or any of its Affiliates which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus or the Parent UK Documents should be discovered by the
Company or should occur, the Company shall promptly inform the Parent of such
fact or event.

 

3.5                                 No Undisclosed Liabilities;
Indebtedness.

 

(a)                                  Except
as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, and except for normal and recurring liabilities incurred since the
date of the Company Balance Sheet in the Ordinary Course of Business, the
Company and its Subsidiaries

 

14

 

do not
have any material liabilities, either accrued, contingent or otherwise (whether
or not required to be reflected in financial statements in accordance with
GAAP), and whether due or to become due.

 

(b)                                 Section 3.5(b)
of the Company Disclosure Schedule sets forth a complete and accurate
list, as of the date of this Agreement, of all loan or credit agreements,
notes, bonds, mortgages, indentures and other agreements and instruments (i)
pursuant to which any indebtedness of the Company or any of its Subsidiaries in
an aggregate principal amount in excess of US $250,000 is outstanding or may be
incurred and the respective principal amounts outstanding thereunder as of the
date of this Agreement or (ii) which creates or governs all securitization and
“off-balance sheet arrangements” (as defined in Item 303(c) of Regulation S-K
of the Securities Act).  For purposes of
this Section, “indebtedness” means, with respect to any person, without
duplication, (A) all obligations of such person for borrowed money, or with
respect to deposits or advances of any kind to such person, (B) all obligations
of such person evidenced by bonds, debentures, notes or similar instruments,
(C) all obligations of such person upon which interest charges are customarily
paid, (D) all obligations of such person under conditional sale or other title
retention agreements relating to property purchased by such person, (E) all
obligations of such person issued or assumed as the deferred purchase price of
property or services (excluding obligations of such person or creditors for raw
materials, inventory, services and supplies incurred in the Ordinary Course of
Business), (F) all capitalized lease obligations of such person, (G) all
obligations of others secured by any lien on property or assets owned or
acquired by such person, whether or not the obligations secured thereby have
been assumed, (H) all obligations of such person under interest rate or
currency hedging transactions (valued at the termination value thereof), (I)
all letters of credit issued for the account of such person, and (J) all
guarantees and arrangements having the economic effect of a guarantee by such
person of any indebtedness of any other person.  Except as set forth in Section 5.1, all of the outstanding
indebtedness of the type described in this Section 3.5(b) of the Company
and each of its Subsidiaries may be prepaid by the Company or its Subsidiary at
any time without the consent or approval of, or prior notice to, any other
person, and without payment of any premium or penalty.

 

3.6                                 Absence of Certain Changes or Events.  Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, since the date of the
Company Balance Sheet, the Company and its Subsidiaries have conducted their
respective businesses only in the Ordinary Course of Business and, since such
date, there has not been (i) any change, event, circumstance, development or
effect that, individually or in the aggregate, has had, or is reasonably likely
to have, a Company Material Adverse Effect; or (ii) any other action or event
that would have required the consent of the Parent pursuant to Section 5.1
of this Agreement had such action or event occurred after the date of this
Agreement.

 

3.7                                 Taxes.

 

(a)                                  The
Company and each of its Subsidiaries has filed all material Tax Returns that it
was required to file, and all such Tax Returns were correct and complete except
for any errors or omissions that, individually or in the aggregate, would not
have a Company Material Adverse Effect. 
Except as would not have a Company Material Adverse Effect, the Company
and each of its Subsidiaries have paid on a timely basis all Taxes that are
shown to be

 

15

 

due on
any such Tax Returns.  The unpaid Taxes
of the Company and its Subsidiaries for Tax periods through the date of the Company
Balance Sheet do not exceed the accruals and reserves for Taxes set forth on
the Company Balance Sheet exclusive of any accruals and reserves for “deferred
taxes” or similar items that reflect timing differences between Tax and
financial accounting principles.  All
Taxes attributable to the period from and after the date of the Company Balance
Sheet and continuing through the Closing Date are attributable to the conduct
by the Company of its operations in the Ordinary Course of Business and are
consistent both as to type and amount with Taxes attributable to such
comparable period in the immediately preceding year.  All Taxes that the Company or any of its Subsidiaries is or was
required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental
Entity.  For purposes of this Agreement,
(i) “Taxes” means all taxes, charges, fees, imposts, levies or other similar
assessments or liabilities, including income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
services, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States or the United Kingdom, as the case may be, or any
state, local or other foreign government, or any agency thereof, or other
political subdivision of the United States or any such government, and any
interest, fines, penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any contest or
dispute thereof and (ii) “Tax Returns” means all reports, returns,
declarations, statements or other information required to be supplied to a
taxing authority in connection with Taxes.

 

(b)                                 The
income Tax Returns of the Company and each of its Subsidiaries have been
audited by the applicable Governmental Entity or are closed by the applicable
statute of limitations for all taxable years through the taxable year specified
in Section 3.7(b) of the Company Disclosure Schedule.  No examination, audit or other dispute with
respect to any material Tax Return of the Company or any of its Subsidiaries by
any Governmental Entity is currently in progress or, to the knowledge of the
Company, threatened or contemplated. 
Neither the Company nor any of its Subsidiaries has been informed by any
Governmental Entity that the Governmental Entity believes that the Company or
any of its Subsidiaries was required to file any material Tax Return that was
not filed.  Neither the Company nor any
of its Subsidiaries has waived any statute of limitations with respect to Taxes
or agreed to an extension of time with respect to a Tax assessment or
deficiency.

 

(c)                                  Neither
the Company nor any of its Subsidiaries: 
(i) has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code; (ii) has made any
payments, is obligated to make any payments, or is a party to any agreement
that could obligate it to make any payments that may be treated as an “excess
parachute payment” under Section 280G of the Code (without regard to
Section 280G(b)(4)); (iii) has any actual or potential liability for any
Taxes of any person (other than the Company and its Subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision of law in
any jurisdiction), or as a transferee or successor, by contract, or otherwise;
or (iv) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).  The Company
has provided to the Parent the information necessary to accurately calculate
any excise tax due under Section 4999 of the Code as a result of the
transactions contemplated by this Agreement for which the Company or the Parent
may directly or indirectly

 

16

 

become
liable and the amount of deductions that may be disallowed under
Section 280G of the Code as a result of the transactions contemplated by
this Agreement.

 

(d)                                 None
of the assets of the Company or any of its Subsidiaries: (i) is property that
is required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is “tax-exempt
use property” within the meaning of Section 168(h) of the Code; (iii)
directly or indirectly secures any debt the interest on which is tax exempt
under Section 103(a) of the Code; or (iv) is subject to a lease under
Section 7701(h) of the Code or any predecessor section.

 

(e)                                  Neither
the Company nor any of its Subsidiaries (i) is or has ever been a member of a
group of corporations with which it has filed (or been required to file) group,
consolidated, combined or unitary Tax Returns, other than a group of which only
the Company and its Subsidiaries are or were members or (ii) is a party to or
bound by any Tax indemnity, Tax sharing or Tax allocation agreement.

 

(f)                                    There
are no material adjustments under Section 481 of the Code (or any similar
adjustments under any provision of the Code or any corresponding foreign, state
or local Tax laws) that are required (or will be required as a result of the
transactions contemplated by this Agreement) to be taken into account by the
Company or any Subsidiary in any period ending after the Closing Date by reason
of a change in method of accounting in any taxable period ending on or before
the Closing Date.

 

(g)                                 Neither
the Company nor any Subsidiary has distributed to its stockholders or security
holders stock or securities of a controlled corporation, nor has stock or
securities of the Company or any Subsidiary been distributed, in a transaction
to which Section 355 of the Code applies (i) in the two years prior to the
date of this Agreement or (ii) in a distribution that could otherwise
constitute part of a “plan” or “series of related transactions” (within the
meaning of Section 355(e) of the Code) that includes the transactions
contemplated by this Agreement.

 

(h)                                 Neither
the Company nor any Subsidiary owns any interest in an entity that is
characterized as a partnership for United States federal income Tax purposes.

 

(i)                                     Neither
the Company nor any Subsidiary has incurred (or been allocated) an “overall
foreign loss” as defined in Section 904(f)(2) of the Code which has not
been previously recaptured in full as provided in Sections 904(f)(1) and/or
904(f)(3) of the Code.

 

(j)                                     Neither
the Company nor any Subsidiary is a party to a gain recognition agreement under
Section 367 of the Code.

 

(k)                                  Section 3.7(k)
of the Company Disclosure Schedule sets forth a complete and accurate
list, as of the date hereof, of any Subsidiaries for which a “check-the-box”
election under Section 7701 of the Code has been made.

 

(l)                                     Section 3.7(l)
of the Company Disclosure Schedule sets forth a complete and accurate
list, as of the date hereof, of all material agreements, rulings, settlements
or other

 

17

 

Tax documents relating to Tax incentives between the
Company or any Subsidiary and a Governmental Entity.

 

3.8                                 Owned and Leased Real Properties.

 

(a)                                  Section 3.8(a)
of the Company Disclosure Schedule sets forth a complete and accurate list
of (i) the addresses and legal descriptions of all real property owned by
the Company or any of its Subsidiaries (the “Real Estate”) and (ii) all
material liabilities, Liens, easements, restrictions, reservations, tenancies,
agreements or other obligations affecting the Real Estate.  There is no pending or, to the Company’s
knowledge, threatened condemnation or eminent domain proceeding with respect to
the Real Estate.  There are no material
Taxes or material betterment assessments other than ordinary real estate taxes
pending or payable against the Real Estate and there are no contingencies
existing under which any assessment for real estate taxes may be retroactively
filed against the Real Estate.

 

(b)                                 The
Real Estate complies in all material respects with the requirements of all
applicable building, zoning, subdivision, health, safety, environmental,
pollution control, waste products, sewage control and all other applicable
statutes, laws, codes, ordinances, rules, orders and regulations (collectively,
“Governmental Regulations”).  There is
no material action pending or threatened by any Governmental Entity claiming
that the Real Estate violates any Governmental Regulations or threatening to
shut down the business of the Company or any of its Subsidiaries.  There are no suits, petitions, notices or proceedings
pending, given or, to the Company’s knowledge, threatened against the Company
by any persons or Governmental Entities before any court, Governmental Entity
or instrumentalities, administrative or otherwise, which if given, commenced or
concluded would have a material adverse effect on the Company’s title to the
Real Estate or the operation of the business of the Company or any of its
Subsidiaries, as a whole, as presently operated.

 

(c)                                  All
of the buildings, fixtures and other improvements located on the Real Estate
are in good operating condition and repair, and, to the Company’s knowledge,
the operation thereof as presently conducted is not in material violation of
any applicable building code, zoning ordinance or other law or regulation.

 

(d)                                 Section 3.8(d)
of the Company Disclosure Schedule sets forth a complete and accurate list
of all real property leased, subleased or licensed by the Company or any of its
Subsidiaries (collectively, “Company Leases”) and the location of the
premises.  Neither the Company nor any
of its Subsidiaries nor, to the Company’s knowledge, any other party to any
Company Lease, is in default under any of the Company Leases, except where the
existence of such defaults, individually or in the aggregate, has not had a
Company Material Adverse Effect.  Each
of the Company Leases is in full force and effect and is enforceable in
accordance with its terms and shall not cease to be in full force and effect as
a result of the transactions contemplated by this Agreement.  Neither the Company nor any of its
Subsidiaries leases, subleases or licenses any real property to any person
other than the Company and its Subsidiaries. 
The Company has provided the Parent with complete and accurate copies of
all Company Leases.  All of the plants,
structures, facilities, properties, leased premises and equipment of the
Company and its Subsidiaries, are in good operating condition and repair, in
all material respects, and suitable for their intended uses.

 

18

 

3.9                                 Intellectual Property.

 

(a)                                  The
Company and its Subsidiaries exclusively own, or license or otherwise possess
legally enforceable rights to use, without any obligation to make any fixed or
contingent payments, including any royalty payments, all Intellectual Property
used or necessary to conduct the business of the Company and its Subsidiaries
as currently conducted, or that would be used or necessary as such business is
planned to be conducted (in each case excluding generally commercially
available, off-the-shelf software programs licensed pursuant to shrinkwrap or
“click-and-accept” licenses), the absence of which, individually or in the
aggregate, would have a Company Material Adverse Effect.  For purposes of this Agreement, the term “Intellectual
Property” shall mean any or all of the following and all rights in, arising out
of, or associated therewith: (A) all United States and foreign patents and
utility models and applications therefor and all reissues, divisions,
re-examinations, renewals, extensions, provisionals, continuations and
continuations-in-part thereof, and equivalent or similar rights anywhere in the
world in inventions and discoveries including without limitation invention
disclosures (“Patents”); (B) all trade secrets and other rights in
know-how and confidential or proprietary information; (C) all copyrights,
copyrights registrations and applications therefor and all other rights
corresponding thereto throughout the world; (D) all industrial designs and
any registrations and applications therefor throughout the world; (E) mask
works, mask work registrations and applications therefor, and all other rights
corresponding thereto throughout the world; (F) all rights in World Wide
Web addresses and domain names and applications and registrations therefor, all
trade names, logos, trademarks and service marks, trademark and service mark
registrations and applications therefor and all goodwill associated therewith
throughout the world; and (G) any similar, corresponding or equivalent
rights to any of the foregoing anywhere in the world.

 

(b)                                 The
execution and delivery of this Agreement and consummation of the Merger will
not result in the breach of, or create on behalf of any third party the right
to terminate or modify, (i) any license, sublicense or other agreement relating
to any Intellectual Property owned by the Company that is material to the
business of the Company and its Subsidiaries, taken as a whole, including
software that is used in the manufacture of, incorporated in, or forms a part
of any product or service sold by or expected to be sold by the Company or any
of its Subsidiaries (the “Company Intellectual Property”) or (ii) any license,
sublicense and other agreement as to which the Company or any of its
Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third party Intellectual Property that is
material to the business of the Company and its Subsidiaries, taken as a whole,
including software that is used in the manufacture of, incorporated in, or forms
a part of any product or service sold by or expected to be sold by the Company
or any of its Subsidiaries (the “Company Third Party Intellectual
Property”).  Section 3.9(b)(i) of
the Company Disclosure Schedule sets forth a complete and accurate list,
as of the date hereof, of the Company Intellectual Property (other than
unregistered copyrights, trade secrets and confidential information) and
Section 3.9(b)(ii) sets forth a complete and accurate list, as of the date
hereof, of all Company Third Party Intellectual Property.  Neither the Company nor any of its
Subsidiaries has transferred ownership of, or granted any exclusive license of
or right to use any Intellectual Property that is or was Company Intellectual
Property, to any other person.

 

19

 

(c)                                  All
patents and registrations and applications for trademarks, service marks and
copyrights which are held by the Company or any of its Subsidiaries and which
are material to the business of the Company and its Subsidiaries, taken as a
whole, are, to the Company’s knowledge, valid and subsisting.  The Company and its Subsidiaries have taken
reasonable measures to protect the proprietary nature of the Company Intellectual
Property.  To the knowledge of the Company,
no other person or entity is infringing, violating or misappropriating any of
the Company Intellectual Property, except for infringements, violations or
misappropriations that, individually or in the aggregate, would not have a
Company Material Adverse Effect.

 

(d)                                 None
of the (i) Company Products or (ii) business as currently conducted by the
Company or any of its Subsidiaries infringes, violates or constitutes a
misappropriation of, any Intellectual Property (other than Patents) of any
third party, except for such infringements, violations and misappropriation
that, individually or in the aggregate, would not have a Company Material
Adverse Effect.  With respect to
Patents, to its knowledge none of the (i) Company Products or (ii) business as
currently conducted by the Company or any of its Subsidiaries infringes,
violates or constitutes a misappropriation of, any Patents of any third party,
except for such infringements, violations and misappropriation that,
individually or in the aggregate, would not have a Company Material Adverse
Effect.  Neither the Company nor any of
its Subsidiaries has received any complaint, claim or notice alleging any such
infringement, violation or misappropriation of Intellectual Property of a third
party.

 

(e)                                  For
purposes of this Section, “Company Products” means the products and or services
sold, leased, licensed or provided by the Company or its Subsidiaries currently
or at any time during the immediately preceding seven years.

 

3.10                           Agreements, Contracts and
Commitments; Government Contracts.

 

(a)                                  Section 3.10(a)
of the Company Disclosure Schedules sets forth a complete and accurate list, as
of the date hereof, of all contracts and agreements (collectively, the “Company
Material Contracts”), that are material to the business, assets, liabilities,
capitalization, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries, taken as a whole, including without
limitation (i) any agreement, contract or commitment in connection with which or
pursuant to which the Company and its Subsidiaries will spend or receive (or
are expected to spend or receive pursuant to the terms of such contract or
agreement), in the aggregate, more than US $250,000 during the current fiscal
year or during the next fiscal year and (ii) any non-competition or other
agreement, contract or commitment that prohibits or otherwise restricts, in any
material respect, the Company or any of its Subsidiaries from freely engaging
in business anywhere in the world.  The
Company has provided the Parent with a complete and accurate copy of each
Company Material Contract.  Each Company
Material Contract is in full force and effect and is enforceable in accordance
with its terms against the Company or the applicable Subsidiary, as the case
may be, subject to the Bankruptcy and Equity Exception.  To the Company’s knowledge, each Company
Material Contract is enforceable against each other party thereto, subject to
the Bankruptcy and Equity Exception. 
Neither the Company nor any of its Subsidiaries nor, to the Company’s
knowledge, any other party to any Company Material Contract is in violation of
or in default under (nor does there exist any condition which, upon the passage
of time or the giving of notice or both, would cause

 

20

 

such a
violation of or default under) (x) any loan or credit agreement, note,
bond, mortgage, indenture, lease, permit, concession, franchise, license or
other contract, arrangement or understanding to which it is a party or by which
it or any of its properties or assets is bound, except for violations or
defaults that, individually or in the aggregate, have not had, and are not
reasonably likely to have, a Company Material Adverse Effect or (y) any
Company Material Contract.

 

(b)                                 Section 3.10(b)
of the Company Disclosure Schedule sets forth a complete and accurate list
of each contract or agreement to which the Company or any of its Subsidiaries
is a party or bound with any Affiliate of the Company (other than any
Subsidiary which is a direct or indirect wholly owned Subsidiary of the
Company).  Complete and accurate copies
of all the agreements, contracts and arrangements set forth in
Section 3.10(b) of the Company Disclosure Schedule have heretofore
been furnished to the Parent. Except as disclosed in the Company SEC Reports
filed prior to the date of this Agreement, neither the Company nor any of its
Subsidiaries has entered into any transaction with any Affiliate of the Company
or any of its Subsidiaries or any transaction that would be subject to proxy
statement disclosure pursuant to Item 404 of Regulation S-K.

 

(c)                                  There
is no non-competition or other similar agreement, commitment, judgment,
injunction or order to which the Company or any of its Subsidiaries is a party
or is subject that has or could reasonably be expected to have the effect of
prohibiting or impairing in any material respect the conduct of the business of
the Company or any of its Subsidiaries as currently conducted and as proposed
to be conducted.  Neither the Company
nor any of its Subsidiaries has entered into (or is otherwise bound by) any
agreement under which it is restricted in any material respect from selling,
licensing or otherwise distributing any of its technology or 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.

 

(d)                                 Neither
the Company nor any of its Subsidiaries is a party to any agreement under which
a third party would be entitled to receive, as a result of this Agreement or
the transactions provided for hereunder, any license, sublicense or other
agreement relating to any Intellectual Property owned by the Parent that is
material to the business of the Parent and its Subsidiaries, taken as a whole,
including software that is used in the manufacture of, incorporated in, or
forms a part of any product or service sold by or expected to be sold by the
Parent or any of its Subsidiaries (the “Parent Intellectual Property”)
following the Closing, other than any Company Intellectual Property that such
third party was entitled to use prior to Closing.

 

(e)                                  Neither
the Company nor any of its Subsidiaries is or has been suspended or debarred from
bidding on contracts or subcontracts with any Governmental Entity; no such
suspension or debarment has been initiated or, to the Company’s knowledge,
threatened; and the consummation of the transactions contemplated by this
Agreement will not result in any such suspension or debarment that,
individually or in the aggregate, would have a Company Material Adverse
Effect.  Neither the Company nor any of
its Subsidiaries has any agreements, contracts or commitments, which require it
to obtain or maintain a security clearance with any Governmental Entity.

 

21

 

3.11                           Litigation; Product Liability.  Except as disclosed in the Company SEC
Reports filed prior to the date of this Agreement, there is no action, suit, proceeding,
claim, arbitration or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
that, individually or in the aggregate, has had, or is reasonably likely to
have, a Company Material Adverse Effect. 
There are no material judgments, orders or decrees outstanding against
the Company or any of its Subsidiaries. 
No material product liability claims have been asserted or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries with respect to any Company Products.

 

3.12                           Environmental Matters.

 

(a)                                  Except
as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, each of the Company and its Subsidiaries has complied with all
applicable Environmental Laws, except for violations of Environmental Laws
that, individually or in the aggregate, would not have a Company Material
Adverse Effect.  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 or any of its
Subsidiaries.

 

(b)                                 Neither
the Company nor any of its Subsidiaries has released, emitted, injected,
spilled or discharged any amount of Materials of Environmental Concern into the
environment in a manner that has resulted in or is reasonably likely to result
in a material liability to or corrective action or remedial obligation of the
Company or its Subsidiaries.

 

(c)                                  Neither
the Company nor any of its Subsidiaries is 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.

 

(d)                                 Set
forth in Section 3.12(d) of the Company Disclosure Schedule is a list
of all documents within the Company’s possession or control (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 or any of its Subsidiaries (whether conducted by or on behalf of the
Company or any of its Subsidiaries or a third party, and whether done at the
initiative of the Company or any of its Subsidiaries or directed by a
Governmental Entity or other third party) which were issued or conducted during
the past five years and which the Company has possession of or access to.  A complete and accurate copy of each such
document has been provided to the Parent.

 

(e)                                  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 or any of its Subsidiaries.

 

(f)                                    For
purposes of this Agreement, “Environmental Law” means any national, federal,
state or local law, statute, rule or regulation or the common law or applicable

 

22

 

laws of
PRC relating to the environment or occupational health and safety, including
any statute, regulation, administrative decision or order pertaining to
(i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and
soil contamination; (iv) the release or threatened release into the environment
of industrial, toxic or hazardous materials or substances, or solid or
hazardous waste, including emissions, discharges, injections, spills, escapes
or dumping of pollutants, contaminants or chemicals; (v) the protection of
wild life, marine life and wetlands, including all endangered and threatened
species; (vi) storage tanks, vessels, containers, abandoned or discarded
barrels and other closed receptacles; (vii) health and safety of employees
and other persons; and (viii) manufacturing, processing, using, distributing,
treating, storing, disposing, transporting or handling of materials regulated
under any law as pollutants, contaminants, toxic or hazardous materials or
substances or oil or petroleum products or solid or hazardous waste.  As used above, the terms “release” and
“environment” shall have the meaning set forth in the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
(“CERCLA”).

 

(g)                                 For
purposes of this Agreement, “Materials of Environmental Concern” means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under the Resource Conservation and Recovery Act), toxic materials, oil
or petroleum and petroleum products or any other material subject to regulation
under any Environmental Law.

 

3.13                           Employee Benefit Plans.

 

(a)                                  Section 3.13(a)
of the Company Disclosure Schedule sets forth a complete and accurate list
of all Company Employee Plans currently maintained, or contributed to, by the
Company, any of the Company’s Subsidiaries or any of their ERISA
Affiliates.  For purposes of this
Agreement, the following terms shall have the following meanings:  (i) “Company Employee Plan” means any
Employee Benefit Plan maintained, or contributed to, by the Company, any of the
Company’s Subsidiaries or any of their ERISA Affiliates; (ii) “Employee Benefit
Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including insurance
coverage, severance benefits, disability benefits, deferred compensation, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement compensation and all unexpired
severance agreements, written or otherwise, for the benefit of, or relating to,
any current or former employee of the Company or any of its Subsidiaries or an
ERISA Affiliate; (iii) “ERISA” means the Employee Retirement Income Security
Act of 1974, as amended; and (iv) “ERISA Affiliate” means any entity which is,
or at any applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a group of
trades or businesses under common control (as defined in Section 414(c) of
the Code), or (3) an affiliated service group (as defined under Section 414(m)
of the Code or the regulations under Section 414(o) of the Code), any of
which includes or included the Company or a Subsidiary.

 

(b)                                 With
respect to each Company Employee Plan, the Company has furnished to the Parent
a complete and accurate copy of (i) such Company Employee Plan (or a

 

23

 

written
summary of any unwritten plan), (ii) the three (3) most recent annual reports,
if any, (Form 5500 and all required schedules and financial statements) filed
with the United States Internal Revenue Service, (iii) each trust agreement,
group annuity contract and summary plan description, if any, relating to such
Company Employee Plan, (iv) the most recent financial statements for each
Company Employee Plan that is funded, (v) all personnel, payroll and employment
manuals and policies, (vi) all employee handbooks, (vii) all reports
regarding the satisfaction of the nondiscrimination requirements of Sections
410(b), 401(k) and 401(m) of the Code, if applicable, (viii) all Internal
Revenue Service determination, opinion, notification and advisory letters with
respect to any Company Employee Plan and (ix) all material correspondence to or
from any governmental agency relating to any Company Employee Plan.

 

(c)                                  Each
Company Employee Plan has been administered in all material respects in
accordance with ERISA, the Code and all other applicable laws and the
regulations thereunder and in accordance with its terms and each of the
Company, the Company’s Subsidiaries and their ERISA Affiliates has in all
material respects met its obligations with respect to such Company Employee
Plan and has made all required contributions thereto (or reserved such
contributions on the Company Balance Sheet) on time.  The Company, each Subsidiary of the Company, each ERISA Affiliate
and each Company Employee Plan are in compliance in all material respects with
the currently applicable provisions of ERISA and the Code and the regulations
thereunder (including Section 4980B of the Code, Subtitle K; Chapter 100
of the Code and Sections 601 through 608 and Section 701 et seq. of ERISA).  All filings and reports as to each Company
Employee Plan required to have been submitted to the Internal Revenue Service
or to the United States Department of Labor have been timely submitted.  With respect to the Company Employee Plans,
no event has occurred, and there exists no condition or set of circumstances in
connection with which the Company, any of its Subsidiaries or any ERISA
Affiliate could be subject to any material liability under ERISA, the Code or
any other applicable law.  There are no
audits, inquiries or proceedings pending or, to the knowledge of the Company,
threatened by the Internal Revenue Service, the Department of Labor or any
other person.

 

(d)                                 With
respect to the Company Employee Plans, there are no benefit obligations for
which contributions have not been made or properly accrued and there are no
benefit obligations, which have not been accounted for by reserves, or
otherwise properly footnoted in accordance with GAAP, on the financial
statements of the Company.  The assets
of each Company Employee Plan, which is funded, are reported at their fair
market value on the books and records of such Company Employee Plan.

 

(e)                                  All
the Company Employee Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Company Employee Plans are
qualified and the plans and trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and, to the Company’s knowledge,
revocation has not been threatened, and no such Employee Benefit Plan has been
amended or operated since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has occurred, that
would adversely affect its qualification or materially increase its cost.  Each Company Employee Plan which is required
to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has
been tested (if required to be tested) for

 

24

 

compliance
with, and satisfies the requirements of Section 401(k)(3) and
Section 401(m)(2) of the Code, as the case may be, for each plan year
ending prior to the Closing Date.

 

(f)                                    Neither
the Company, any of the Company’s Subsidiaries nor any of their ERISA
Affiliates has (i) ever maintained a Company Employee Plan which was ever subject
to Section 412 of the Code or Title IV of ERISA or (ii) ever been
obligated to contribute to a “multiemployer plan” (as defined in
Section 4001(a)(3) of ERISA).  No
Company Employee Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of
Section 501(c)(9) of the Code.  Any
Company Employee Plan that holds securities issued by the Company, any of the
Company’s Subsidiaries or any of their ERISA Affiliates is identified as such
on Schedule 3.13(f).  No Company
Employee Plan provides health benefits that are not fully insured through an
insurance contract.

 

(g)                                 Each
Company Employee Plan is amendable and terminable unilaterally by the Company
and any of the Company’s Subsidiaries which are a party thereto or covered
thereby at any time without liability to the Company or any of its Subsidiaries
as a result thereof (other than for benefits accrued through the date of
termination or amendment and reasonable administrative expenses related thereto)
and no Company Employee Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees
by its terms prohibits the Company or any of its Subsidiaries from amending or
terminating any such Company Employee Plan. 
The investment vehicles used to fund the Company Employee Plans may be
changed at any time without incurring a material sales charge, surrender fee or
other similar expense.

 

(h)                                 Except
as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, neither the Company nor any of its Subsidiaries is a party to any
oral or written (i) agreement with any stockholders, director, executive
officer or other key employee of the Company or any of its Subsidiaries (A) the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company or any of its
Subsidiaries 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 after the termination of
employment of such director, executive officer or key employee or (ii)
agreement or plan binding the Company or any of its Subsidiaries, including any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan or severance benefit plan, any of the benefits of which shall be
increased, or the vesting of the benefits of which shall be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which shall be calculated on the basis of any
of the transactions contemplated by this Agreement.

 

(i)                                     None
of the Company Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person, except as required by applicable law.

 

(j)                                     Schedule 3.13(j)
sets forth a complete and accurate list of all Company Employee Plans
maintained outside the United States (each, a “Non-U.S. Plan”).  Each Non-U.S. Plan is in material compliance
and the books and records thereof are maintained in material compliance with
all applicable laws, rules and regulations of each jurisdiction in which such Non-U.S.
Plan is maintained.  The Company, each
of its Subsidiaries and each ERISA Affiliate

 

25

 

have
satisfied in all material respects their respective obligations with respect to
each Non-U.S. Plan.

 

3.14                           Compliance With Laws.  The Company and each of its Subsidiaries has
complied with, is not in violation of, and has not received any written notice
alleging any violation with respect to, any applicable provisions of any
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its properties or assets, except for failures to
comply or violations that, individually or in the aggregate, have not had a
Company Material Adverse Effect.

 

3.15                           Permits.  The
Company and each of its Subsidiaries have all permits, licenses and franchises
from Governmental Entities required to conduct their businesses as now being
conducted or as presently contemplated to be conducted (the “Company Permits”),
except for such permits, licenses and franchises the absence of which,
individually or in the aggregate, have not had a Company Material Adverse
Effect.  The Company and each of its
Subsidiaries are in compliance with the terms of the Company Permits, except
for such failures to comply that, individually or in the aggregate, have not
had a Company Material Adverse Effect. 
No material Company Permit shall cease to be effective as a result of
the consummation of the transactions contemplated by this Agreement.

 

3.16                           Labor Matters.

 

(a)                                  Section 3.16(a)
of the Company Disclosure Schedule contains a list, as of the date hereof,
of all employees of the Company and each of its Subsidiaries whose annual rate
of compensation exceeds U.S. $150,000 per year, along with the position and the
annual rate of cash compensation of each such person.  Each current or past employee of the Company or any of its
Subsidiaries has entered into a confidentiality and assignment of inventions
agreement with the Company, a copy or form of which has previously been
delivered to the Parent.  Neither the Company
nor any of its Subsidiaries is a party to or otherwise bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization.  Neither
the Company nor any of its Subsidiaries is the subject of any proceeding
asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice or is seeking to compel it to bargain with any labor union or
labor organization that, individually or in the aggregate, have had a Company Material
Adverse Effect, nor is there pending or, to the knowledge of the Company,
threatened, any labor strike, dispute, walkout, work stoppage, slow-down or
lockout involving the Company or any of its Subsidiaries.  The Company is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions
of employment and wages and hours, in each case, with respect to its current or
former employees.

 

(b)                                 Except
as disclosed in the Company SEC Reports filed prior to the date of this
Agreement, no employee of the Company or any of its Subsidiaries (i) has an
employment agreement, (ii) to the Company’s knowledge is in violation of any
term of any patent disclosure agreement, non-competition agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company or any of its Subsidiaries because of
the nature of the business conducted or presently proposed to be conducted by
the Company or any of its Subsidiaries or to the use of trade secrets or
proprietary information of

 

26

 

others, or (iii) in the case of any key employee or
group of key employees, has given notice to the Company or any of its
Subsidiaries that such employee or any employee in a group of key employees
intends to terminate his or her employment with the Company.

 

3.17                           Insurance. 
Section 3.17 of the Company Disclosure Schedule sets forth the
insurance coverage maintained by the Company and its Subsidiaries and a history
of any claims made and claims paid since January 1, 2000.  Each of the insurance policies that the
Company and its Subsidiaries maintain (the “Insurance Policies”) is in full
force and effect and is valid, outstanding and enforceable, and all premiums
due thereon have been paid in full. 
None of the Insurance Policies shall terminate or lapse (or be affected
in any other materially adverse manner) by reason of the transactions
contemplated by this Agreement.  The
Company and each of its Subsidiaries have complied in all material respects
with the provisions of each Insurance Policy under which it is the insured
party.  No insurer under any Insurance
Policy has canceled or generally disclaimed liability under any such policy or
indicated any intent to do so or not to renew any such policy.

 

3.18                           [Intentionally Omitted]

 

3.19                           Assets.  The
Company or one of its Subsidiaries owns or leases all tangible assets necessary
for the conduct of their businesses as presently conducted.  All of such tangible assets which are owned,
are owned free and clear of all Liens except for (i) Liens which are disclosed
in the Financial Statements contained in the Company SEC Reports filed prior to
the date of this Agreement, (ii) Liens for Taxes not yet due and payable and
(iii) other Liens that, individually and in the aggregate, do not materially
interfere with the ability of the Company or its Subsidiaries to conduct their
business as currently conducted, and have not had a Company Material Adverse
Effect.  The tangible assets of the
Company and its Subsidiaries, taken as a whole, are free from material defects,
have been maintained in accordance with normal industry practice, are in good
operating condition and repair (subject to normal wear and tear) and are
suitable for the purpose for which they are presently used.

 

3.20                           Warranty. 
Except as set forth in Section 3.20 of the Company Disclosure
Schedule, no product or service manufactured, sold, leased, licensed, delivered
or otherwise provided by the Company or any of its Subsidiaries is subject to
any guaranty, warranty, right of return or other indemnity.

 

3.21                           Customers and Suppliers.  Section 3.21 of the Company Disclosure
Schedule accurately identifies, and provides an accurate and complete
breakdown of the revenues received from, each customer of the Company or any of
its Subsidiaries that represented 5% or more of the Company’s consolidated
revenues in the fiscal year ended December 29, 2002 or in the six-month
period ended June 29, 2003.  No
such customer has affirmatively indicated in writing to the Company or any of
its Subsidiaries that it will stop, or materially decrease the rate of, buying
materials, products or services from the Company or any of its
Subsidiaries.  No material supplier or
exclusive supplier of the Company or any of its Subsidiaries has affirmatively
indicated in writing to the Company or any of its Subsidiaries that it will
stop, or materially decrease the rate of, supplying materials, products or
services to them.

 

27

 

3.22                           Opinion of Financial Advisor.  The financial advisor of the Company, Thomas
Weisel Partners LLC, has delivered to the Company an opinion dated the date of
this Agreement to the effect that, as of such date, the Parent ADSs or Parent
Ordinary Shares, as the case may be, and the cash to be received by the holders
of Company Common Stock pursuant to the Merger and the Distribution are fair to
such holders from a financial point of view, a signed copy of which opinion has
been, or will be within three days following the date of this Agreement,
delivered to the Parent.

 

3.23                           Section 203 of the DGCL Not
Applicable.  The Company Board
has taken all actions necessary so that the restrictions contained in
Section 203 of the DGCL applicable to a “business combination” (as defined
in Section 203) shall not apply to the execution, delivery or performance
of this Agreement, the Company Stockholder Agreements or the consummation of
the Merger or the other transactions contemplated by this Agreement or the
Company Stockholder Agreements.  No
other “fair practice,” “moratorium,” “control share acquisition,” “business combination,”
or other state takeover statute or similar statute or regulation applies to the
Company, the Parent, the Transitory Subsidiary, the Merger, this Agreement or
the Company Stockholder Agreements.

 

3.24                           Rights Agreement.  The Company has duly entered into an amendment to the Company Rights
Plan, a signed copy of which has been delivered to the Parent (the “Rights
Agreement Amendment”), and taken all other action necessary or appropriate so
that:  (a) the entering into of this
Agreement or the Company Stockholder Agreements and the consummation of the
transactions contemplated hereby and thereby do not and will not result in the
ability of any person to exercise any of the Company Rights under the Company
Rights Plan or enable or require the Company Rights issued thereunder to
separate from the shares of Company Common Stock to which they are attached or
to be triggered or become exercisable or cease to be redeemable and (b) the
Company Rights will expire immediately prior to the Effective Time.

 

3.25                           Brokers; Schedule of Fees and
Expenses.

 

(a)                                  No
agent, broker, investment banker, financial advisor or other firm or person is
or shall be entitled, as a result of any action, agreement or commitment of the
Company or any of its Affiliates, to any broker’s, finder’s, financial
advisor’s or other similar fee or commission in connection with any of the
transactions contemplated by this Agreement, except Thomas Weisel Partners,
whose fees and expense shall be paid by the Company.  The Company has delivered to the Parent a complete and accurate
copy of all agreements pursuant to which Thomas Weisel Partners is entitled to
any fees and expenses in connection with any of the transactions contemplated
by this Agreement.

 

(b)                                 Section 3.25(b)
of the Company Disclosure Schedule sets forth, as of the date hereof, a
good faith estimate by the Company of the estimated fees and expenses incurred
and to be incurred by the Company and any of its Subsidiaries in connection
with this Agreement and the transactions contemplated by this Agreement
(including the fees and expenses of Thomas Weisel Partners and of the Company’s
legal counsel and accountants).

 

28

 

3.26                           No Existing Discussions.  As of the time of execution of this
Agreement, neither the Company nor any of its Subsidiaries is engaged, directly
or indirectly, in any discussions or negotiations with any other party with
respect to a Company Acquisition Proposal.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE

TRANSITORY SUBSIDIARY

 

The Parent and the Transitory Subsidiary represent and
warrant to the Company that the statements contained in this Article IV
are true and correct, except as expressly set forth herein or in the disclosure
schedule delivered by the Parent and the Transitory Subsidiary to the
Company on or before the date of this Agreement (the “Parent Disclosure
Schedule”).  The Parent Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article IV and the disclosure in any
paragraph shall qualify (1) the corresponding paragraph in this Article IV
and (2) the other paragraphs in this Article IV only to the extent such
disclosure reasonably appears on its face to be applicable to such other
paragraphs.

 

4.1                                 Organization, Standing and Power.

 

(a)                                  Each
of the Parent and the Transitory Subsidiary is a corporation duly organized,
validly existing and, where applicable as a legal concept, in good standing
under the laws of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as now being conducted and as proposed to
be conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the character of the
properties it owns, operates or leases or the nature of its activities makes
such qualification necessary, except for such failures to be so organized,
qualified or in good standing, individually or in the aggregate, that have not
had a Parent Material Adverse Effect. 
For purposes of this Agreement, the term “Parent Material Adverse
Effect” means any material adverse change, event, circumstance or development with
respect to, or material adverse effect on (i) the business, assets,
liabilities, capitalization, financial condition, or results of operations of
the Parent and its Subsidiaries, taken as a whole or (ii) the ability of the
Parent or the Transitory Subsidiary to consummate the transactions contemplated
by this Agreement; provided, however, that in the case of clause
(i), in no event shall any of the following, alone or in combination, be deemed
to constitute, nor shall any of the following be taken into account in
determining whether there has occurred, a Parent Material Adverse Effect:  any adverse change, event, circumstance or
development with respect to, or effect resulting from (A) general economic
conditions or conditions generally affecting the optical networking industry,
except in either case to the extent the Parent is materially disproportionately
affected thereby, (B) the announcement or pendency of the Merger or any other
transactions expressly contemplated hereby, (C) compliance with the terms and
conditions of this Agreement, (D) a change in the stock price or trading volume
of the Parent Ordinary Shares or Parent ADSs (or any failure of the Parent to
meet published revenue or earnings projections), provided that clause
(D) shall not exclude any underlying effect which may have caused such change
in stock price or trading volume or failure to meet published revenue or
earnings projections, (E) any change in accounting requirements or principles
or any

 

29

 

change in applicable laws, rules or regulations or the
interpretation thereof or (F) the continued incurrence of losses by the
Parent.  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 meanings ascribed to
Parent Material Adverse Effect in the prior sentence of this paragraph or
Company Material Adverse Effect in Section 3.1(a).  The Parent has delivered to the Company
complete and accurate copies of the Memorandum and Articles of Association of
the Parent together with copies of all shareholder resolutions required by law
to be embodied in or annexed thereto.

 

(b)                                 Section 4.1(b)
of the Parent Disclosure Schedule sets forth a complete and accurate list
of all of the Parent’s Subsidiaries and the Parent’s direct or indirect equity
interest therein.  Except as set forth
in Section 4.1(b) of the Parent Disclosure Schedule, neither the Parent
nor any of its Subsidiaries directly or indirectly owns any equity, membership,
partnership or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity, membership, partnership or similar
interest in, any corporation, partnership, joint venture, limited liability
company or other business association or entity, whether incorporated or
unincorporated, and neither the Parent, nor any of its Subsidiaries, has, at
any time, been a general partner or managing member of any general partnership,
limited partnership, limited liability company or other entity.

 

4.2                                 Capitalization.

 

(a)                                  The
authorized share capital of the Parent consists of an aggregate nominal value
of £1,000,000 divided into 300,000,000 Parent Ordinary Shares.  The rights and privileges of the Parent
Ordinary Shares are set forth in the Parent’s Memorandum and Articles of
Association.  As of the close of
business on September 19, 2003, 208,032,813 Parent Ordinary Shares were
issued and outstanding.  No material change
in such capitalization has occurred between September 19, 2003 and the
date of this Agreement.

 

(b)                                 Section 4.2(b)
of the Parent Disclosure Schedule sets forth a complete and accurate list,
as of the date of this Agreement, of: (i) all share option plans or other share
or equity-related plans of the Parent (the “Parent Share Plans”), indicating
for each Parent Share Plan the number of Parent Ordinary Shares and/or Parent
ADSs issued to date under such Plan, the number of Parent Ordinary Shares
and/or Parent ADSs subject to outstanding options under such Plan and the
number of Parent Ordinary Shares and/or Parent ADSs reserved for future
issuance under such Plan; and (ii) the number of Parent Ordinary Shares and/or
Parent ADSs, and the class or series of such shares, subject to any outstanding
warrants or other contractual rights to purchase or acquire share capital of
the Parent.  The Parent has provided to
the Company complete and accurate copies of all Parent Share Plans and standard
forms of option agreements used thereunder. 
Except as set forth in this Section 4.2, (i) no subscription,
warrant, option, convertible security or other right (contingent or otherwise)
to subscribe, purchase or acquire or require the allotment or issue of any
share capital of the Parent is authorized or outstanding, (ii) the Parent has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right, or to issue or distribute to
holders of any share capital any evidences of indebtedness or assets of the
Parent, (iii) the Parent has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any share capital or any interest therein
or to pay any dividend or to make any other distribution in respect thereof,

 

30

 

and (iv)
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Parent.

 

(c)                                  All
outstanding Parent Ordinary Shares are, and all Parent Ordinary Shares issuable
pursuant to Section 2.1(c) in connection with the Merger, when issued on
the terms and conditions of this Agreement, will be, duly authorized, validly
issued and fully paid, and not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under the Parent’s Memorandum and Articles of
Association or any agreement to which the Parent is a party or is otherwise
bound.

 

4.3                                 Authority; No Conflict; Required
Filings and Consents.

 

(a)                                  Each
of the Parent and the Transitory Subsidiary has all requisite corporate power
and authority to enter into this Agreement and, subject to obtaining the
necessary approval of the shareholders of the Parent as referred to in
Section 6.3(b) (the “Parent Shareholder Approval”), the UKLA agreeing to
admit all of the Parent Ordinary Shares (including those underlying the Parent
ADSs) to the Official List of the UKLA and the London Stock Exchange plc (the
“LSE”) agreeing to admit such Parent Ordinary Shares to trading on the LSE’s
market for listed securities, to consummate the transactions contemplated by
this Agreement.  The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement by the Parent and the Transitory Subsidiary have been duly
authorized by all necessary corporate action on the part of each of the Parent
and the Transitory Subsidiary and the approval of the Board of Directors of the
Parent (the “Parent Board”)), subject only to the required receipt of the
Parent Shareholder Approval and adoption of this Agreement by the Parent in its
capacity as the sole stockholder of the Transitory Subsidiary.  This Agreement has been duly executed and
delivered by each of the Parent and the Transitory Subsidiary and constitutes
the valid and binding obligation of each of the Parent and the Transitory
Subsidiary, enforceable in accordance with its terms, subject to the Bankruptcy
and Equity Exception.

 

(b)                                 The
execution and delivery of this Agreement by each of the Parent and the
Transitory Subsidiary do not, and the consummation by the Parent and the
Transitory Subsidiary of the transactions contemplated by this Agreement shall
not, (i) conflict with, or result in any violation or breach of, any
provision of the Memorandum and Articles of Association of the Parent or
Certificate of Incorporation or By-laws of the Transitory Subsidiary,
(ii) conflict with, or result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, require a consent or waiver under, constitute a
change in control under, require the payment of a penalty under or result in
the imposition of any Lien on the Parent’s or the Transitory Subsidiary’s
assets under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract or other agreement, instrument or
obligation to which the Parent or the Transitory Subsidiary is a party or by
which any of them or any of their properties or assets may be bound, or
(iii) subject to obtaining the Parent Shareholder Approval and compliance
with the requirements specified in clauses (i) through (viii) of
Section 4.3(c), conflict with or violate any permit, concession,
franchise, license, judgment, injunction, order, decree, statute, law,
ordinance, rule or regulation applicable to the Parent or the Transitory
Subsidiary or any of its or their properties or assets,

 

31

 

except
in the case of clauses (ii) and (iii) of this Section 4.3(b) for any such
conflicts, violations, breaches, defaults, terminations, cancellations,
accelerations or losses that, individually or in the aggregate, would not have
a Parent Material Adverse Effect.

 

(c)                                  No
consent, approval, license, permit, order or authorization of, or registration,
declaration, notice or filing with, any Governmental Entity, including the
UKLA, the UK Panel on Takeovers and Mergers, or any stock market or stock
exchange on which the Parent Ordinary Shares or Parent ADSs are listed for
trading is required by or with respect to the Parent or the Transitory Subsidiary
in connection with the execution and delivery of this Agreement by the Parent
or the Transitory Subsidiary or the consummation by the Parent or the
Transitory Subsidiary of the transactions contemplated by this Agreement,
except for (i) the pre-merger notification requirements under the HSR Act, (ii)
the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware and appropriate corresponding documents with the appropriate
authorities of other states in which the Company is qualified as a foreign
corporation to transact business, (iii) the filing of the Registration
Statement with the SEC in accordance with the Securities Act, (iv) the filing
of the Joint Proxy Statement/Prospectus with the SEC in accordance with the Exchange
Act, (v) the filing of such reports, schedules or materials under
Section 13 of or Rule 14a-12 under the Exchange Act and materials under
Rule 165 and Rule 425 under the Securities Act as may be required in connection
with this Agreement and the transactions contemplated hereby, (vi) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country, (vii) the filing with The NASDAQ Stock
Market of a Notification Form for Listing of Additional Shares with respect to
the Parent ADSs issuable in connection with the Merger and a listing
application with the LSE with respect to the Parent Ordinary Shares issuable in
connection with the Merger, the UKLA agreeing to admit all of the Parent
Ordinary Shares underlying the Parent ADSs to the Official List of the UKLA and
the LSE agreeing to admit such Parent Ordinary Shares to trading on the LSE’s
market for listed securities, and (viii) in connection with any applicable
Antitrust Law.

 

(d)                                 The
affirmative vote of the holders of a majority of the Parent Ordinary Shares
present or represented by proxy and voting at the Parent Shareholders Meeting
is the only vote of the holders of any class or series of the Parent’s share
capital necessary for approval of the Parent Voting Proposal and for the
consummation by the Parent of the other transactions contemplated by this
Agreement.  There are no bonds,
debentures, notes or other indebtedness of the Parent having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Parent may vote.

 

4.4                                 SEC Filings; Financial Statements;
Information Provided; LSE.

 

(a)                                  The
Parent has filed all registration statements, forms, reports and other
documents required to be filed by the Parent with the SEC since January 1,
2000 and has made available to the Company copies of all registration
statements, forms, reports and other documents filed by the Parent with the SEC
since such date.  All such registration
statements, forms, reports and other documents (including those that the Parent
may file after the date hereof until the Closing) are referred to herein as the
“Parent SEC Reports.”  The Parent SEC
Reports (i) were or will be filed on a timely basis, (ii) at the time filed,
were or will be prepared in

 

32

 

compliance
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act, as the case may be, and the rules and regulations of the
SEC thereunder applicable to such Parent SEC Reports, including the provision
of all statements and certifications required by (x) the SEC’s order dated June 27,
2002 pursuant to Section 21(a)(1) of the Exchange Act, (y) Rule 13a-14 or
15d-14 under the Exchange Act or (z) 18 U.S.C. §1350 (Section 906 of the
Sarbanes-Oxley Act of 2002), and (iii) did not or will not at the time they
were or are filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated in such Parent SEC Reports or
necessary in order to make the statements in such Parent SEC Reports, in the
light of the circumstances under which they were made, not misleading.  No Subsidiary of the Parent is subject to
the reporting requirements of Section 13(a) or Section 15(d) of the
Exchange Act.

 

(b)                                 Each
of the consolidated financial statements (including, in each case, any related
notes and schedules) contained or to be contained in the Parent SEC Reports at
the time filed (i) complied or will comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, (ii) were or will be prepared in accordance
with generally accepted accounting principles in the United Kingdom (“UK GAAP”)
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited statements, as permitted by the SEC) and, to the extent applicable
and required by the Securities Act or Exchange Act, reconciled to GAAP and
(iii) fairly presented or will fairly present in all material respects the
consolidated financial position of the Parent and its Subsidiaries as of the
dates thereof and the consolidated results of its operations and cash flows for
the periods indicated, consistent with the books and records of the Parent and
its Subsidiaries, except that the unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount. 
The consolidated, unaudited balance sheet of the Parent as of
June 30, 2003 is referred to herein as the “Parent Balance Sheet.”

 

(c)                                  The
information in the Registration Statement to be supplied by or on behalf of the
Parent for inclusion or incorporation by reference in the Registration
Statement or to be included or supplied by or on behalf of the Parent for
inclusion in any Regulation M-A Filing shall not at the time the Registration
Statement or any such Regulation M-A Filing is filed with the SEC, at any time
it is amended or supplemented, or at the time the Registration Statement is
declared effective by the SEC, as applicable, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading.  The information to be supplied by or on
behalf of the Parent for inclusion in (i) the Joint Proxy Statement/Prospectus
(which shall be deemed to include all information about or relating to the
Parent, the Parent Voting Proposal and the Parent Shareholders Meeting) and
(ii) the Parent UK Documents, to be sent to the shareholders of the Parent in
connection with the Parent Shareholders Meeting to consider the Parent Voting
Proposal, shall not, on the date the Joint Proxy Statement/Prospectus is first
mailed to stockholders of the Company or the Parent UK Documents are first
mailed to the shareholders of the Parent, or at the time of the Company
Stockholders Meeting or the Parent Shareholders Meeting or at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or omit to state any material fact necessary in order to
make the statements made in the

 

33

 

Joint
Proxy Statement/Prospectus or the Parent UK Documents, as the case may be, not
false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders Meeting or the Parent Shareholders Meeting
which has become false or misleading. 
If at any time prior to the Effective Time any fact or event relating to
the Parent or any of its Affiliates which should be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus or the Parent UK Documents, should be discovered by the
Parent or should occur, the Parent shall promptly inform the Company of such
fact or event.

 

(d)                                 The
Parent has in all material respects complied with its obligations to notify a
Regulatory Information Service of information pursuant to the Listing Rules
(the “Listing Rules”) of the Financial Services Authority acting in its
capacity as the competent authority for listing in the United Kingdom (the
“UKLA”) under Part VI of the Financial Services and Markets Act 2000 (“FSMA”)
since January 1, 2000, and such notifications are publicly available.  The Parent has not received notice from the
UKLA that there are any circumstances and, as of the date of this Agreement,
the Parent is not aware of any circumstances that would justify or warrant the
UKLA commencing proceedings to withdraw or cancel of the listing of the Parent
Ordinary Shares by the UKLA.

 

4.5                                 No Undisclosed Liabilities.  Except as disclosed in the Parent SEC
Reports filed prior to the date of this Agreement, and except for normal and
recurring liabilities incurred since the date of the Parent Balance Sheet in
the Ordinary Course of Business, the Parent and its Subsidiaries do not have
any material liabilities, either accrued, contingent or otherwise (whether or
not required to be reflected in financial statements in accordance with UK
GAAP), and whether due or to become due.

 

4.6                                 Agreements, Contracts and
Commitments; Government Contracts.

 

(a)                                  The
Parent has made available to the Company a complete and accurate copy of each
contract and agreement that is material to the business, assets, liabilities,
capitalization, condition (financial or otherwise) or results of operations of
the Parent and its Subsidiaries, taken as a whole (the “Parent Material
Contracts”).  Each Parent Material
Contract is in full force and effect and is enforceable in accordance with its
terms against the Company or the applicable Subsidiary, as the case may be,
subject to the Bankruptcy and Equity Exception.  To the Parent’s knowledge, each Parent Material Contract is
enforceable against each other party thereto, subject to the Bankruptcy and
Equity Exception.  Neither the Parent
nor any of its Subsidiaries nor, to the Parent’s knowledge, any other party to
any Parent Material Contract is in violation of or in default under (nor does
there exist any condition which, upon the passage of time or the giving of
notice or both, would cause such a violation of or default under) (x) any loan
or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other contract, arrangement or understanding
to which it is a party or by which it or any of its properties or assets is
bound, except for violations or defaults that, individually or in the
aggregate, have not had, and are not reasonably likely to have, a Parent
Material Adverse Effect or (y) any Parent Material Contract.

 

(b)                                 Neither
the Parent nor any of its Subsidiaries is or has been suspended or debarred
from bidding on contracts or subcontracts with any Governmental Entity; no such

 

34

 

suspension or debarment has been initiated or, to the
Parent’s knowledge, threatened; and the consummation of the transactions
contemplated by this Agreement will not result in any such suspension or
debarment that, individually or in the aggregate, would have a Parent Material
Adverse Effect.  Neither the Parent nor
any of its Subsidiaries has any agreements, contracts or commitments, which
require it to obtain or maintain a security clearance with any Governmental
Entity.

 

4.7                                 Absence of Certain Changes or Events.  Except as disclosed in the Parent SEC
Reports filed prior to the date of this Agreement, since the date of the Parent
Balance Sheet, there has not been (i) any event, change, circumstance,
development or effect that, individually or in the aggregate, has had, or is
reasonably likely to have, a Parent Material Adverse Effect or (ii) any other action
or event that would have required the consent of the Company pursuant to
Section 5.2 of this Agreement had such action or event occurred after the
date of this Agreement.

 

4.8                                 Litigation; Product Liability.  Except as disclosed in the Parent SEC Reports
filed prior to the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending or, to the knowledge of
the Parent, threatened against or affecting the Parent or any of its
Subsidiaries that, individually or in the aggregate, has had, or is reasonably
likely to have, a Parent Material Adverse Effect.  There are no material judgments, orders or decrees outstanding
against the Parent or any of its Subsidiaries. 
No material product liability claims have been asserted or, to the
knowledge of the Parent, threatened against the Parent or any of its
Subsidiaries with respect to any Parent Products.

 

4.9                                 Intellectual Property.

 

(a)                                  The
Parent and its Subsidiaries exclusively own, or license or otherwise possess
legally enforceable rights to use, without any obligation to make any fixed or
contingent payments, including any royalty payments, all Intellectual Property
used or necessary to conduct the business of the Parent and its Subsidiaries as
currently conducted, or that would be used or necessary as such business is
planned to be conducted (in each case excluding generally commercially
available, off-the-shelf software programs licensed pursuant to shrinkwrap or
“click-and-accept” licenses), the absence of which, individually or in the
aggregate would have a Parent Material Adverse Effect.

 

(b)                                 The
execution and delivery of this Agreement and consummation of the Merger will
not result in the breach of, or create on behalf of any third party the right
to terminate or modify, (i) Parent Intellectual Property or (ii) any
license, sublicense and other agreement as to which the Parent or any of its
Subsidiaries is a party and pursuant to which the Parent or any of its
Subsidiaries is authorized to use any third party Intellectual Property that is
material to the business of the Parent and its Subsidiaries, taken as a whole,
including software that is used in the manufacture of, incorporated in, or
forms a part of any product or service sold by or expected to be sold by the Parent
or any of its Subsidiaries (the “Parent Third Party Intellectual
Property”).  Section 4.9(b)(i) of
the Parent Disclosure Schedule sets forth a complete and accurate list, as
of the date hereof, of the Parent Intellectual Property (other than unregistered
copyrights, trade secrets and confidential information) and
Section 4.9(b)(ii) sets forth a complete and accurate list of all Third
Party Intellectual Property.  Neither
the Parent nor any of its Subsidiaries has transferred ownership of, or granted
any exclusive license of or right to use,

 

35

 

or authorized the retention of any exclusive rights to
use or joint ownership of, any Intellectual Property this is or was Parent
Intellectual Property, to any other person.

 

(c)                                  All
patents and registrations and applications for trademarks, service marks and
copyrights which are held by the Parent or any of its Subsidiaries and which
are material to the business of the Parent and its Subsidiaries, taken as a
whole, are, to Parent’s knowledge, valid and subsisting.  The Parent and its Subsidiaries have taken
reasonable measures to protect the proprietary nature of the Parent
Intellectual Property.  To the knowledge
of the Parent, no other person or entity is infringing, violating or
misappropriating any of the Parent Intellectual Property or Third Party
Intellectual Property, except for infringements, violations or
misappropriations that, individually or in the aggregate, would not have a
Parent Material Adverse Effect.

 

(d)                                 None
of the (i) Parent Products or (ii) business or activities previously
or currently conducted by the Parent or any of its Subsidiaries infringes,
violates or constitutes a misappropriation of, any Intellectual Property (other
than Patents) of any third party, except for such infringements, violations and
misappropriation that, individually or in the aggregate, would not have a
Parent Material Adverse Effect.  With
respect to Patents, to the knowledge of Parent and its Subsidiaries, none of
the (i) Parent Products or (ii) business as currently conducted by the Parent
or any of its Subsidiaries infringes, violates or constitutes a
misappropriation of, any Patents of any third party, except for such
infringements, violations and misappropriation that, individually or in the
aggregate, would not have a Parent Material Adverse Effect.  Neither the Parent nor any of its
Subsidiaries has received any complaint, claim or notice alleging any such
infringement, violation or misappropriation of Intellectual Property of a third
party.

 

(e)                                  For
purposes of this Section, “Parent Products” means the product and or services
sold, leased, licensed or provided by Parent or its Subsidiaries currently or
at any time during the immediately preceding seven years.

 

4.10                           Taxes.

 

(a)                                  The
Parent and each of its Subsidiaries has filed all material Tax Returns that it
was required to file, and all such Tax Returns were correct and complete except
for any errors or omissions that, individually or in the aggregate, would not
have a Parent Material Adverse Effect. 
Except as would not have a Parent Material Adverse Effect, the Parent
and each of its Subsidiaries have paid on a timely basis all Taxes that are
due.  The unpaid Taxes of the Parent and
its Subsidiaries for Tax periods through the date of the Parent Balance Sheet
do not exceed the accruals and reserves for Taxes set forth on the Parent
Balance Sheet exclusive of any accruals and reserves for “deferred taxes” or
similar items that reflect timing differences between Tax and financial
accounting principles.  All Taxes
attributable to the period from and after the date of the Parent Balance Sheet
and continuing through the Closing Date are attributable to the conduct by the
Parent and its Subsidiaries of operations in the Ordinary Course of Business
and are consistent both as to type and amount with Taxes attributable to such
comparable periods in the immediately preceding year.  All Taxes that the Parent or any of its Subsidiaries is or was
required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Entity.

 

36

 

(b)                                 The
income Tax Returns of the Parent and each of its Subsidiaries have been audited
by the applicable Governmental Entity or are closed by the applicable statute
of limitations for all taxable years through the taxable year specified in
Section 4.10(b) of the Parent Disclosure Schedule.  No examination, audit or other dispute with respect
to any material Tax Return of the Parent or any of its Subsidiaries by any
Governmental Entity is currently in progress or, to the knowledge of the
Parent, threatened or contemplated. 
Neither the Parent nor any of its Subsidiaries has been informed by any
Governmental Entity that the Governmental Entity believes that the Parent or
any of its Subsidiaries was required to file any Tax Return that was not
filed.  Neither the Parent nor any of
its Subsidiaries has waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to a Tax assessment or deficiency.

 

(c)                                  Neither
the Parent nor any of its Subsidiaries: 
(i) has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(l)(A)(ii) of the Code; (ii) has made any
payments, is obligated to make any payments, or is a party to any agreement
that could obligate it to make any payments that may be treated as an “excess
parachute payment” under Section 280G of the Code (without regard to
Section 280G(b)(4)); (iii) has any actual or potential liability for any
Taxes of any person (other than the Parent and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of law in any
jurisdiction), or as a transferee or successor, by contract, or otherwise; or
(iv) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).

 

(d)                                 None
of the assets of the Parent or any of its Subsidiaries: (i) is property that is
required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is “tax-exempt use
property” within the meaning of Section 168(h) of the Code; (iii) directly
or indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code; or (iv) is subject to a lease under
Section 7701(h) of the Code or any predecessor section.

 

(e)                                  Neither
the Parent nor any of its Subsidiaries (i) is or has ever been a member of a
group of corporations with which it has filed (or been required to file) group,
consolidated, combined or unitary Tax Returns, other than a group of which only
the Parent and its Subsidiaries are or were members or (ii) is a party to or
bound by any Tax indemnity, Tax sharing or Tax allocation agreement.

 

(f)                                    There
are no material adjustments under Section 481 of the Code (or any similar
adjustments under any provision of the Code or any corresponding foreign, state
or local Tax laws) that are required (or will be required as a result of the
transactions contemplated by this Agreement) to be taken into account by the
Parent or any Subsidiary in any period ending after the Closing Date by reason
of a change in method of accounting in any taxable period ending on or before
the Closing Date.

 

(g)                                 Neither
the Parent nor any Subsidiary has distributed to its stockholders or security
holders stock or securities of a controlled corporation, nor has stock or
securities of the Parent or any Subsidiary been distributed, in a transaction
to which Section 355 of the Code

 

37

 

applies (i) in the two years prior to the date of this
Agreement or (ii) in a distribution that could otherwise constitute part of a
“plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) that includes the transactions contemplated by
this Agreement.

 

(h)                                 Neither
the Parent nor any Subsidiary owns any interest in an entity that is
characterized as a partnership for United States federal income Tax purposes.

 

(i)                                     Neither
the Parent nor any Subsidiary has incurred (or been allocated) an “overall
foreign loss” as defined in Section 904(f)(2) of the Code which has not
been previously recaptured in full as provided in Sections 904(f)(1) and/or
904(f)(3) of the Code.

 

(j)                                     Neither
the Parent nor any Subsidiary is a party to a gain recognition agreement under
Section 367 of the Code.

 

(k)                                  Section 4.10(k)
of the Parent Disclosure Schedule sets forth a complete and accurate list,
as of the date hereof, of any Subsidiaries for which a “check-the-box” election
under Section 7701 of the Code has been made.

 

(l)                                     Section 4.10(l)
of the Parent Disclosure Schedule sets forth a complete and accurate list,
as of the date hereof, of all material agreements, rulings, settlements or
other Tax documents relating to Tax incentives between the Parent or any
Subsidiary and a Governmental Entity.

 

4.11                           Environmental Matters.

 

(a)                                  Except
as disclosed in the Parent SEC Reports filed prior to the date of this
Agreement, each of the Parent and its Subsidiaries has complied with all
applicable Environmental Laws, except for violations of Environmental Laws
that, individually or in the aggregate, would not have a Parent Material
Adverse Effect.  There is no pending or,
to the knowledge of the Parent, 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 Parent or any of its
Subsidiaries.

 

(b)                                 Neither
the Parent nor any of its Subsidiaries has released, emitted, injected, spilled
or discharged any amount of Materials of Environmental Concern into the
environment in a manner that has resulted in or is reasonably likely to result
in a material liability to or corrective action or remedial obligation of the
Parent or its Subsidiaries.

 

(c)                                  Neither
the Parent nor any of its Subsidiaries is a party to or bound by any court
order, administrative order, consent order or other agreement between the
Parent and any Governmental Entity entered into in connection with any legal
obligation or liability arising under any Environmental Law.

 

(d)                                 The
Parent 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 Parent or any of its Subsidiaries.

 

38

 

4.12                           Compliance With Laws.  The Parent and each of its Subsidiaries has
complied with, is not in violation of, and, has not received any written notice
alleging any violation with respect to, any applicable provisions of any
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its properties or assets, except for failures to
comply or violations that, individually or in the aggregate, have not had a
Parent Material Adverse Effect.

 

4.13                           Assets.  The
Parent or one of its Subsidiaries owns or leases all tangible assets necessary
for the conduct of their businesses as presently conducted.  The tangible assets of the Parent and its
Subsidiaries, taken as a whole, are free from material defects, have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear) and are suitable for the
purpose for which they are presently used.

 

4.14                           Broker.  No
agent, broker, investment banker, financial advisor or other firm or person is
or shall be entitled, as a result of any action, agreement or commitment of the
Parent or any of its Affiliates, to any broker’s, finder’s, financial advisor’s
or other similar fee or commission in connection with any of the transactions
contemplated by this Agreement, except Perseus Group, LLC, whose fees and
expense shall be paid by the Parent.

 

4.15                           Operations of the Transitory
Subsidiary.  The Transitory Subsidiary
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement, has engaged in no other business activities and has
conducted its operations only as contemplated by this Agreement.

 

ARTICLE V

CONDUCT OF BUSINESS

 

5.1                                 Covenants of the Company.  Except as expressly provided herein or set
forth in Section 5.1 of the Company Disclosure Schedule or as
consented to in writing by the Parent, from and after the date of this
Agreement until the earlier of the termination of this Agreement in accordance
with its terms or the Effective Time, the Company shall, and shall cause each
of its Subsidiaries to, act and carry on its business in the ordinary course in
substantially the same manner as previously conducted, pay its debts and Taxes
and perform its other obligations when due (subject to good faith disputes over
such debts, Taxes or obligations), comply with all applicable laws, rules and
regulations, and use commercially reasonable efforts, consistent with past
practices, to maintain and preserve its and each Subsidiary’s present business
organization, assets and properties, maintain inventory levels in the Ordinary
Course of Business, keep available the services of its present officers and
employees and preserve its advantageous business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with it.  Without limiting the
generality of the foregoing, and except as set forth in Section 5.1 of the
Company Disclosure Schedule, from and after the date of this Agreement until
the earlier of the termination of this Agreement in accordance with its terms
or the Effective Time, the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, do any of the following without the
prior written consent of the Parent:

 

39

 

(a)                                  (A)
declare, set aside or pay any dividends on, or make any other distributions
(whether in cash, securities or other property) in respect of, any of its
capital stock (other than (i) the Distribution and (ii) dividends and
distributions by a direct or indirect wholly owned Subsidiary of the Company to
its parent); (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock or any of its other
securities; or (C) purchase, redeem or otherwise acquire any shares of its
capital stock or any other of its securities or any rights, warrants or options
to acquire any such shares or other securities; provided, however, that nothing
in this Section 5.1(a) shall prohibit the Company from exercising
contractual rights of repurchase of any shares of Company Common Stock under
any employee, consultant or director plan or agreement as in effect on the date
hereof and disclosed on Section 3.2(b) of the Company Disclosure Schedule,
copies of which have been provided to the Parent;

 

(b)                                 except
as permitted by Section 5.1(o), issue, deliver, sell, grant, pledge or
otherwise dispose of or encumber any shares of its capital stock, any other
voting securities or any securities convertible into or exchangeable for, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible or exchangeable securities (other than (i) the issuance of
shares of Company Common Stock (and corresponding Company Rights) upon the
exercise of Company Stock Options outstanding on the date of this Agreement in
accordance with their present terms and (ii) the grant of options to purchase
Company Common Stock, which grants (A) shall not exceed 100,000 shares of
Company Common Stock in the aggregate, net of any shares of Company Common
Stock returned, after the date hereof, to the Company Stock Plans in accordance
with the terms of such Company Stock Plans, (B) shall have an exercise price
equal to the fair market value of Company Common Stock on the date of grant
(determined in a manner consistent with the Company’s existing practice for
establishing fair market value for option grants) and (C) shall otherwise be
upon the Company’s customary terms));

 

(c)                                  amend
its certificate of incorporation, by-laws or other comparable charter or
organizational documents, except as expressly provided by this Agreement;

 

(d)                                 acquire
(A) by merging or consolidating with, or by purchasing all or a substantial
portion of the assets or any stock of, or by any other manner, any business or
any corporation, partnership, joint venture, limited liability company,
association or other business organization or division thereof or (B) any
assets that are material, in the aggregate, to the Company and its
Subsidiaries, taken as a whole, except purchases of inventory and components in
the Ordinary Course of Business;

 

(e)                                  except
for sales of inventory in the Ordinary Course of Business, sell, lease,
license, pledge, or otherwise dispose of or encumber any properties or assets
of the Company or of any of its Subsidiaries;

 

(f)                                    whether
or not in the Ordinary Course of Business, sell, dispose of or otherwise
transfer any assets material to the Company and its Subsidiaries, taken as a
whole (including any accounts, leases, contracts or intellectual property or
any assets or the stock of any of its Subsidiaries, but excluding the sale or
non-exclusive license of products in the Ordinary Course of Business);

 

40

 

(g)                                 adopt
or implement any stockholder rights plan or, except as provided in
Section 3.24, alter or further amend the Company Rights Plan or the
Company Rights; provided, however, that, subject to the provisions of
Section 6.1 of this Agreement, but notwithstanding anything else to the
contrary set forth herein, the Company Board may (i) in the event of an unsolicited
exchange or tender offer by a third party not resulting from a breach of the
provisions of Section 6.1, amend the Company Rights Plan solely for the
purpose of extending the Distribution Date thereunder to that time immediately
prior to the consummation of such exchange or tender offer and (ii) take any
action in connection with the Company Rights Plan that is required by order of
a court of competent jurisdiction;

 

(h)                                 except
for a confidentiality agreement as permitted by Section 6.1, enter into an
agreement with respect to any merger, consolidation, liquidation or business
combination, or any acquisition or disposition of all or substantially all of
the assets or securities of the Company or any of its Subsidiaries;

 

(i)                                     (A)
incur or suffer to exist any indebtedness (as such term is defined in
Section 3.5(b) of this Agreement) other than such indebtedness which
existed as of June 29, 2003, as reflected on the Company Balance Sheet or
guarantee any such indebtedness of another person, including entering into any
agreements, notes, bonds, mortgages, indentures or other agreements or
instruments which create or govern securitization or “off-balance sheet”
arrangements (as defined in Item 303(a) of Regulation S-K, (B) issue, sell or
amend any debt securities or warrants or other rights to acquire any debt
securities of the Company or any of its Subsidiaries, guarantee any debt
securities of another person, enter into any “keep well” or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, (C) make any
loans, advances (other than routine advances to employees of the Company and
its Subsidiaries in the Ordinary Course of Business) or capital contributions
to, or investment in, any other person, other than the Company or any of its
direct or indirect wholly owned Subsidiaries or (D) enter into any hedging
agreement or other financial agreement or arrangement designed to protect the
Company or its Subsidiaries against fluctuations in commodities prices or
exchange rates;

 

(j)                                     make
any capital expenditures or other expenditures with respect to property, plant
or equipment in excess of US $300,000 in the aggregate for the Company and its
Subsidiaries, taken as a whole, other than the specific capital expenditures
disclosed and set forth in Section 3.6 of the Company Disclosure Schedule;

 

(k)                                  make
any changes in accounting methods, principles or practices, except insofar as
may have been required by a change in GAAP or, except as so required, change
any assumption underlying, or method of calculating, any bad debt, contingency
or other reserve;

 

(l)                                     (A)
pay, discharge, settle or satisfy any claims, liabilities or obligations
(whether absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction, in the Ordinary Course of
Business or in accordance with their terms as in effect on the date of this
Agreement, of claims, liabilities or obligations reflected or reserved against
in, or contemplated by, the most recent consolidated financial statements (or
the notes thereto) of the Company included in the Company SEC Reports filed
prior to the date of this Agreement (to the extent so reflected or reserved
against) or incurred since the date of

 

41

 

such
financial statements in the Ordinary Course of Business, or (B) waive any
material benefits of, modify in any adverse respect, fail to enforce, or
consent to any matter with respect to which its consent is required under, any
confidentiality, standstill or similar agreements to which the Company or any
of its Subsidiaries is a party;

 

(m)                               except
in the Ordinary Course of Business, modify, amend or terminate any material
contract or agreement to which the Company or any of its Subsidiaries is party,
or knowingly waive, release or assign any material rights or claims (including
any write-off or other compromise of any accounts receivable of the Company or
any of its Subsidiaries);

 

(n)                                 (A)
except in the Ordinary Course of Business enter into any material contract or
agreement, including, without limitation, any contract for the sale or supply
of goods or products with a term exceeding six months or value exceeding, in any
single instance, US $1,000,000 or (B) except for non-exclusive licenses
entered into in the Ordinary Course of Business, license any material
intellectual property rights to or from any third party;

 

(o)                                 except
as required to comply with applicable law or agreements, plans or arrangements
existing on the date hereof, (A) enter into or adopt any employment or similar
agreement with any person whose annual rate of cash compensation exceeds U.S.
$150,000 per year pursuant to such employment agreement, (B) take any action
with respect to, adopt, enter into, terminate or amend any employment,
severance or similar agreement or benefit plan for the benefit or welfare of
any current or former director, officer, employee or consultant or any
collective bargaining agreement, (C) increase in any material respect the
compensation or fringe benefits of, or pay any bonus to, any director, officer,
employee or consultant (except for annual increases of the salaries of
non-officer employees in the Ordinary Course of Business), (D) amend or
accelerate the payment, right to payment or vesting of any compensation or
benefits, including any outstanding options or restricted stock awards, (E) pay
any material benefit not provided for as of the date of this Agreement under
any benefit plan, (F) grant any awards under any bonus, incentive, performance
or other compensation plan or arrangement or benefit plan, including the grant
of stock options, stock appreciation rights, stock based or stock related
awards, performance units or restricted stock, or the removal of existing
restrictions in any benefit plans or agreements or awards made thereunder,
except for the grant of options to purchase Company Common Stock to new hires,
which grants shall not exceed 100,000 shares in the aggregate net of any shares
of Company Common Stock returned, after the date hereof, to the Company Stock
Plans in accordance with the terms of such Company Stock Plans, and which
options shall have an exercise price equal to the fair market value of the
Company Common Stock on the date of grant (determined in a manner consistent
with the Company’s existing practice for establishing fair market value for
option grants) and which options shall otherwise be upon the Company’s
customary terms, or (G) take any action other than in the Ordinary Course of
Business to fund or in any other way secure the payment of compensation or
benefits under any employee plan, agreement, contract or arrangement or benefit
plan;

 

(p)                                 make
or rescind any material Tax election, make any material settlement or material
compromise to any Tax liability or make any material amendments to any Tax
return;

 

42

 

(q)                                 commence
any Offering (as defined in the Company’s Employee Stock Purchase Plan (the
“Company ESPP”) of shares of Company Common Stock pursuant to the Company ESPP
that will not terminate prior to the Effective Time;

 

(r)                                    initiate,
compromise or settle any material litigation or arbitration proceeding (other
than in connection with the enforcement of the Company’s rights against Parent
under this Agreement);

 

(s)                                  open
or close any facility or office greater than 10,000 square feet;

 

(t)                                    fail
to maintain insurance at levels substantially comparable to levels existing as
of the date of this Agreement;

 

(u)                                 fail
to pay accounts payable and other obligations in the Ordinary Course of
Business or accelerate the payment of any accounts receivable other than in the
Ordinary Course of Business; or

 

(v)                                 authorize
any of, or commit or agree, in writing or otherwise, to take any of, the
foregoing actions or any action which would prevent or materially impair the
satisfaction of any conditions in Article VII hereof.

 

The Parent shall not unreasonably delay its
consideration of any consent to a waiver requested by the Company pursuant to
this Section 5.1 (it being understood, however, that the Parent shall be
entitled to act in its sole discretion in granting or withholding such
consent).

 

5.2                                 Covenants of the Parent.  Except as expressly provided herein or set
forth in Section 5.2 of the Parent Disclosure Schedule or as
consented to in writing by the Company, from and after the date of this
Agreement until the earlier of the termination of this Agreement in accordance
with its terms or the Effective Time, the Parent shall, and shall cause each of
its Subsidiaries to, act and carry on its business in the ordinary course in
substantially the same manner as previously conducted, pay its debts and Taxes
and perform its other obligations when due (subject to good faith disputes over
such debts, Taxes or obligations), comply with all applicable laws, rules and
regulations, and use commercially reasonable efforts, consistent with past
practices, to maintain and preserve its and each Subsidiary’s present business organization,
assets and properties, keep available the services of its present officers and
employees and preserve its advantageous business relationships with customers,
strategic partners, suppliers, distributors and others having business dealings
with it.  Without limiting the
generality of the foregoing, and except as set forth in Section 5.2 of the
Parent Disclosure Schedule, from and after the date of this Agreement until the
earlier of the termination of this Agreement in accordance with its terms or
the Effective Time, the Parent shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, do any of the following without the
prior written consent of the Company:

 

(a)                                  (A)
declare, set aside or pay any dividends on, or make any other distributions
(whether in cash, securities or other property) in respect of, any of its share
capital (other than (i) dividends and distributions by a direct or indirect
wholly owned Subsidiary of the Parent to its parent); (B) split, combine
or reclassify any of its share capital or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
its

 

43

 

share
capital or any of its other securities; or (C) purchase, redeem or
otherwise acquire any shares of its share capital or any other of its
securities or any rights, warrants or options to acquire any such shares or
other securities; provided, however, that nothing in this Section 5.2(a)
shall prohibit the Parent from exercising contractual rights of repurchase of
any Parent Ordinary Shares or Parent ADSs under any employee, consultant or
director plan or agreement as in effect on the date hereof);

 

(b)                                 except
as contemplated by this Agreement, amend its Memorandum, Articles of
Association or other comparable charter or organizational documents;

 

(c)                                  enter
into an agreement with respect to any merger, consolidation, liquidation or
business combination involving the disposition of a material amount of the
assets or securities of the Parent and its Subsidiaries, taken as a whole;

 

(d)                                 make
any changes in accounting methods, principles or practices, except insofar as
may have been required by a change in UK GAAP and/or GAAP, or, except as so
required, change any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve;

 

(e)                                  take
any action, following the filing of the Registration Statement that would
require the Parent to include pro forma financial statements in the Registration
Statement pursuant to Article 11 of Regulation S-X under the Securities
Act (other than the pro forma financial statements required to be filed in
connection with the transactions contemplated by this Agreement); or

 

(f)                                    authorize
any of, or commit or agree, in writing or otherwise, to take any of, the
foregoing actions or any action which would or prevent or materially impair the
satisfaction of any conditions in Article VII hereof.

 

The Company shall not unreasonably delay its
consideration of any consent to a waiver requested by the Parent pursuant to
this Section 5.2 (it being understood, however, that the Company shall be
entitled to act in its sole discretion in granting or withholding such
consent).

 

5.3                                 Confidentiality.  The parties acknowledge that the Parent and the Company have
previously executed a confidentiality agreement, dated as of August 19,
2003 (the “Confidentiality Agreement”), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms, except as
expressly modified herein, provided that Section 7, “Stand Still
Provisions,” of the Confidentiality Agreement shall be of no further force and
effect as of the date hereof; provided  further, however,
that in the event this Agreement is terminated: (i) pursuant to
Section 8.1(a) or (ii) pursuant to any other provision of Section 8.1
at a time at which a Company Acquisition Proposal is not pending, and, in
either such case, so long as at the time of such termination the Company is not
in breach of a representation, warranty or covenant set forth in this Agreement
(which breach would cause the conditions set forth in Sections 7.2(a) or 7.2(b)
to not be satisfied), the “Stand Still Provisions” of Section 7 of the
Confidentiality Agreement shall be reinstated and in full force and effect as
of the time of such termination.  Notwithstanding anything herein to the
contrary, any party to this Agreement (and any employee, representative,
shareholder, stockholder or other agent of any party to this Agreement)

 

44

 

may disclose to any and all Persons, without
limitation of any kind, the tax treatment and tax structure of the proposed
transactions contemplated by this Agreement and all materials of any kind (including
opinions or other tax analyses) that are provided to it relating to such tax
treatment and tax structure; provided, however, that such
disclosure may not be made to the extent such disclosure would reasonably be
expected to violate any applicable federal or state securities laws.  For the purposes of the foregoing sentence:
(a) the “tax treatment” of a transaction means the purported or claimed federal
income tax treatment of the transaction; and (b) the “tax structure” of a
transaction means any fact that may be relevant to understanding the purported
or claimed federal income tax treatment of the transaction.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

6.1                                 Company No Solicitation.

 

(a)                                  No
Solicitation or Negotiation.  Except
as set forth in this Section 6.1, the Company shall not, nor shall it (i)
authorize or permit any of its Subsidiaries or (ii) authorize or knowingly
permit any of its or its Subsidiaries’ respective directors, officers,
employees, investment bankers, attorneys, accountants or other advisors, agents
or representatives (such directors, officers, employees, investment bankers,
attorneys, accountants, other advisors and representatives, collectively,
“Representatives”) to, directly or indirectly:

 

(i)                                     solicit,
initiate, encourage or take any other action to facilitate any inquiries or the
making of any proposal or offer that constitutes, or could reasonably be
expected to lead to, any Company Acquisition Proposal, including without
limitation (A) approving any transaction under Section 203 of the DGCL,
(B) approving any person becoming an “interested stockholder” under
Section 203 of the DGCL, or (C) amending or granting any waiver or release
under any standstill or similar agreement with respect to any Company Common
Stock, Parent ADSs or Parent Ordinary Shares, respectively; or

 

(ii)                                  enter
into, continue or otherwise participate in any discussions or negotiations
regarding, furnish to any person or permit any person access to any information
with respect to, assist or participate in any effort or attempt by any person
with respect to, or otherwise cooperate in any way with, any Company
Acquisition Proposal.

 

Notwithstanding
the foregoing, prior to the adoption of this Agreement at the Company
Stockholders Meeting (the “Specified Time”), the Company may, to the extent
required by the fiduciary obligations of the Company Board, as determined in
good faith by the Company Board, after consultation with outside counsel, in
response to a Qualifying Proposal that did not result from a breach by the Company
of this Section 6.1, and subject to compliance with Section 6.1(c),
(x) furnish information with respect to the Company to the person making
such Qualifying Proposal and its Representatives pursuant to a confidentiality
agreement not less restrictive of the other party than the Confidentiality
Agreement and (y) participate in discussions or negotiations with such
person and its Representatives regarding such Qualifying Proposal.

 

45

 

(b)                                 No
Change in Recommendation; Superior Proposal.  Neither the Company Board, nor any committee thereof, shall:

 

(i)                                     except
as set forth in this Section 6.1, withdraw or modify, or publicly propose
to withdraw or modify, in a manner adverse to the Parent or the Transitory Subsidiary,
the approval or recommendation by the Company Board or any such committee of
this Agreement or the Merger;

 

(ii)                                  cause
or permit the Company to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement, merger agreement
or similar agreement (an “Alternative Acquisition Agreement”) constituting or
relating to any Company Acquisition Proposal (other than a confidentiality
agreement referred to in Section 6.1(a) entered into in the circumstances
referred to in Section 6.1(a)); or

 

(iii)                               adopt,
approve or recommend, or propose to adopt, approve or recommend, any Company
Acquisition Proposal.

 

Notwithstanding
the foregoing, the Company Board may, in response to a Superior Proposal that
did not result from a breach by the Company of this Section 6.1, withdraw
or modify the recommendation by the Company Board or any committee thereof of
this Agreement and the Merger, if the Company Board determines in good faith
(after consultation with outside counsel) that such actions are required by its
fiduciary obligations, but only at a time that is prior to the Specified Time
and is after the third business day following receipt by the Parent of written
notice advising it that the Company Board desires to withdraw or modify the
recommendation due to the existence of a Superior Proposal, specifying the
material terms and conditions of such Superior Proposal and identifying the
person making such Superior Proposal. 
Nothing in this Section 6.1 (other than Section 6.1(d)) shall
be deemed to limit the Company’s obligation to call, give notice of, convene
and hold the Company Stockholders Meeting, regardless of whether the Company
Board has withdrawn or modified its recommendation of this Agreement and the
Merger.

 

(c)                                  Notices;
Additional Negotiations.  The
Company shall promptly advise the Parent orally, with written confirmation to
follow promptly (and in any event within 24 hours), of the Company or any of
its officers, directors, investment bankers, financial advisors or attorneys
attaining knowledge of any Company Acquisition Proposal or any request for
nonpublic information in connection with any Company Acquisition Proposal, or
of any inquiry with respect to, or that could reasonably be expected to lead
to, any Company Acquisition Proposal, the material terms and conditions of any
such Company Acquisition Proposal or inquiry and the identity of the person
making any such Company Acquisition Proposal or inquiry.  The Company shall not provide any
information to or participate in discussions or negotiations with the person or
entity making any Qualifying Proposal until three business days after the
Company has first notified the Parent of such Qualifying Proposal as required
by the preceding sentence.  The Company
shall (i) keep the Parent fully informed, on a prompt basis (and in any event
within 24 hours), of the status and any material change to the terms of any
such Company Acquisition Proposal or inquiry, (ii) provide to the Parent as
promptly as practicable after receipt or delivery thereof copies of all
correspondence and other written material sent or provided to the Company from
any third party describing the terms of any Company Acquisition

 

46

 

Proposal, and (iii) if the Parent shall make a
counterproposal, consider and cause its financial and legal advisors to
negotiate on its behalf in good faith with respect to the terms of such
counterproposal.  Contemporaneously with
providing any information to a third party in connection with any such
Qualifying Proposal, the Company shall furnish a copy of such information to
the Parent.

 

(d)                                 Certain
Permitted Disclosure.  Nothing
contained in this Section 6.1 or in Section 6.6 shall be deemed to
prohibit the Company from taking and disclosing to its stockholders a position
with respect to a tender offer contemplated by Rule 14e-2(a) promulgated under
the Exchange Act if, in the good faith judgment of the Company Board, after
consultation with outside counsel, failure to so disclose would be inconsistent
with its obligations under applicable law; provided,  however,
that, except as set forth in Section 6.1(b), in no event shall the Company
Board or any committee thereof withdraw or modify or propose to withdraw or
modify, in a manner adverse to the Parent or the Transitory Subsidiary, the
approval or recommendation by the Company Board or such committee of the Merger
or this Agreement.

 

(e)                                  Cessation
of Ongoing Discussions.  Except as
expressly provided for in Section 6.1(a), the Company shall, and shall
cause its Subsidiaries and its and their Representatives to, cease immediately
all discussions and negotiations regarding any proposal that constitutes, or
could reasonably be expected to lead to, a Company Acquisition Proposal and,
except for any confidentiality agreements entered into in accordance with
Section 6.1(a), shall not enter into an agreement based upon a Company
Acquisition Proposal.  The Company shall
use commercially reasonable efforts through written communication to have all
copies of all nonpublic information it or its Subsidiaries or its and their
Representatives have distributed on or prior to the date of this Agreement to
other potential purchasers returned to the Company or destroyed as soon as
possible.

 

(f)                                    Definitions.  For purposes of this Agreement:

 

“Company
Acquisition Proposal” means (i) any inquiry, proposal or offer for (A) the
dissolution or liquidation of the Company or any of its Subsidiaries or (B) a
merger, consolidation, tender offer, recapitalization, share exchange or other
business combination involving 15% or more of the Company’s equity securities,
(ii) any proposal for the issuance by the Company of over 15% of its
equity securities or (iii) any proposal or offer to acquire in any manner,
directly or indirectly, over 15% of the equity securities or consolidated total
assets of such party, in each case other than the Distribution and the Merger
contemplated by this Agreement.

 

“Qualifying
Proposal” means a Superior Proposal or a Company Acquisition Proposal that
constitutes or, in the good faith judgment of the Company Board, after
consultation with outside counsel and its independent financial adviser, would
reasonably be expected to result in a Superior Proposal.

 

“Superior
Proposal” means any unsolicited, bona fide written proposal made by a third
party to acquire all or substantially all of the equity securities or assets of
the Company, pursuant to a tender or exchange offer, a merger, a consolidation
or a sale of its assets, (i) on terms which the Company Board determines
in its good faith judgment to be more favorable

 

47

 

from a financial point of
view to the stockholders of the Company than the transactions contemplated by
this Agreement (after consultation with respect thereto with its independent
financial advisor), taking into account all the terms and conditions of such
proposal and this Agreement (including any proposal by either party to amend
the terms of this Agreement) and (ii) that is reasonably capable of being
completed on the terms proposed, taking into account all financial, regulatory,
legal and other aspects of such proposal; provided, however, that
no Company Acquisition Proposal shall be deemed to be a Superior Proposal if any
financing required to consummate the Company Acquisition Proposal is not
committed.

 

6.2                                 Parent Notices; Additional
Negotiations.  The Parent shall
promptly advise the Company orally, with written confirmation to follow
promptly (and in any event within 24 hours), of Parent attaining knowledge of
any Parent Acquisition Proposal or any request for nonpublic information in
connection with any Parent Acquisition Proposal, or of any inquiry with respect
to, or that could reasonably be expected to lead to, any Parent Acquisition
Proposal, the material terms and conditions of any such Parent Acquisition
Proposal or inquiry and the identity of the person making any such Parent
Acquisition Proposal or inquiry.  The
Parent shall (i) keep the Company fully informed, on a prompt basis, of
the status and details (including any change to the terms) of any such Parent
Acquisition Proposal or inquiry, and (ii) provide to the Company as soon
as practicable after receipt or delivery thereof copies of all correspondence
and other written material sent or provided to the Parent from any third party
in connection with any Parent Acquisition Proposal.  “Parent Acquisition Proposal” means (i) any inquiry,
proposal or offer for (A) the dissolution of the Parent or any of its Subsidiaries,
(B) a merger, consolidation, tender offer, recapitalization, share exchange or
other business combination involving 15% or more of the Parent’s share capital
or (C) a sale of substantial assets of the Parent or any of its Subsidiaries,
(ii) any proposal for the issuance by the Parent or any of its
Subsidiaries of over 15% of its share capital or equity securities, as
applicable, or (iii) any proposal or offer to acquire in any manner,
directly or indirectly, over 15% of the equity securities or consolidated total
assets of such party, in each case other than the Merger contemplated by this
Agreement.

 

6.3                                 Joint Proxy Statement/Prospectus;
Registration Statement; Shareholder Circular; Listing Particulars.

 

(a)                                  Joint
Proxy Statement/Prospectus; Registration Statement.

 

(i)                                     As
promptly as practicable after the execution of this Agreement, the Parent, in
cooperation with the Company, shall prepare and file with the SEC the
Registration Statement, in which the Joint Proxy Statement/Prospectus shall be
included as a prospectus.  Each of the
Parent and the Company shall respond to any comments of the SEC and shall use
its respective commercially reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filings, and the Company shall cause the Joint Proxy
Statement/Prospectus to be mailed to its stockholders at the earliest
practicable time after the Registration Statement is declared effective under
the Securities Act.  Each of the Parent
and the Company shall notify the other promptly upon the receipt of any
comments from the SEC or its staff or any other government officials and of any
request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Joint Proxy
Statement/Prospectus or any filing pursuant to Section 6.3(b) or for
additional information and shall supply the other with copies of all

 

48

 

correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement/Prospectus, the Merger or any filing pursuant
to Section 6.3(b).  Each of the
Parent and the Company shall use its commercially reasonable efforts to cause
all documents that it is responsible for filing with the SEC or other
regulatory authorities under this Section 6.3 to comply in all material
respects with all applicable requirements of law and the rules and regulations
promulgated thereunder.  Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Joint Proxy Statement/Prospectus, the Registration Statement or any filing
pursuant to Section 6.3(b), the Parent or the Company, as the case may be,
shall promptly inform the other of such occurrence and cooperate in filing with
the SEC or its staff or any other government officials, and/or mailing to stockholders
of the Company, such amendment or supplement.

 

(ii)                                  The
Parent and the Company shall promptly make all necessary filings with respect
to the Merger under the Securities Act, the Exchange Act, applicable state blue
sky laws and the rules and regulations thereunder.

 

(b)                                 Shareholder
Circular; Listing Particulars.  As
promptly as practicable after the execution of this Agreement, the Parent, in
cooperation with the Company, shall prepare and seek the approval of the UKLA
for (i) a circular to be sent to the Parent shareholders in connection with the
Parent Shareholders Meeting (the “Parent Circular”) containing (A) a notice
convening the Parent Shareholders Meeting, (B) such other information as may be
required by the UKLA and (C) such other information as the Parent and the
Company shall agree to include therein and (ii) listing particulars relating to
the Parent and its Subsidiaries and the Parent Ordinary Shares (together with
any supplement thereto, the “Parent Listing Document” and the Parent Circular
and the Parent Listing Document, together, the “Parent UK Documents”).  The Parent and the Company each agrees, as
to itself and its Subsidiaries, that the Parent UK Documents and any
supplements thereto and any circulars or documents issued to shareholders or
employees of the Parent will contain all particulars relating to the Parent and
the Company required to comply in all material respects with all United Kingdom
statutory and other legal provisions (including, without limitation, the
Companies Act, FSMA and the rules and regulations made thereunder and the rules
and requirements of the UKLA and the LSE) and all such information contained in
the Parent UK Documents will be substantially in accordance with the facts and
will not omit anything material likely to affect the import of such
information.

 

6.4                                 NASDAQ and LSE Quotation.  The Parent and the Company each agree to
continue the quotation of Parent ADSs and Company Common Stock, respectively,
on The NASDAQ Stock Market and the Parent Ordinary Shares on the LSE during the
term of this Agreement.  The Parent, if
required by the rules of The NASDAQ Stock Market, will file with The NASDAQ
Stock Market a Notification Form for Listing Additional Shares with respect to
the Parent ADSs and Parent Ordinary Shares issuable in connection with the
Merger.

 

6.5                                 Access to Information.  Each of the Parent and the Company shall
(and shall cause each of its Subsidiaries to) afford to the other party’s
officers, employees, accountants, counsel and other representatives, reasonable
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, personnel and
records and, during such period, each of the Parent and the Company shall (and
shall cause

 

49

 

their
respective Subsidiaries to) furnish promptly to the other party (a) a copy
of each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of federal or
state securities laws and (b) all other information concerning its
business, properties, assets and personnel as the other party may reasonably
request.  Each of the Parent and the
Company will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. 
No information or knowledge obtained in any investigation pursuant to
this Section or otherwise shall affect or be deemed to modify any
representation or warranty contained in this Agreement or the conditions to the
obligations of the parties to consummate the Merger.

 

6.6                                 Stockholders Meetings.

 

(a)                                  The
Company, acting through the Company Board, shall take all actions in accordance
with the DGCL, its Certificate of Incorporation and By-laws and the rules of
The NASDAQ Stock Market to promptly and duly call, give notice of, convene and
hold as promptly as practicable, and within 45 days after the declaration of
the effectiveness of the Registration Statement if practicable, the Company
Stockholders Meeting for the purpose of considering and voting upon the Company
Voting Proposal.  Subject to
Section 6.1(b), (i) the Company Board shall recommend approval and
adoption of the Company Voting Proposal by the stockholders of the Company and
include such recommendation in the Joint Proxy Statement/Prospectus, and (ii)
neither the Company Board nor any committee thereof shall withdraw or modify,
or propose or resolve to withdraw or modify in a manner adverse to the Parent
or the Transitory Subsidiary, the approval or recommendation of the Company
Board or such committee that the Company’s stockholders vote in favor of the
Company Voting Proposal.  Subject to
Section 6.1(b), the Company shall take all action that is both reasonable
and lawful to solicit from its stockholders proxies in favor of the Company
Voting Proposal and shall take all other action necessary or advisable to
secure the vote or consent of the stockholders of the Company required by the
rules of The NASDAQ Stock Market or the DGCL to obtain such approvals.  Notwithstanding anything to the contrary
contained in this Agreement, the Company, after consultation with the Parent,
may adjourn or postpone the Company Stockholders Meeting to the extent
necessary to ensure that any required supplement or amendment to the Joint
Proxy Statement/Prospectus is provided to the Company’s stockholders or, if as
of the time for which the Company Stockholders Meeting is originally scheduled
(as set forth in the Joint Proxy Statement/Prospectus) there are insufficient
shares of Company Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the Company
Stockholders Meeting.

 

(b)                                 The
Parent, acting through the Parent Board, shall take all actions in accordance
with applicable law, its Memorandum and Articles of Association and the rules
of The NASDAQ Stock Market, the UKLA and the LSE to promptly and duly call,
give notice of, convene and hold as promptly as practicable after the declaration
of effectiveness of the Registration Statement, the Parent Shareholders Meeting
for the purpose of considering and voting upon the Parent Voting Proposal.  The Parent Board shall recommend approval
and adoption of the Parent Voting Proposal by the shareholders of the Parent
and include such recommendation in the Joint Proxy Statement/Prospectus and the
Parent UK Documents, and (ii) neither the Parent Board nor any committee
thereof shall withdraw or modify, or propose or resolve to withdraw or modify in
a manner adverse to the Company, the recommendation of the

 

50

 

Parent
Board or such committee that the Parent’s shareholders vote in favor of the
Parent Voting Proposal.  Notwithstanding
anything to the contrary contained in this Agreement, the Parent, after
consultation with the Company, may adjourn or postpone the Parent Shareholders
Meeting to the extent necessary to ensure that any required supplement or
amendment to the Parent UK Documents is provided to the Parent’s shareholders
or, if as of the time for which the Parent Shareholders Meeting is originally
scheduled (as set forth in the Parent UK Documents) there are insufficient
Parent Ordinary Shares represented (either in person or by proxy) to constitute
a quorum necessary to conduct the business of the Parent Shareholders Meeting.

 

(c)                                  The
Company shall call, give notice of, convene and hold the Company Stockholders
Meeting in accordance with this Section 6.6 and shall submit the Company
Voting Proposal to its stockholders for the purpose of acting upon such
proposal whether or not (i) the Company Board at any time subsequent to the
date hereof determines, in the manner permitted by Section 6.1(b) that the
Company Voting Proposal is no longer advisable or recommends that the
stockholders of the Company reject such proposal, or (ii) any actual, potential
or purported Company Acquisition Proposal or Superior Proposal has been
commenced, disclosed, announced or submitted to the Company.

 

(d)                                 The
Parent shall call, give notice of, convene and hold the Parent Shareholders
Meeting in accordance with this Section 6.6 and shall submit the Parent
Voting Proposal to its shareholders for the purpose of acting upon such
proposal.

 

6.7                                 [Intentionally Omitted]

 

6.8                                 Legal Conditions to the Merger.

 

(a)                                  Subject
to the terms hereof, including Section 6.8(b), the Company and the Parent
shall each use its commercially reasonable efforts to (i) take, or cause to be
taken, all actions, and do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated hereby as promptly
as practicable, (ii) as promptly as practicable, obtain from any Governmental Entity
or any other third party any consents, licenses, permits, waivers, approvals,
authorizations, or orders required to be obtained or made by the Company or the
Parent or any of their Subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, (iii) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (A) the Securities Act
and the Exchange Act, and any other applicable federal or state securities
laws, (B) the HSR Act and any related governmental request thereunder, (C) any
other applicable law and (D) the UKLA and (iv) execute or deliver any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.  The Company and the Parent shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing
and, if requested, accepting all reasonable additions, deletions or changes
suggested in connection therewith.  The
Company and the Parent shall use their respective commercially reasonable
efforts to furnish to each other all information required for any application
or other filing to be made pursuant to the rules and regulations of any
applicable law (including all

 

51

 

information
required to be included in the Joint Proxy Statement/Prospectus, the Parent UK
Documents and the Registration Statement) in connection with the transactions
contemplated by this Agreement.  The
Parent and the Company agree that nothing contained in this Section 6.8(a)
shall modify or affect their respective rights and responsibilities under
Section 6.8(b).

 

(b)                                 Subject
to the terms hereof, the Parent and the Company agree, and shall cause each of
their respective Subsidiaries, to cooperate and to use their respective
commercially reasonable efforts to obtain any government clearances or
approvals required for Closing under the HSR Act, the Sherman Act, as amended,
the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and
any other federal, state or foreign law or, regulation or decree designed to
prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade (collectively “Antitrust Laws”), to
respond to any government requests for information under any Antitrust Law, and
to contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any
decree, judgment, injunction or other order (whether temporary, preliminary or
permanent) (an “Antitrust Order”) that restricts, prevents or prohibits the
consummation of the Merger or any other transactions contemplated by this
Agreement under any Antitrust Law.  The
parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to any Antitrust Law.   The Parent shall be entitled to direct any
proceedings or negotiations with any Governmental Entity relating to any of the
foregoing, provided that it shall afford the Company a reasonable opportunity
to participate therein.

 

(c)                                  Each
of the Company and the Parent shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their commercially reasonable efforts to obtain
any third party consents related to or required in connection with the Merger
that are (A) necessary to consummate the transactions contemplated hereby, (B)
disclosed or required to be disclosed in the Company Disclosure
Schedule or the Parent Disclosure Schedule, as the case may be, or (C)
required to prevent the occurrence of an event that may have a Company Material
Adverse Effect or a Parent Material Adverse Effect prior to or after the
Effective Time.

 

6.9                                 Public Disclosure.  Except as may be required by law or stock market regulations, (i)
the press release announcing the execution of this Agreement shall be issued
only in such form as shall be mutually agreed upon by the Company and the
Parent and (ii) the Parent and the Company shall each use its commercially
reasonable efforts to consult with the other party before issuing any other
press release or otherwise making any public statement with respect to the
Merger or this Agreement.

 

6.10                           Section 368(a) Reorganization.  The Parent and the Company shall not take
any action that would, or fail to take any action the omission of which would
be reasonably likely to, prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.  The parties hereto hereby adopt this
Agreement as a plan of reorganization.

 

6.11                           Affiliate Legends.  Section 6.11 of the Company Disclosure Schedule sets
forth a list of those persons who are, in the Company’s reasonable judgment,
“affiliates” of the

 

52

 

Company
within the meaning of Rule 145 promulgated under the Securities Act (“Rule 145
Affiliates”).  The Company shall notify
the Parent in writing regarding any change in the identity of its Rule 145
Affiliates prior to the Closing Date. 
The Parent shall be entitled to place appropriate legends on the
certificates representing the Parent Ordinary Shares or Parent ADRs to be
received by Rule 145 Affiliates of the Company pursuant to the Merger
reflecting the restrictions set forth in Rule 145 promulgated under the
Securities Act and to issue appropriate stop transfer instructions to the
transfer agent for Parent Ordinary Shares and Parent ADSs (provided that such
legends or stop transfer instructions shall be removed one year after the
Effective Time, upon the request of any holder of Parent Ordinary Shares or
Parent ADSs issued pursuant to the Merger if such holder is not then a Rule 145
Affiliate of the Parent).

 

6.12                           Listing Applications.  The Parent shall (i) if required by the
rules of The NASDAQ Stock Market, file with The NASDAQ Stock Market a
Notification Form for Listing Additional Shares with respect to the Parent ADSs
issuable in connection with the Merger, and (ii) use its commercially
reasonable efforts to obtain, prior to the Effective Time, approval for
admission of the Parent Ordinary Shares to the Official List of the UKLA and to
trading on the LSE market for listed securities, in the case of the UKLA and
the LSE, subject to allotment and the Parent ADSs, and in the case of The
NASDAQ Stock Market, subject to official notice of issuance.

 

6.13                           Company Stock Plans.

 

(a)                                  At
the Effective Time, each outstanding Company Stock Option under the Company
Stock Plans, whether vested or unvested, shall, as part of the Merger, be
assumed by the Parent and each Company Stock Option shall be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Company Stock Option immediately prior to the Effective
Time, a number of units equal to the number of shares of Company Common Stock
underlying each such option.  The
exercise price for each such unit shall equal the per share exercise price of
the applicable Company Stock Option.  A
unit shall be comprised of (i) 1.2015 Parent Ordinary Shares and (ii) the Cash
Amount Per Share.  The number of Parent
Ordinary Shares issuable upon each exercise of any Company Stock Option assumed
pursuant to this Section 6.13(a) shall be rounded to the nearest whole
number of Parent Ordinary Shares (with .5 being rounded up to the nearest whole
share).

 

(b)                                 As
soon as practicable after the Effective Time, the Parent shall deliver to the
holders of Company Stock Options an appropriate notice setting forth such
participants’ rights pursuant to the Company Stock Options, as provided in this
Section 6.13.

 

(c)                                  The
Parent shall take all corporate action necessary to reserve for issuance a
sufficient number of Parent Ordinary Shares for delivery upon exercise of the
Company Stock Options assumed in accordance with this Section.  Within ten (10) days after the Effective
Time, the Parent shall file a registration statement on Form S-8 (or any
successor form) or another appropriate form with respect to the Parent Ordinary
Shares subject to such options and shall use its commercially reasonable
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.

 

53

 

(d)                                 The
Company and the Parent acknowledge that the Company ESPP shall continue to
operate in accordance with its terms following the execution of this Agreement,
except as provided below.  The Company
shall not commence any Offering (as defined in the Company ESPP) pursuant to
the Company ESPP that will not terminate prior to the Effective Time.  Effective as of or prior to the Effective
Time, the Company shall cause the Company ESPP to terminate in accordance with
Section 20 of the Company ESPP, and no purchase rights shall be
subsequently granted or exercised under the Company ESPP.  The Company shall take all actions necessary
to ensure that the Company ESPP will not be amended or modified in any respect
after the date hereof, except to effect the terms of this Section 6.13(d).

 

(e)                                  Prior
to the Effective Time, the Company shall take all action necessary to amend all
outstanding Company Stock Options to include the Company Stock Plan under which
such Company Stock Option was issued as an exhibit to and as part of such
Company Stock Option.

 

(f)                                    The
Company shall take all such action, including the adoption of any necessary
resolutions by the Company Board or any appropriate committee thereof,
necessary or appropriate to effect the transactions contemplated by this
Section 6.13.

 

6.14                           Stockholder Litigation.  Until the earlier of the termination of this
Agreement in accordance with its terms or the Effective Time, the Company shall
give the Parent the opportunity to participate in the defense or settlement of
any stockholder litigation against the Company or the Company Board relating to
this Agreement or any of the transactions contemplated by this Agreement, and
shall not settle any such litigation without the Parent’s prior written
consent, which will not be unreasonably withheld, conditioned or delayed.

 

6.15                           Indemnification.

 

(a)                                  From
and after the Effective Time, the Parent shall, and shall cause the Surviving
Corporation, to the fullest extent permitted by law, for a period of six years
from the Effective Time, to honor all of the Company’s obligations to indemnify
and hold harmless each present and former director and officer of the Company
(the “Indemnified Parties”), against any costs or expenses (including
attorneys’ fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the extent that such obligations to indemnify and
hold harmless exist on the date of this Agreement.

 

(b)                                 Without
limiting any obligation under 6.15(a), for a period of six years after the
Effective Time, the Parent shall cause the Surviving Corporation to maintain
(to the extent available in the market) in effect a directors’ and officers’ liability
insurance policy covering those persons who are currently covered by the
Company’s directors’ and officers’ liability insurance policy (a complete and
accurate copy of which has been delivered to the Parent prior to the date of
this Agreement) with coverage in amount and scope at least as favorable to such
persons as the Company’s existing coverage; provided, however, that in no event
shall the Parent or the Surviving Corporation be required to expend in excess
of one

 

54

 

hundred
seventy five percent (175%) of the annual premium currently paid by the Company
for such coverage, and to the extent the annual premium would exceed one
hundred seventy five percent (175%) of such current annual premium, the Parent
or Surviving Corporation shall use all reasonable efforts to be maintained the
maximum amount of coverage available for such one hundred seventy five percent
(175%) of such current annual premium. 
The Company hereby represents that the annual premium currently paid by
the Company for such coverage is US $1,411,618.  The Parent and the Surviving Corporation may meet their
obligations under this Section 6.15 by purchasing a “tail” policy under
the Company’s existing directors’ and officers’ insurance policy which (i) has
an effective term of six years from the Effective Time, (ii) covers only those
persons who are currently covered by the Company’s directors’ and officers’
insurance policy in effect as of the date hereof and only for actions and omissions
occurring on or prior to the Effective Time, and (iii) contains coverage in
amount and scope at least as favorable to the Indemnified Parties as the
Company’s existing directors’ and officers’ insurance policy.

 

(c)                                  The
provisions of this Section 6.15 are intended to be in addition to the
rights otherwise available to the current officers and directors of the Company
by law, charter, statute, by-law or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Parties, their
heirs and their representatives.  The
obligations of the Company and Surviving Corporation under this
Section 6.15 shall be binding upon their respective successors and
assigns.

 

6.16                           Notification of Certain Matters.  The Parent shall give notice to the Company,
and the Company shall give notice to the Parent, promptly upon any director or
officer of the Parent or Company (as applicable) becoming aware of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (a) (i) any representation or
warranty of such party contained in this Agreement that is qualified as to
materiality to be untrue or inaccurate in any respect or (ii) any other
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect, in each case at any time from and
after the date of this Agreement until the Effective Time, or (b) any material
failure of the Parent and the Transitory Subsidiary or the Company, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.  Notwithstanding the above, (i) the delivery
of any notice pursuant to this Section will not limit or otherwise affect
the remedies available hereunder to the party receiving such notice or the
conditions to such party’s obligation to consummate the Merger and (ii) any
breach of a representation or warranty by the Parent or the Company, as
applicable, that does not itself give rise to a failure to satisfy the
conditions set forth in Section 7.2(a) or 7.3(a) of this Agreement, as
applicable, shall not give the non-breaching party the right to terminate this
Agreement pursuant to Section 8(h) or Section 8(i) of this Agreement,
as applicable.

 

6.17                           Exemption from Liability Under
Section 16(b).

 

(a)                                  The
Parent Board, or a committee thereof consisting of non-employee directors (as
such term is defined for purposes of Rule 16b-3(d) under the Exchange Act),
shall adopt a resolution in advance of the Effective Time providing that the
receipt by the Company Insiders of Parent Ordinary Shares represented by Parent
ADSs in exchange for shares of

 

55

 

Company
Common Stock, and of options to purchase Parent Ordinary Shares upon assumption
and conversion of Company Stock Options, in each case pursuant to the
transactions contemplated hereby and to the extent such securities are listed
in the Section 16 Information, is intended to be exempt pursuant to Rule
16b-3 under the Exchange Act.

 

(b)                                 For
purposes of this Agreement, “Section 16 Information” means information
regarding the Company Insiders and the number of shares of Company Common Stock
or other Company equity securities deemed to be beneficially owned by each such
Company Insider and expected to be exchanged for Parent Ordinary Shares
represented by Parent ADSs, or options to purchase Parent Ordinary Shares, in
each case, in connection with the Merger, which shall be provided by the
Company to the Parent within 10 business days after the date of this Agreement.

 

(c)                                  For
purposes of this Agreement, “Company Insiders” means those officers and
directors of the Company who are subject to the reporting requirements of
Section 16(a) of the Exchange Act as listed in the Section 16
Information.

 

6.18                           Board of Directors of Parent.  The Parent shall take all action to cause
the individuals listed in Schedule 6.18 attached hereto (or, to the extent
any such individual is unable or unwilling to serve, such other designee as the
Company and the Parent shall jointly select) (the “Company Designees”) to be
elected as directors of the Parent.

 

6.19                           Service Credit.  Following the Effective Time, the Parent will give each
Continuing Employee full credit for prior service with the Company or its
Subsidiaries for purposes of (i) eligibility and vesting under any Parent
Employee Benefit Plans and (ii) determination of benefits levels under any
Parent Employee Benefit Plan or policy relating to vacation or severance, in
each case for which the Continuing Employee is otherwise eligible and in which
the Continuing Employee is offered participation, but except where such
crediting would (A) result in a duplication of benefits or (B) otherwise cause
the Parent or its Subsidiaries or any Parent Employee Benefit Plan or trust
relating thereto to accrue or pay for benefits that relate to any time period
prior to the Continuing Employee’s participation in the Parent Employee Benefit
Plan.  For purposes of this Agreement,
(i) “Parent Employee Benefit Plan” means any “employee pension benefit plan”
(as defined in Section 3(2) of ERISA), any “employee welfare benefit plan”
(as defined in Section 3(1) of ERISA), and any other written or oral plan,
agreement or arrangement involving direct or indirect compensation, including
insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation and all unexpired severance agreements, written or otherwise, for
the benefit of, or relating to, any current or former employee of the Company
or any of its Subsidiaries or an ERISA Affiliate and (ii) Continuing Employee means
those employees of Parent and employees of the Transitory
Subsidiary as of the Effective Time who shall have been employees of the
Company immediately prior to the Effective Time. 

 

6.20                           Employee Communications.  The Parent and the Company will use reasonable
efforts to consult with each other, and will consider in good faith each
other’s advice, prior to sending any notices or other communication materials
to its employees regarding this

 

56

 

Agreement, the Merger or the effects thereof on the
employment, compensation or benefits of its employees.

 

6.21                           401(k) Plan. 
If requested by the Parent by written notice no less than five (5) days
prior to the Effective Time, the Company shall terminate each Company Employee
Plan that is intended to comply with Section 401(k) of the Code, effective
as of the day immediately preceding the Closing Date.  If the Parent provides such notice to the Company, the Company
shall provide the Parent with evidence that all such 401(k) plans have been so
terminated pursuant to resolutions of the Company Board.  The form and substance of such resolutions
shall be subject to review and reasonable approval of the Parent.  The Company shall take such other actions in
furtherance of terminating such 401(k) plan as the Parent may reasonably
require.

 

6.22                           Distribution. 
Notwithstanding any other provisions of this Agreement, in the event
that the Parent or the Company determines, in its reasonable judgment after
consultation with outside counsel, the Distribution would constitute a
violation of applicable statutory law, then the Parent or the Company, as the
case may be, shall promptly provide notice thereof to the other party.  The Company and the Parent covenant that
they shall thereafter negotiate in good faith to restructure the transactions
contemplated by this Agreement, such that the Company stockholders shall
receive consideration composed of cash and shares corresponding to the
consideration contemplated by the provisions of this Agreement, in conformity
with applicable law and, provided that the conditions set forth in
Article VII, other than the conditions set forth in Sections 7.1(h) and
7.2(d), which shall be deemed to have been satisfied or waived, shall continue
to be the obligations of the parties hereunder pursuant to such restructuring.

 

6.23                           Transfer Taxes. 
The Company shall pay any transfer Taxes (including, but not limited to,
stamp duties, stamp duty reserve taxes, and other similar taxes) payable in
connection with the Merger and shall be responsible for the preparation and
filing of any required Tax Returns with respect to such Taxes.  At and following the Effective Time, the
Company and Parent shall be jointly and severally liable for all Transfer Taxes
(including, but not limited to, stamp duties, stamp duty reserve tax and other
similar taxes) imposed on the Company and/or Parent in connection with the
issuance of Parent ADRs and the Parent Ordinary Shares to be issued in the
Merger and upon the exercise of Company Stock Options assumed by Parent
pursuant to this Agreement. 
Notwithstanding the foregoing, Parent shall not be liable for the
payment of any amounts which would cause the Merger to not qualify as a
reorganization under Section 368(a) of the Code.

 

ARTICLE VII

CONDITIONS TO MERGER

 

7.1                                 Conditions to Each Party’s
Obligation To Effect the Merger.  The respective obligations of each party to this Agreement to
effect the Merger shall be subject to the satisfaction on or prior to the
Closing Date of the following conditions:

 

(a)                                  Stockholder
Approvals.  The Company Voting
Proposal shall have been approved and adopted at the Company Stockholders
Meeting, at which a quorum is present, by the requisite vote of the
stockholders of the Company under applicable law and the Company’s

 

57

 

Certificate
of Incorporation and By-laws.  The
Parent Voting Proposal shall have been approved at the Parent Shareholders
Meeting, at which a quorum is present, by the requisite vote of the
shareholders of the Parent under applicable law, the rules of The NASDAQ Stock
Market and the UKLA and the Parent’s Memorandum and Articles of Association.

 

(b)                                 HSR
Act.  The waiting period applicable
to the consummation of the Merger under the HSR Act shall have expired or been
terminated.

 

(c)                                  Governmental
Approvals.  Other than the filing of
the Certificate of Merger, all authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations of waiting periods imposed
by, any Governmental Entity in connection with the Merger and the consummation
of the other transactions contemplated by this Agreement shall have been filed,
been obtained or occurred on terms and conditions which would not reasonably be
likely to have a Parent Material Adverse Effect or a Company Material Adverse
Effect.

 

(d)                                 Registration
Statement; Joint Proxy Statement/Prospectus.  The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose, and no similar proceeding with respect to the Joint Proxy
Statement/Prospectus, shall have been initiated or threatened in writing by the
SEC or its staff.

 

(e)                                  No
Injunctions.  No Governmental Entity
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any order, executive order, stay, decree, judgment or injunction
(preliminary or permanent) or statute, rule or regulation which is in effect
and which has the effect of making the Distribution or the Merger illegal or
otherwise prohibiting consummation of the Distribution or the Merger or the
other transactions contemplated by this Agreement.

 

(f)                                    NASDAQ,
UKLA and LSE.  The Parent, if required
by the rules of The NASDAQ Stock Market, shall have filed with The NASDAQ Stock
Market a Notification Form for Listing of Additional Shares with respect to the
Parent ADSs issuable in connection with the Merger, the UKLA shall have granted
permission for the admission to the LSE’s market for listed securities and such
listing shall have become effective in accordance with Section 7 of the
Listing Rules, and LSE shall have granted permission for the admission to the
Official List and the LSE, subject only to allotment of the Parent Ordinary
Shares to be issued pursuant to the Merger, and such permission shall not have
been withdrawn prior to the Effective Time.

 

(g)                                 No
Restraints.  There shall not be
instituted or pending any action or proceeding by any Governmental Entity (i)
seeking to restrain, prohibit or otherwise interfere with the ownership or
operation by the Parent or any of its Subsidiaries, of all or any material
portion of the business of the Company and its Subsidiaries, taken as a whole,
or of the Parent and Subsidiaries, take as a whole, or to compel the Parent or
any of its Subsidiaries to dispose of or hold separate all or any material
portion of the business or assets of the Company and its Subsidiaries, taken as
a whole, or of the Parent and its Subsidiaries, taken as a whole, (ii) seeking
to impose or confirm limitations on the ability of the Parent or any of its
Subsidiaries effectively to exercise full rights of ownership of the shares of
Company Common Stock (or shares of stock of the Surviving Corporation)
including the right to vote any such shares on any matters properly

 

58

 

presented
to stockholders, or (iii) seeking to require divestiture by the Parent or any
of its Subsidiaries of any such shares.

 

(h)                                 Distribution.  Subject to the provisions of
Section 6.22, the payment of the Cash Amount pursuant to the Distribution
shall not constitute a violation of any applicable statutory law.

 

7.2                                 Additional Conditions to
Obligations of the Parent and the Transitory Subsidiary.  The obligations of the Parent and the
Transitory Subsidiary to effect the Merger shall be subject to the satisfaction
on or prior to the Closing Date of each of the following additional conditions,
any of which may be waived, in writing, exclusively by the Parent and the
Transitory Subsidiary:

 

(a)                                  Representations
and Warranties.  The representations
and warranties of the Company set forth in this Agreement shall be true and
correct (i) as of the date of this Agreement and (ii) as of the Closing Date as
though made on and as of the Closing Date (except in each case (x) to the
extent such representations and warranties are specifically made as of a
particular date, in which case such representations and warranties shall be
true and correct as of such date, (y) for changes contemplated by this
Agreement and (z) where the failure to be true and correct (without regard to
any materiality, Company Material Adverse Effect or, in the case of clause (ii)
of this Section 7.2(a), the knowledge qualifications contained therein),
individually or in the aggregate, has not had a Company Material Adverse
Effect); and the Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of
the Company to such effect.

 

(b)                                 Performance
of Obligations of the Company.  The
Company shall have performed in all material respects all obligations and
covenants required to be performed by it under this Agreement on or prior to
the Closing Date; and the Parent shall have received a certificate signed on
behalf of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.

 

(c)                                  Tax
Opinion.  The Parent shall have
received a written opinion from Hale and Dorr LLP, counsel to the Parent, to
the effect that the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; provided that if Hale and Dorr LLP does not render such opinion, this
condition shall nonetheless be deemed satisfied if Wilson, Sonsini,
Goodrich& Rosati, Professional Corporation, renders such opinion to the
Parent (it being agreed that the Parent and the Company shall each provide
reasonable cooperation, including making customary representations for a
transaction of this type, to Hale and Dorr LLP or Wilson, Sonsini, Goodrich
& Rosati, Professional Corporation, as the case may be, to enable them to
render such opinion).

 

(d)                                 Distribution.  Subject to the provisions of
Section 6.22, on or prior to the
Closing Date, (i) the Company Board shall have adopted all appropriate
resolutions to effect the Distribution (including the declaration of the
Distribution Record Date), (ii) the Company shall have provided all notices and
made all filings required to be provided or made prior to the Closing in
connection with the Distribution, (iii) the Company shall have deposited the
Cash Amount with EquiServe, and (iv) the Company shall have complied with its obligations
under Section 2.2(j).

 

59

 

(e)                                  Resignations.  The Parent shall have received copies of the
resignations, effective as of the Effective Time, of each director of the
Company.

 

(f)                                    No
Company Material Adverse Effect. 
Since the date of this Agreement, and except as described in
Section 7.2(f) of the Company Disclosure Schedule, there shall not have
been any change, event, circumstance, development or effect that individually
or in the aggregate has had a Company Material Adverse Effect.

 

7.3                                 Additional Conditions to
Obligations of the Company.  The
obligations of the Company to effect the Merger shall be subject to the
satisfaction on or prior to the Closing Date of each of the following
additional conditions, any of which may be waived, in writing, exclusively by
the Company:

 

(a)                                  Representations
and Warranties.  The representations
and warranties of the Parent and the Transitory Subsidiary set forth in this
Agreement shall be true and correct (i) as of the date of this Agreement and
(ii) as of the Closing Date as though made on and as of the Closing Date
(except in each case (x) to the extent such representations and warranties are
specifically made as of a particular date, in which case such representations
and warranties shall be true and correct as of such date, (y) for changes
contemplated by this Agreement and (z) where the failure to be true and correct
(without regard to any materiality, Parent Material Adverse Effect or, in the
case of clause (ii) of this Section 7.3(a), knowledge qualifications
contained therein), individually or in the aggregate, has not had, a Parent
Material Adverse Effect); and the Company shall have received a certificate
signed on behalf of the Parent by the chief executive officer and the chief
financial officer of the Parent to such effect.

 

(b)                                 Performance
of Obligations of the Parent and the Transitory Subsidiary.  The Parent and the Transitory Subsidiary
shall have performed in all material respects all obligations and covenants
required to be performed by them under this Agreement on or prior to the
Closing Date; and the Company shall have received a certificate signed on
behalf of the Parent by the chief executive officer or the chief financial
officer of the Parent to such effect.

 

(c)                                  Tax
Opinion.  The Company shall have
received the opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation, counsel to the Company, to the effect that the Merger will be
treated for United States federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code; provided that if Wilson
Sonsini Goodrich & Rosati, Professional Corporation, does not render such
opinion, this condition shall nonetheless be deemed satisfied if Hale and Dorr
LLP renders such opinion to the Company (it being agreed that the Parent and
the Company shall each provide reasonable cooperation, including making
customary representations for a transaction of this type, to Wilson, Sonsini,
Goodrich & Rosati, Professional Corporation, or Hale and Dorr LLP, as the
case may be, to enable them to render such opinion).

 

(d)                                 No
Parent Material Adverse Effect. 
Since the date of this Agreement, and except as described in
Section 7.3(d) of the Parent Disclosure Schedule, there shall not have
been any change, event, circumstance, development or effect that individually
or in the aggregate has had a Parent Material Adverse Effect.

 

60

 

(e)                                  Company
Designees.  All corporate action
necessary to effect the appointment of the Company Designees as directors of
the Parent from and after the Effective Time in accordance with
Section 6.17 shall have been taken.

 

ARTICLE VIII

TERMINATION AND AMENDMENT

 

8.1                                 Termination. 
This Agreement may be terminated at any time prior to the Effective Time
(with respect to Sections 8.1(b) through 8.1(i), by written notice by the
terminating party to the other party), whether before or, subject to the terms
hereof, after adoption of this Agreement by the stockholders of the Company,
the shareholders of the Parent or the sole stockholder of the Transitory
Subsidiary:

 

(a)                                  by
mutual written consent of the Parent, the Transitory Subsidiary and the
Company; or

 

(b)                                 by
either the Parent or the Company if the Merger shall not have been consummated
by April 21, 2004,  (the
“Outside Date”) (provided that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been a principal cause of or
resulted in the failure of the Merger to occur on or before the Outside Date);
or

 

(c)                                  by
either the Parent or the Company if a Governmental Entity of competent
jurisdiction shall have issued a nonappealable final order, decree or ruling or
taken any other nonappealable final action, in each case having the effect of
permanently restraining, enjoining or otherwise prohibiting the Merger; or

 

(d)                                 by
either the Parent or the Company if at the Company Stockholders Meeting
(including any adjournment or postponement thereof permitted by this Agreement)
at which a vote on the Company Voting Proposal is taken, the requisite vote of
the stockholders of the Company in favor of the Company Voting Proposal shall
not have been obtained (provided that the right to terminate this Agreement
under this Section 8.1(d) shall not be available to any party seeking
termination if, at such time, such party is in material breach of or has failed
to fulfill any of its material obligations under this Agreement and such breach
or failure has been a principal cause of the inability to obtain the requisite
vote of such stockholders; or

 

(e)                                  by
either the Parent or the Company if at the Parent Shareholders Meeting
(including any adjournment or postponement thereof permitted by this Agreement)
at which a vote on the Parent Voting Proposal is taken, the requisite vote of
the shareholders of the Parent in favor of the Parent Voting Proposal shall not
have been obtained (provided the right to terminate this Agreement under this
Section 8.1(e) shall not be available to any party seeking termination if,
at such time, such party is in material breach of or has failed to fulfill any
of its material obligations under this Agreement and such breach or failure has
been a principal cause of the inability to obtain the requisite vote of such
shareholders; or

 

(f)                                    by
the Parent, if: (i) the Company Board (or any committee thereof) shall have
failed to recommend approval of the Company Voting Proposal in the Joint Proxy

 

61

 

Statement/Prospectus
or shall have withdrawn or modified its recommendation of the Company Voting
Proposal; (ii) the Company Board (or any committee thereof) shall have failed
to reconfirm its recommendation of the Company Voting Proposal within ten
business days after the Parent requests in writing that the Company Board (or
any committee thereof) do so after of the public announcement of a Company
Acquisition Proposal (or a material amendment thereto); (iii) the Company Board
(or any committee thereof) shall have approved or recommended to the
stockholders of the Company a Company Acquisition Proposal (other than the
Merger); (iv) a tender offer or exchange offer for outstanding shares of
Company Common Stock shall have been commenced (other than by the Parent or an
Affiliate of the Parent) and the Company Board (or any committee thereof)
recommends that the stockholders of the Company tender their shares in such
tender or exchange offer or, within 10 business days after the commencement of
such tender or exchange offer, the Company Board fails to recommend against
acceptance of such offer; or (v) the Company shall have materially breached its
obligations under Sections 6.1 or 6.6; provided, that if the Company sends a
notice of its intention to terminate this Agreement pursuant to
Section 8.1(i), the sending of such notice in and of itself shall not be
deemed to be a breach or default by the Company that would permit Parent to
terminate this Agreement pursuant to clause (i) of this Section 8.1(f); or

 

(g)                                 by
the Company, if: (i) the Parent shall have materially breached its obligations
under Sections 6.2 or 6.6; or (ii) for any reason the Parent shall have failed
to hold the Parent Shareholders Meeting and submit the Parent Voting Proposal
to the Parent’s shareholders by the date which is five business days prior to
the Outside Date; or

 

(h)                                 by
the Parent, if there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Company set
forth in this Agreement, which breach or failure to perform (i) would
cause the conditions set forth in Sections 7.2(a) or 7.2(b) not to be
satisfied, and (ii) if curable, shall not have been cured within 20 days
following receipt by the Company of written notice of such breach or failure to
perform from the Parent; or

 

(i)                                     by
the Company, if there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of the Parent or
the Transitory Subsidiary set forth in this Agreement, which breach or failure
to perform (i) would cause the conditions set forth in Sections 7.3(a) or
7.3(b) not to be satisfied, and (ii) if curable, shall not have been cured
within 20 days following receipt by the Parent of written notice of such breach
or failure to perform from the Company.

 

8.2                                 Effect of Termination.  In the event of termination of this
Agreement as provided in Section 8.1, this Agreement shall immediately
become void and there shall be no liability or obligation on the part of the
Parent, the Company, the Transitory Subsidiary or their respective officers,
directors, stockholders or Affiliates; provided that (i) any such termination
shall not relieve any party from liability for any willful breach of this
Agreement (which includes, without limitation, the making of any representation
or warranty by a party in this Agreement that the party knew was not true and
accurate when made) and (ii) the provisions of Sections 3.25, 5.3 and 8.3 and
Article IX of this Agreement and the Confidentiality Agreement, as amended
hereby, shall remain in full force and effect and survive any termination of
this Agreement.

 

62

 

8.3                                 Fees and Expenses.

 

(a)                                  Except
as set forth in this Section 8.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees and expenses, whether or not the
Merger is consummated; provided however, that the Company and the Parent shall
share equally (i) the filing fee of the Parent’s pre-merger notification report
under the HSR Act and (ii) all fees and expenses, other than accountants’ and
attorneys’ fees, incurred with respect to the printing, filing and mailing of
the Joint Proxy Statement/Prospectus (including any related preliminary
materials), the Parent UK Documents and the Registration Statement and any
amendments or supplements thereto.

 

(b)                                 The
Company shall pay the Parent a termination fee of US $7,000,000 in the
event of the termination of this Agreement:

 

(i)                                     by
the Parent pursuant to Section 8.1(b) or Section 8.1(d), in each
case, if, at the time of such termination, the Company is in willful breach of
any of its obligations under Article V or Article VI of this
Agreement and such breach has been the principal cause of the inability to
consummate the Merger or the failure to obtain the requisite vote of the
stockholders of the Company in favor of the Company Voting Proposal;

 

(ii)                                  by
the Parent pursuant to Section 8.1(f); or

 

(iii)                               by
the Parent or the Company pursuant to Section 8.1(d) if (A) at or prior to
the time of such failure, there shall have been publicly announced a Company
Acquisition Proposal which shall not have been absolutely and unconditionally
withdrawn and abandoned and (B) on or before the date 12 months following the
date of such termination of this Agreement, the Company enters into an
Alternative Acquisition Agreement or consummates an Alternative Acquisition
Proposal; provided, however, that if, at the time of termination, there is
pending a Company Acquisition Proposal that does not involve a liquidation or
dissolution of the Company, the Company shall be permitted to be undertake a
complete liquidation or dissolution in lieu of such Company Acquisition
Proposal and, under such circumstances, the Company shall not be obligated to
make any payment of a termination fee to the Parent under this
Section 8.3(b); provided, however, that if a Company Acquisition Proposal
and any liquidation or dissolution are a part of a series of related
transactions, the Company shall be obligated to pay the termination fee
provided for hereunder to the Parent. 
For the purposes of this Section 8.3(b) only, all references in the
definition of “Company Acquisition Proposal” to “15%” shall be deemed to be
references to “30%.”

 

Any fee due under this Section 8.3(b) shall be
paid by wire transfer of same-day funds within one business day after (I) the
date of termination of this Agreement, in the case of a payment pursuant to
clause (i) or (ii) above, or (II) the earlier of execution of an Alternative
Acquisition Agreement or consummation of an Alternative Acquisition Proposal in
the case of a payment pursuant to clause (iii) above.

 

(c)                                  The
Company acknowledges that the agreements contained in this Section 8.3 are
an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, the Parent would not enter into this Agreement.  If the Company fails to

 

63

 

promptly pay any expense reimbursement or fee due
hereunder, the Company shall pay the costs and expenses (including legal fees
and expenses) in connection with any action, including the filing of any
lawsuit or other legal action, taken to collect payment, together with interest
on the amount of any unpaid fee at the publicly announced prime rate of Fleet
Bank, N.A. plus five percent per annum, compounded quarterly, from the date
such expense reimbursement or fee was required to be paid.  Payment of the fees and expenses described
in this Section 8.3 shall not be in lieu of damages incurred in the event
of a breach of this Agreement described in clause (i) of Section 8.2.

 

8.4                                 Amendment. 
This Agreement may be amended by the parties hereto, by action taken or
authorized by their respective Boards of Directors, at any time before or after
approval of the matters presented in connection with the Merger by the
stockholders of any party, but, after any such approval, no amendment shall be
made which by law requires further approval by such stockholders without such
further approval.  This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.

 

8.5                                 Extension; Waiver.  At any time prior to the Effective Time, the parties hereto, by
action taken or authorized by their respective Boards of Directors, may, to the
extent legally allowed, (i) extend the time for the performance of any of
the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. 
Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on
behalf of such party.  Such extension or
waiver shall not be deemed to apply to any time for performance, inaccuracy in
any representation or warranty, or noncompliance with any agreement or
condition, as the case may be, other than that which is specified in the
extension or waiver.  The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.

 

ARTICLE IX

MISCELLANEOUS

 

9.1                                 Nonsurvival of Representations
and Warranties.  The
respective representations and warranties of the Company, the Parent and the
Transitory Subsidiary contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall expire with, and be terminated and
extinguished upon, the Effective Time. 
This Section 9.1 shall have no effect upon any other obligations of
the parties hereto, whether to be performed before or after the consummation of
the Merger.

 

9.2                                 Notices.  All
notices and other communications hereunder shall be in writing and shall be
deemed duly delivered (i) four business days after being sent by registered or
certified mail, return receipt requested, postage prepaid, (ii) one business
day after being sent for next business day delivery, fees prepaid, via a
reputable nationwide overnight courier service, or (iii) on the date of
confirmation of receipt (or, the first business day following such receipt if
the date of such receipt is not a business day) of transmission by facsimile in
each case to the intended recipient as set forth below:

 

64

 

	
  (a)

  	
  if to the Parent or the Transitory Subsidiary, to

  
	
   

  	
   

  
	
   

  	
  Bookham Technology plc

  
	
   

  	
  90 Milton Park

  
	
   

  	
  Abingdon, Oxfordshire

  
	
   

  	
  OX14 4RY

  
	
   

  	
  United Kingdom

  
	
   

  	
  Attention: 
  Philip Davis, Esq., General Counsel

  
	
   

  	
  Facsimile: 
  011 44-1235-827201

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Hale and Dorr LLP

  
	
   

  	
  60 State Street

  
	
   

  	
  Boston, Massachusetts 02109

  
	
   

  	
  Attention: 
  John A. Burgess

  
	
   

  	
  Attention: 
  Hal J. Leibowitz

  
	
   

  	
  Facsimile: 
  (617) 526-5000

  
	
   

  	
   

  
	
  (b)

  	
  if to the Company, to

  
	
   

  	
   

  
	
   

  	
  New Focus, Inc.

  
	
   

  	
  2854 Junction Avenue

  
	
   

  	
  San Jose,
  California  95134-1902

  
	
   

  	
  Attention: 
  Nicola Pignati, Chairman and Chief Executive Officer

  
	
   

  	
  Facsimile: 
  (408) 904-5026

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Wilson Sonsini Goodrich & Rosati

  
	
   

  	
  Professional Corporation

  
	
   

  	
  650 Page Mill Road

  
	
   

  	
  Palo Alto, California 94304

  
	
   

  	
  Attention: 
  David J. Segre

  
	
   

  	
  Attention: 
  Steve L. Camahort

  
	
   

  	
  Facsimile: 
  (650) 493-6811

  

 

Any party to this Agreement may give any notice or
other communication hereunder using any other means (including personal
delivery, messenger service, telecopy, telex, ordinary mail or electronic
mail), but no such notice 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 to this Agreement
may change the address to which notices and other communications hereunder are
to be delivered by giving the other parties to this Agreement notice in the
manner herein set forth.

 

9.3                                 Entire Agreement.  This Agreement (including the Schedules and Exhibits hereto and
the documents and instruments referred to herein that are to be delivered at
the Closing as well as the Company Stockholder Agreements and the Parent
Shareholder Agreements)

 

65

 

constitutes
the entire agreement among the parties to this Agreement and supersedes any
prior understandings, agreements or representations by or among the parties
hereto, or any of them, written or oral, with respect to the subject matter
hereof; provided that the Confidentiality Agreement shall remain in effect in
accordance with its terms.

 

9.4                                 No Third Party Beneficiaries.  Except as provided in Section 6.15,
this Agreement is not intended, and shall not be deemed, to confer any rights
or remedies upon any person other than the parties hereto and their respective
successors and permitted assigns, to create any agreement of employment with
any person or to otherwise create any third-party beneficiary hereto.

 

9.5                                 Assignment. 
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement may be assigned or delegated, in whole or in part, by
operation of law or otherwise by any of the parties hereto without the prior
written consent of the other parties, and any such assignment without such
prior written consent shall be null and void, except that the Parent and/or the
Transitory Subsidiary may assign this Agreement to any direct or indirect
wholly owned Subsidiary of the Parent without consent of the Company (and the
parties hereto shall execute and deliver any amendment to this Agreement
necessary to effect such assignment), provided that the Parent and/or the
Transitory Subsidiary, as the case may be, shall remain liable for all of its
obligations under this Agreement. 
Subject to the preceding sentence, this Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns.

 

9.6                                 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 hereto
agree that the court making such determination 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.  In the
event such court does not exercise the power granted to it in the prior
sentence, the parties hereto agree to replace such invalid or unenforceable
term or provision with a valid and enforceable term or provision that will
achieve, to the extent possible, the economic, business and other purposes of
such invalid or unenforceable term.

 

9.7                                 Counterparts and 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 be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties hereto and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.  This
Agreement may be executed and delivered by facsimile transmission.

 

9.8                                 Interpretation.  When reference is made in this Agreement to an Article or a
Section, such reference shall be to an Article or Section of this
Agreement, unless otherwise indicated. 
The table of contents, table of defined terms and headings contained in
this

 

66

 

Agreement
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. 
The language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent, and no rule of
strict construction shall be applied against any party.  Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.  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. 
Whenever the words “include”, “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without limitation”.  No summary of this Agreement prepared by any
party shall affect the meaning or interpretation of this Agreement.

 

9.9                                 Governing Law. 
This Agreement 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.

 

9.10                           Remedies. 
Except as otherwise provided herein, any and all remedies herein
expressly conferred upon a party will be deemed cumulative with and not
exclusive of any other remedy conferred hereby, or by law or equity upon such
party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.  The
parties hereto agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. 
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement, this being in addition
to any other remedy to which they are entitled at law or in equity.

 

9.11                           Submission to Jurisdiction.  Each of the parties to this Agreement
(a) consents to submit itself to the personal jurisdiction of any state or
federal court sitting in the State of Delaware in any action or proceeding
arising out of or relating to this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that all claims in respect of
such action or proceeding may be heard and determined in any such court, (c)
agrees that it shall not attempt to deny or defeat such personal jurisdiction
by motion or other request for leave from any such court, and (d) agrees
not to bring any action or proceeding arising out of or relating to this
Agreement or any of the transaction contemplated by this Agreement in any other
court.  Each of the parties hereto
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any other party with respect thereto.  Any party hereto may make service on another party by sending or
delivering a copy of the process to the party to be served at the address and
in the manner provided for the giving of notices in Section 9.2.  Nothing in this Section 9.11, however,
shall affect the right of any party to serve legal process in any other manner
permitted by law.

 

67

 

9.12                           Waiver of Jury Trial.  Each of the Parent, the Transitory
Subsidiary and the Company hereby irrevocably waives all right to trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the transactions
contemplated hereby or the actions of the Parent, the Transitory Subsidiary or
the Company in the negotiation, administration, performance and enforcement of
this Agreement.

 

[Remainder of Page
Intentionally Left Blank]

 

68

 

IN WITNESS WHEREOF, the Parent, the Transitory
Subsidiary and the Company have caused this Agreement to be signed by their
respective officers thereunto duly authorized as of the date first written
above.

 

	
   

  	
  BOOKHAM
  TECHNOLOGY PLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Andrew Rickman

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Dr.
  Andrew Rickman

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chairman

  	
   

  
	
   

  	
   

  
	
   

  	
  BUDAPEST
  ACQUISITION CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/
  Philip Davis

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Philip
  Davis

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Incorporator

  	
   

  
	
   

  	
   

  
	
   

  	
  NEW
  FOCUS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nicola Pignati

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Pres.
  and CEO

  	
   

  
						

 

69

 

Schedule A

 

Company Stockholder Agreements

 

Nicola
Pignati

 

Peter
Bordui

 

John
Dexheimer

 

Winston
Fu

 

Don G.
Hallacy

 

Timothy
Day

 

William
L. Potts, Jr.

 

 

Schedule B

 

Andrew
Rickman

 

David
Simpson

 

Robert
Rickman

 

Giorgio
Anania

 

 

Schedule 6.18

 

Nicola
Pignati

 

Peter
BorduiExhibit 10.1 for Turbine Truck

                               License Granted to

                           Turbine Truck Engines, Inc.

                                       by

                            Alpha Engines Corporation

                                  July 22, 2002

                                TABLE OF CONTENTS
                                                                                                                       Page
1. Grant of License and Other Rights; Reservations of Rite ....................2
1.1 Grant of License ..........................................................2
1.2 Sublicensing ..............................................................2
1.3 Improvements...............................................................2
1.4 License of Trademark.......................................................3
1.5 EIC Ignition System .......................................................3
1.6 CNF Agreement .............................................................4
1.7 Reservation of Rights by Alpha Engines ....................................4

2. Technical and Engineering Information and Services .........................4
2.1 Preliminary Engineering Consulting Services ...............................5
2.2 Detailed Engineering Services .............................................5
2.3 Production and Operating Consulting Services ..............................5
2.4 No Other Assistance .......................................................5

3. Manufacturing Plants........................................................6
3.1 Design and Construction ...................................................6
3.2 Ownership .................................................................6

4. EIC Ignition System Supply Contract ........................................6
4.1 Ownership of Ignition System ..............................................6
4.2 Supply Contract for EIC Ignition Systems ..................................6

5. Undertakings by Licensee ...................................................7
5.1 Design, Construction, and Operating Standards .............................7
5.2 Production ................................................................7
5.3 Maximize Production .......................................................7
5.4 Market Effectively ........................................................7
5.5 Legal Compliance ..........................................................8
5.6 Identification ............................................................8
5.7 Access.....................................................................8
6 . Export Licenses ...........................................................8
7.  Payments ..................................................................9
7.1 License Fees and Royalties ................................................9
7.2 Provisions for Payments ...................................................9
7.3 Taxes Withheld ...........................................................12
7.4 No Set-Offs or Counterclaims .............................................12

8. Reports and Records .......................................................13
8.1 Records and Books of Account .............................................13
8.2 Production Reports .......................................................13
8.3 Payment Accompanying Reports .............................................13
8.4 Reports of Certified Public Accountants ..................................13
8.5 Right to Audit ...........................................................13

9. Confidentiality . .........................................................14
9.1 Information That Is Confidential; Obligation of Confidentiality ..........14

9.2 Exception to Confidentiality .............................................15
9.3 Published Disclosure .....................................................15
9.4 Non-Use after Termination ................................................15

10. Protection of Licensed Technology . ......................................16
10.1 Licensee to Detect and Report Breach or Infringements ...................16
10.2 Alpha Engines to Detect and Report Infringements ........................16
10.3 Responsibility for Infringements of Technology and Patents ..............16
10.4 Alpha Engines Responsible for Patent Validity Cases .....................16
10.5 Apportionment of Recoveries .............................................17
10.6 Alpha Engines's Name in Suit ............................................17
10.7 Notification of Suit ....................................................17
10.8 Action Against Breaches of Confidential Information .....................17

11. Defense of Claims of Trademark Infringement ..............................18
11.1 Defense of Trademark Infringement .......................................18
11.2 Right to Suspend Use of Trademarks ......................................18
11.3 Alpha Engines's Obligations Pertain Only to Licensed Trademarks .........18
11.4 Trademark and Patent Applications .......................................18

12. Representations, Warranties and Covenants . ..............................19
12.1 Representations, Warranties and Covenants of Licensee ...................19
12.2 Representations, Warranties and Covenants of Alpha Engines ..............21
12.3 Limited Warranty ........................................................23
12.4 Limitation of Damages ...................................................23

13. Term and Termination .....................................................24
13.1 Term ....................................................................24
13.2Defaults - General .......................................................24
13.3 Defaults - Non-Payment by Licensee ......................................25
13.4 License Termination for Infringement of U.S. Letters Patents ............25
13.5 No Termination Rights Regarding Adverse Trademark Decisions .............25
13.6 Winding Up ..............................................................25
13.7 Payment Obligations .....................................................26
13.8 No Damage ...............................................................26
13.9 Confidentiality Continues ...............................................26
13.10 Payment Obligations Continue ...........................................26
13.11 Licensee To Cease Practice of the Technology ...........................26

14. Miscellaneous ............................................................27
14.1 Assignment by Alpha Engines .............................................27
14.2 Assignment By Licensee ..................................................27
14.3 Arbitration and Injunctive Relief .......................................27
14.4Third Parties ............................................................29
14.5 No Other Relationship ...................................................29
14.6 Conversion to Dollars ...................................................29
14.7 Fees Payable ............................................................30
14.8 Force Majeure ...........................................................30
14.9 Cumulative Remedies; Waiver; Time .......................................31
14.10 Table of Contents and Headings .........................................31
14.11 Notices ................................................................31
14.12 Survival of Contents ...................................................31
14.13 Accrued Obligations Not Released .......................................32
14.14 Integration ............................................................32
14.15 Construction ...........................................................32
14.16 Invalidity of Provision ................................................32
14.17 Further Assurances .....................................................32
14.18 Counterparts ...........................................................32

Exhibit A - Confidentiality Agreement

                                LICENSE AGREEMENT

     THIS LICENSE AGREEMENT (Agreement) is made and entered into as of July 22,
2002, by and between ALPHA ENGINES CORPORATION, a corporation incorporated in
the USA under provisions of the laws of Delaware (Alpha Engines) and TURBINE
TRUCK ENGINES, INC., a corporation organized in the USA under provisions of the
laws of Delaware (Licensee).

                            Preceding Circumstances:

     A. Alpha Engines owns rights to a new gas turbine engine system including
an ignition system and component parts (called Detonation Cycle Gas Turbine
Engine or Detonation Engine) that uses cyclic detonations, provided by a process
called "electromagnetic isothermal combustion" (EIC), for complete combustion of
any fuel. The Detonation Engine may be designed and manufactured in many sizes
and configurations that enable it to produce the desired horsepower and meet the
design, weight and other special requirements for various discrete applications.
Alpha Engines is in the business of licensing use of its technology for the
Detonation Engine for many different applications.

     B. Use of the Detonation Engine requires practice of Alpha Engines' (i) U.
S. Patent No. 6,000,214 issued December 14, 1999 to Robert L. Scragg, and
licensed by him to Alpha Engines, as may be supplemented by (ii) U.S. and
foreign patents that may be issued after the effective date of this Agreement,
including any improvement patents, continuations, continuations-in-part,
divisionals or foreign counterparts of such patents, and any reissued and
re-examined patents that may result from such patents, whether such patents are
for the Detonation Engine itself or any component part or auxiliary system used
with the Detonation Engine. All of these patents are called the "Licensed
Patents" in this Agreement.

     C. Alpha Engines also owns certain technical information, data, know-how
and unpatented inventions (Alpha Engines Technical Information) that are useful
with the Detonation Engine. The technology for practice of the Licensed Patents,
including the Alpha Engines Technical Information, is collectively called
"Detonation Engine Technology."

     D. Licensee wishes to obtain a license from Alpha Engines to manufacture
and sell Detonation Engines for use as heavy duty highway truck engines. Alpha
Engines is willing to grant Licensee an exclusive license to use the Detonation
Engine in this field, subject to the terms and conditions of this Agreement.

     E. Licensee desires to receive certain technical and engineering consulting
services from Alpha Engines in connection with the grant of the license. Alpha
Engines is willing to perform, on the terms and conditions of this Agreement,
the services subsequently defined with respect to the Detonation Engine to be
manufactured by Licensee and the production of Detonation Engines.

     NOW, THEREFORE, in consideration of the preceding circumstances and the
following mutual covenants, promises and agreements, Alpha Engines and Licensee
agree as follows:

     1. Grant of License and Other Rights; Reservations of Rights. Subject to
all terms and conditions set forth in this Agreement and related agreements:

     1.1 Grant of License. Alpha Engines hereby grants to Licensee a limited,
nontransferable, exclusive license under the Licensed Patents to use the
Detonation Engine Technology, including the Alpha Engines Technical Information,
solely for manufacture of, marketing and sales of heavy duty highway truck
engines with power ranges from 300 to 1,000 horsepower for use as engines for
heavy duty highway trucks (Field of Use).

     1.2 Sublicensing. Licensee shall have the right to grant sublicenses,  but
only for use entirely within the Field of Use, and only to parties who are first
approved by Alpha Engines in writing. Alpha Engines' approval shall not be
unreasonably withheld if, in its judgment, the proposed sublicensee has the
financial capability, technological skills and manufacturing plans to actively
conduct a substantial program for production of Detonation Engines. As an
express condition of any sublicense, the sublicensee must agree with Licensee
and Alpha Engines in writing to be bound by all applicable provisions of this
Agreement, and to be subject to its terms and provisions, and to be obligated
directly to Alpha Engines, in the same manner and to the extent of the
sublicensee's activities, without limitation by reason of enumeration, for the
payment of applicable licensee fees and royalties, confidentiality provisions,
providing of reports of its activities, and the performance of all other
obligations that apply to Licensee. Sublicensees shall have no right to,
directly or by implication, estoppel or otherwise, sublicense another. No right
or license is granted herein to any third party, by implication, estoppel or
otherwise. Each sublicense shall also expressly state that the covenants of the
sublicense and of this Agreement run for the benefit of Licensee and Alpha
Engines, and that Alpha Engines is an intended third-party beneficiary of those
covenants. Licensee agrees that the grant of one or more sublicenses and the
exercise of any rights under this Agreement by a sublicensee shall not relieve
Licensee of any of its obligations, duties or limitations under this Agreement.
Notwithstanding any other provisions of this Agreement, Licensee may not
sublicense to any person or entity unless that sublicensee agrees to the
royalty-free grantback without charge of the sublicensee's Alpha Engines
Improvements to Alpha Engines and its licensees.

     1.3 Improvements.

               (a) Title and Right to Patent.  All improvements,  inventions and
        technological advances of any type that affect the Detonation Engine
        Technology, whether made or conceived solely by Alpha Engines, or
        jointly by Alpha Engines and Licensee and its agents, or solely by
        Licensee and its agents, whether patentable or not, regardless of
        where made or during or after working hours (Alpha Engine
        Improvements), shall be titled solely in Alpha Engines. This agreement
        is made by Licensee as partial consideration for Alpha Engines' grant
        of the license described in this Agreement and also as works made for
        hire for Alpha Engines. Licensee will assign all such Improvements to
        Robert L. Scragg, or another principal of Alpha Engines, and he will
        be the sole party authorized to apply for patents, if appropriate.
        Licensee hereby assigns all rights and title to Alpha Engines
        Improvements made solely or jointly by it and its agents during the
        term of this Agreement and for one year thereafter to Alpha Engines.
        Licensee, for itself and its agents, agrees, at no expense to Alpha
        Engines, to execute all documents deemed necessary or advisable by
        Alpha Engines in connection with preparation and prosecution of patent
        applications, and protection of patents, trade secrets and copyrights
        related to Alpha Engines Improvements.

                                       2

               (b) License to Use Alpha Engines Improvements. During the term of
        this Agreement, Alpha Engines agrees to disclose to and grants to
        Licensee a limited, non-transferable, non-exclusive license to
        practice and use Alpha Engines Improvements, including any patent or
        improvement patent, to the Detonation Engine Technology, such practice
        and use to be limited solely to the Field of Use. Licensee agrees that
        it shall hold all such information provided by Alpha Engines subject
        to the provisions of confidentiality contained in this Agreement and
        any related confidentiality agreements with Alpha Engines.

               (c) Disclosure of Alpha Engines Improvements. Details,
        descriptions and technical data regarding Alpha Engines Improvements,
        when developed by Licensee or its agents, shall be fully conveyed by
        Licensee to Alpha Engines without delay, in order that Alpha Engines
        may take full advantage of them for the purposes previously described
        in this section and for the improvement of the design and manufacture
        of Detonation Engines in uses outside the Field of Use.

     1.4 License of Trademark. Licensor also grants Licensee a limited
exclusive right to use, and Licensee undertakes to use, pursuant to the terms of
this Agreement, the trademark "Alpha Truck Engines" in the manufacture and sale
of its heavy-duty truck engines in the Field of Use. Licensee recognizes the
prior right and title of Alpha Engines in the corporate name, Alpha Engines
Corporation and in the trademark Alpha Engines.. Licensee will not use Alpha
Truck Engines in its corporate name or assert that use by Alpha Engines or by
its licensees of the trademark Alpha Engines is confusingly similar to the
corporate name and trademark of Licensee. When using the trademark in
advertising or on engines, or in any other manner, Licensee will include the
symbol ® to show the federal registration of the trademark. Licensee's right
to use the trademark is non-divisible and shall not be assignable without the
prior written consent of Alpha Engines, which it may withhold in its sole and
absolute discretion. Any such assignment or transfer without such consent shall
be void and of no effect.

     1.5 EIC Ignition System. Operation of a Detonation Engine requires Alpha
Engine's EIC ignition process (EIC Ignition System). Subject to the terms and
conditions of this Agreement, Alpha Engines grants Licensee the right to
purchase from Alpha Engines or its licensed manufacturer, as designated from
time to time by Alpha Engines, EIC Ignition Systems necessary for operation of
each Detonation Engine. The purchase and sale of EIC Ignition Systems shall be
on the terms subsequently described in this Agreement. Licensee shall have no
right to make or have made, any EIC Ignition System used with Detonation Engines
or to market (including selling and offering to sell) any EIC Ignition System
other than those it purchases from Alpha Engines for use with Detonation
Engines.

                                       3

     1.6 CNF Agreement. The license and rights granted to Licensee under this
Agreement are subject to the right of first refusal held by CNF Transportation,
Inc. (CNF), formerly Consolidated Freightways, Inc., under the agreement dated
September 15, 1988 between Alpha Engines and CNF, to form a joint venture with
Alpha Engines, after the development and testing of a demonstration engine, for
the manufacture of heavy-duty truck engines, both for the fleet of CNF and
exclusive sales of heavy-duty truck engines. Alpha Engines hereby assigns to
Licensee all rights of Alpha Engines under its agreement with CNF to enter into
such a joint venture with CNF, and Licensee agrees to fulfill the obligations of
Alpha Engines under the CNF agreement related to the joint venture.

     1.7 Reservation of Rights by Alpha Engines. Alpha Engines hereby reserves
to itself and its successors and assigns, subject only to the grant of the
license described in this Agreement, all rights of ownership of the Detonation
Engine Technology, including but not limited to: (i) the right, by itself or
with others, to develop, design, manufacture, construct, operate, use, sell and
market (including selling and offering to sell) Detonation Engines in all fields
of use other than the Field of Use, anywhere in the world; (ii) the right to
license, sublicense, use, produce, patent, protect, sell and market (including
selling and offering to sell) the Detonation Engine Technology to anyone
anywhere in the world; (iii) the exclusive right to title and ownership of Alpha
Engines Improvements and to apply for and patent (or assign to Robert L. Scragg
or other principal of Alpha Engines) Alpha Engines Improvements; (iv) the
exclusive right to use and license all trade names and trademarks used by Alpha
Engines or its licensees or sublicensees, including Licensee, in connection with
the Detonation Engine Technology anywhere in the world; (v) the right, by itself
or with others, to develop, design, construct, license and market (including
selling and offering to sell) all EIC Ignition Systems and component parts used
for operation of Detonation Engines; (vi) the ownership of all aspects of the
Detonation Engine Technology embodied in any designs, plans, specifications, and
drawings for Detonation Engines, auxiliary systems and component parts; (vii)
construction standards, operating standards and procedures for Detonation
Engines; (viii) all knowhow, technology, trade secret and other proprietary
information provided by Alpha Engines for the use of Licensee or that can be
discovered by an examination of a Detonation Engine; (ix) all rights to use the
corporate name Alpha Engines Corporation, and the trade mark Alpha Engines and
variations of Alpha Engines, except when used as Alpha Truck Engines, and (x)
all rights not specifically granted to Licensee in this Agreement.

     2. Technical and Engineering Information and Services. Subject to
compensation to Alpha Engines or Robert L. Scragg, the inventor, or in
appropriate situations, to both of them, as subsequently provided for in this
Agreement, and for the purpose of enabling Licensee more fully to exercise the
right and license granted to it by this Agreement, Alpha Engines agrees to
demonstrate the Alpha Engines Technical Information, and either it or Robert L.
Scragg will perform certain technical and engineering services for Licensee in
support of design and operation of a production prototype of a Detonation Engine
for use in the Field of Use, but only to the extent of transferring information
reasonably necessary for a person skilled in the art of producing turbine
engines to produce a Detonation Engine for the Field of Use. Any technical and
engineering services performed for Licensee pursuant to this Agreement shall be
of the same quality and in the same detail as Alpha Engines would use for its
own operations. Such services shall be provided on an as-needed basis to the
reasonable extent of the capabilities of the person providing the services.

                                       4

     2.1 Preliminary Engineering Consulting Services. Upon signing of this
License Agreement by both parties, Licensee will enter into a separate contract
with Alpha Engines or Robert L. Scragg or both for certain technical and
consulting services for Licensee in connection with the development of
Licensee's Detonation Engine for the Field of Use. The services shall be
provided primarily at Licensee's facilities or manufacturing plant, during the
periods of development, preliminary design, detailed design and manufacture and
testing of the production prototype. The services will exclude fabrication
drawings. The services under the separate contract will be limited to consulting
concerning plans and specifications for construction of a production prototype
for Licensee's Detonation Engine, materials, and development of component parts
and auxiliary systems (excluding the EIC Ignition System to be sold to Licensee
by Alpha Engines or its separate licensee) that are necessary for use of the
Licensee's Detonation Engine. Such information is sometimes called design
consulting. Licensee shall, promptly upon receipt of invoices, pay such
consulting fees plus the travel and reasonable out-of-pocket living expenses of
the persons providing the design consulting services.

     2.2 Detailed Engineering Services. If Licensee enters into a separate
contract for such services, Alpha Engines or Robert L. Scragg or both will
provide detailed engineering services to Licensee related to production of
Licensee's Detonation Engine. These detailed engineering services will provide
Licensee a complete engineering package; heat, energy and material balances;
major equipment lists and specifications; and detailed fabrication drawings for
the engines and component parts to be manufactured by Licensee. This information
is sometimes called engineering consulting. Licensee shall, promptly upon
receipt of invoices, pay such consulting fees plus the travel and reasonable
out-of-pocket living expenses of the persons providing the engineering
consulting services.

     2.3 Production and Operating Consulting Services. If Licensee enters into a
separate contract for such services, and upon ninety days prior written request
of Licensee, Alpha Engines or Robert L. Scragg or both will provide to Licensee,
for use by it, additional consulting services in connection with development by
Licensee of production plant engineering design specifications, detailed plant
design and specifications, and operating instructions or manuals that are
necessary to operate the Detonation Engines and its component parts and
auxiliary systems. The fee consulting services may include production
information, quality control tests and inspections of products. Alpha Engines or
Robert L. Scragg or both and Licensee will negotiate reasonable consulting
service rates or fixed price consulting service contract fees for such services
and information. Licensee shall, promptly upon receipt of invoices, pay such
consulting fees plus the travel and reasonable out-of-pocket living expenses of
the persons providing the additional consulting services.

                                       5

     2.4 No Other Assistance. Neither Alpha Engines, nor anyone else affiliated
with it will be required to provide to Licensee, and Licensee does not expect or
desire to receive from them (i) any business advice; (ii) any control or
assistance in the business methods that Licensee selects for the conduct of its
business; (iii) any technical assistance, operating advice, quality control
services, or other type of assistance not expressly provided for in this
License; (iv) any marketing plan, strategies or suggestions with respect to
offers to sell or sales by Licensee of the Detonation Engine or with respect to
Licensee's marketing, sales, distribution and pricing activities; (v) unless
separately contracted for, any technical information or consulting or
engineering services related to construction or operation of Licensee's
manufacturing plant for production of Detonation Engines, or (vi) any
information that is not required by a specific provision of this Agreement.
Licensee is responsible for all such matters and represents to Alpha Engines
that it is well informed about them and is fully capable of making such
decisions.

     3. Manufacturing Plants.

     3.1 Design and Construction. Licensee shall be responsible or financing,
designing, constructing, testing and operating its manufacturing plant or plants
for the production of its Detonation Engines, and compliance with all
environmental laws and regulations applicable to manufacture and use of
Licensee's Detonation Engines.

     3.2 Ownership. Subject to the superior proprietary rights of Alpha Engines
in the designs, processes, technology, know-how, trade secrets, patent rights
and other proprietary rights in the Detonation Engine Technology that are
embodied and used with or incorporated in Licensee's manufacturing plant or
plants, all of which are reserved by Alpha Engines, Licensee shall be the owner
of the plants constructed by or for it under this Agreement for the manufacture
of Detonation Engines in the Field of Use.

     4. EIC Ignition System Supply Contract.

     4.1 Ownership of Ignition System. Alpha Engines owns the designs,
processes, technology, know-how, trade secrets, patent rights and other
proprietary rights embodied in the EIC Ignition System. Ownership of the EIC
Ignition System is reserved to Alpha Engines, and no rights shall be acquired by
Licensee in it other than the rights of use granted by this Agreement.

     4.2 Supply Contract for EIC Ignition Systems. Alpha Engines or its licensee
which manufactures EIC Ignition Systems will enter into a long term supply
contract with Licensee. Under the terms of the supply contract, Alpha Engines or
its licensee will manufacture and sell EIC Ignition Systems to Licensee for use
with the Detonation Engines manufactured by Licensee, and Licensee will purchase
and pay for them. The supply contract will remain in effect during the term of
this Agreement and terminate upon termination of this Agreement. The sale price
(FOB Alpha Engines' manufacturing plant) will not exceed the least expensive
current invoice price quoted by Alpha Engines at the date of shipment, if any,
to any other licensees of Alpha Engines Detonation Engines for comparable uses,
and Alpha Engines shall provide evidence to this effect upon the request of
Licensee. The invoice price will include actual base cost to Alpha Engines or
its manufacturer, including costs for general overhead, administration, recovery
of capital and marketing of the EIC Ignition Systems, plus a reasonable profit
of 25 percent and adjustments to the actual cost for inflation, from the date of
the supply contract, as measured by the Producers Price Index, U.S. City
Average, published by the U.S. Department of Labor (PPI) or any other such index
as the parties mutually select. The actual base cost will also be adjusted by
any extraordinary increases or decreases in manufacturing costs directly
associated with the production of the EIC Ignition Systems including, but not
limited to, the costs of raw materials, equipment, labor and freight, but such
extraordinary increases shall not include costs for general overhead,
administration and marketing. Extraordinary increases shall be determined by
Alpha Engines in accordance with standard accounting practices. Licensee shall
have the right to obtain from Alpha Engines, upon reasonable prior request,
documentation substantiating base costs and any claim of extraordinary increase
in manufacturing costs incurred by Alpha Engines or its manufacturer licensee.
The invoice price shall be adjusted no more frequently than quarterly. If the
PPI ceases to be published or is significantly revised, another index generally
recognized as authoritative on changes in consumer prices shall be applied by
Alpha Engines.

                                       6

     5. Undertakings by Licensee. As a material inducement for Alpha
Engines to enter into this Agreement, Licensee covenants and represents that it
will use its best efforts, diligently and in good faith and at its expense, to
undertake each of the following activities in such a way as to lawfully maximize
Licensee's revenues and the royalties reserved by Alpha Engines as well as the
value of the other rights reserved by Alpha Engines, all in accordance with
applicable safety standards and environmental protection requirements.

     5.1 Design, Construction, and Operating Standards. Licensee will carefully
develop, design, manufacture, produce and operate its Detonation Engines in a
good, safe and workmanlike manner that takes full advantage of the preliminary
and detailed engineering design and specifications and any production and
operating services, and other know-how, trade secrets and proprietary
information made available by Alpha Engines; provided, however, all development,
design, construction, production, operations, safety standards and all other
activities of Licensee shall be at Licensee's sole expense and risk and subject
to its sole control.

     5.2 Production. Licensee will fully exploit the license granted by this
Agreement in order to develop, finance, construct, manufacture and sell
Detonation Engines for use in the Field of Use as quickly as feasible.

     5.3 Maximize Production. Licensee will develop, design, construct and
operate its manufacturing plant or plants by methods, within applicable
standards of safety and environmental protection, including providing adequate
financial and human resources, that maximize the quality, quantity, and market
value of Detonation Engines produced.

     5.4 Market Effectively. Licensee will actively and fully promote, market,
offer for sale and sell the Detonation Engines produced by it under this
Agreement at the highest practical prices and in the largest feasible
quantities. Licensee will market, offer to sell and sell its Detonation Engines
on their own merits and not in a manner primarily designed to promote other
products.
                                       7

     5.5 Legal Compliance. Licensee will at all times comply with all applicable
legal standards of due care, safety and protection of its employees and the
environment, and comply with all applicable governmental laws and regulations.

     5.6 Identification. On each Detonation Engine, there shall be affixed and
maintained a metal identification plate or embossed lettering, in easily
readable, non-obscured type, that indicates (i) each relevant patent and patent
application with serial number or numbers, (ii) the place of manufacture, (iii)
the following statement: "Under License from Alpha Engines Corporation," and
(iv) Alpha Engines' designated trademark or marks with a legend that Alpha
Engines owns the marks. Alpha Engines will have the right of prior approval with
respect to such markings.

     5.7 Access. Licensee will permit Alpha Engines to have access to Licensee's
manufacturing plant or plants constructed under this Agreement (i) at all
reasonable times for the purpose of determining whether all of Licensee's
undertakings pursuant to this section and elsewhere in this Agreement are being
met and maintained; and (ii) upon at least three days of prior notice, during
normal business hours, for the purposes of showing the manufacturing plant,
whether or not under construction or in operation, to Alpha Engines's
prospective licensees, joint venturers, purchasers, construction contractors,
consultants, financiers or others whose tour and inspection of such a plant
might enhance the business of Alpha Engines or its other licensees. All persons
attending such a tour and inspection must first have executed and delivered to
Licensee and Alpha Engines confidentiality agreements with substantially the
same provisions as those attached to this Agreement and incorporated herein as
Exhibit B. Neither access to nor inspection of the manufacturing plant nor any
preliminary and detailed engineering design and specifications, consulting
services or other know-how, trade secrets or proprietary information provided by
Alpha Engines shall impose any duty upon Alpha Engines or its agents to warn of,
or make Alpha Engines to Licensee or its agents responsible or liable in any way
for errors, omissions or inadequate standards of Licensee or the consequences
thereof. Licensee agrees that it is solely responsible for such matters and
further agrees to indemnify and hold Alpha Engines and its agents harmless from
any and all such claims, expenses and damages.

     6. Export Licenses. Any and all obligations of Alpha Engines under
this Agreement to provide Licensee with any part of the Detonation Engine
Technology or technical services, for any purpose or pursuant to any other
contract between them, are expressly conditioned upon Alpha Engines obtaining
any and all export and re-export authorizations and export licenses that may
from time to time be required of it for such purposes under United States law
and other applicable law. Alpha Engines agrees to use its best efforts to obtain
authorizations and licenses required of it, but its inability to obtain such
authorizations and licenses shall not constitute a breach of this Agreement. If
Alpha Engines is unable to obtain such authorizations or licenses, Licensee may,
but is not required to, attempt to do so.

                                       8

     7. Payments.

     7.1 License Fees and Royalties. As consideration for the right and license
granted to Licensee in this Agreement, Licensee shall pay Alpha Engines the
following consideration and non-refundable payments and royalties in cash or
other immediately available funds.

               (a) Upfront Fee. Upon execution of this Agreement, Licensee will
        either pay Alpha Engines Twenty-Five Million Dollars ($25,000,000) in
        immediately available cash funds or issue to Alpha Engines 10,000,000
        shares of the common stock of Licensee (the Shares).

               (b) License Fee.  Licensee  will pay Two Hundred  Fifty  Thousand
        Dollars ($250,000) payable according to the terms of Licensee's
        promissory note for that amount dated July 22, 2002, which it has
        delivered to Alpha Engines and which is incorporated herein by this
        reference.

               (c) Restricted Stock. Alpha Engines acknowledges that it will
        receive the Shares from Licensee subject to the following
        representations and agreements.

                     (i) Investment Intent. The Shares to be received by Alpha
                     Engines are being acquired for its own account, not as
                     nominee or agent, for investment and not with a view to, or
                     for resale in connection with, any distribution or public
                     offering of the Shares within the meaning of the Securities
                     Act of 1933 (Securities Act).

                     (ii) Shares Not Registered. Alpha Engines understands and
                     acknowledges that the offering of the Shares pursuant to
                     this Agreement will not be registered under the Securities
                     Act on the grounds that the offering and sale of securities
                     contemplated by this Agreement are exempt from registration
                     under the Securities Act, and that Alpha Engines' reliance
                     upon such exemptions is predicated upon Alpha Engines'
                     representations set forth in this Agreement. Alpha Engines
                     acknowledges and understands that the Shares must be held
                     indefinitely unless the Shares are subsequently registered
                     under the Securities Act and qualified under the applicable
                     state law or an exemption from such registration and such
                     qualification is available.

                     (iii) No Transfer. Alpha Engines agrees that in no event
                     will it dispose of any of the Shares except in conjunction
                     with an effective registration statement for the Shares
                     under the Securities Act or in compliance with Rule 144
                     promulgated under the Securities Act.

                     (iv) Knowledge and Experience. Alpha Engines (1) has such
                     knowledge and experience in financial and business matters
                     as to be capable of evaluating the merits and risks of Alpha
                     Engines' investment in the Shares; (2) has the ability to
                     bear the economic risk of Alpha Engines' prospective
                     investment; (3) has been furnished with and has had access
                     to such information as Alpha Engines has considered
                     necessary to make a determination as to the purchase of the
                     Shares together with such additional information as is
                     necessary to verify the accuracy of the information
                     supplied; (4) has had all its questions satisfactorily
                     answered by Licensee; and (5) has not been offered the
                     Shares by any form of public solicitation.

                                       9

                     (v) Holding Requirements. Alpha Engines understands that if
                     Licensee does not register its common stock with the
                     Securities and Exchange Commission (SEC) pursuant to Section
                     12 or become subject to Section 15(d) of the Securities
                     Exchange Act of 1934, as amended (Exchange Act) or supply
                     information pursuant to Rule 15c2-11 under the Exchange Act
                     or if a registration statement covering the Shares under the
                     Securities Act is not in effect when it desires to sell the
                     Shares, Alpha Engines may be required to hold the shares for
                     an indeterminate period. Alpha Engines also understands that
                     any sale of the Shares that might be made by Alpha Engines
                     in reliance upon Rule 144 under the Securities Act may be
                     made only in limited amounts in accordance with the terms
                     and conditions of that rule.

                     (vi) Restrictive Endorsement. Each certificate representing
                     the shares may be endorsed with the following restrictive
                     endorsement:

                           THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
                           NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
                           AS AMENDED ("ACT") AND ARE  "RESTRICTED  SECURITIES"
                           AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
                           THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR
                           OTHERWISE DISTRIBUTED EXCEPT (1) IN CONJUNCTION WITH
                           AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES
                           UNDER THE ACT OR (2) IN COMPLIANCE WITH RULE 144, OR
                           (3) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY
                           TO THE CORPORATION THAT SUCH REGISTRATION OR
                           COMPLIANCE IS NOT REQUIRED AS TO SAID SALE, OFFER, OR
                           DISTRIBUTION.

                     (vii) Removal of Endorsement and Transfer Restrictions. Any
                     legend endorsed on a certificate pursuant to this Agreement
                     and the stop transfer instructions with respect to such
                     legended Shares will be removed, and Licensee will issue a
                     certificate without such endorsement to the holder of such
                     Shares if the Shares are registered under the Securities Act
                     and a prospectus meeting the requirements of Section 10 of
                     the Securities Act is available or if such holder satisfies
                     the requirements of Rule 144(k).

                                       10

               (d) Production Royalties. As additional consideration for the
        right and license granted to Licensee in this Agreement, Licensee
        shall pay Alpha Engines monthly throughout the term of this Agreement,
        and thereafter so long as Detonation Engines are produced by it,
        royalties at the rate of eight percent (8%) of Net Sales, as
        subsequently defined, of all Detonation Engines produced under this
        License (Production Royalties). "Net Sales" shall mean all revenues
        recognized from the sale, use or other disposition of Licensee's
        Detonation Engines less only the revenues returned to buyers of
        rejected engines and sales and use and excise taxes paid by Licensee
        or another on Licensee's behalf. However, in the case of a disposition
        of a Detonation Engine to an Affiliate (as subsequently defined), or
        if a Detonation Engine is incorporated into another product such as a
        heavy-duty truck, and not sold separately, Net Sales will be the
        average Net Sales price of Detonation Engines of the same general type
        and size, and with similar component parts and auxiliary systems, sold
        to unaffiliated third parties by Licensee or Alpha Engines or its
        other licensees; provided that if Licensee or Alpha Engines or its
        other licensees do not sell Detonation Engines to unaffiliated third
        parties, Net Sales will be deemed to be five times the average Cost,
        as subsequently defined, of Detonation Engines manufactured by
        Licensee or, if not available, of Detonation Engines of the same
        general type and size manufactured by Alpha Engines or its other
        licensees. Cost shall mean Licensee's expenses of procurement of
        Detonation Engines, or if manufactured by Licensee, all expenses
        directly incurred in connection with Licensee's manufacturing of the
        Detonation Engine, including depreciation of production plant and
        equipment, utilities, occupancy cost for machine-related personal
        property taxes, and labor overhead costs for the direct labor support
        of the manufacturing plant and equipment. As used in this Agreement,
        "Affiliate" means any corporation, person or entity that controls, is
        controlled by, or is under common control with, a party to this
        Agreement, whether by ownership or otherwise. Costs are to be
        accounted for in accordance with generally accepted accounting
        principles (GAAP), consistently applied and uniformly presented, as
        stated in Licensee's financial statements, which shall be audited for
        these purposes.

               (e) Minimum Royalties.  Beginning on the first annual anniversary
        of this Agreement, and continuing on each succeeding annual anniversary
        thereafter while this Agreement remains in effect, Licensee will pay
        Alpha Engines a minimum annual royalty of Two Hundred Fifty Thousand
        Dollars ($250,000.00) (Minimum Royalty). No part of the Minimum
        Royalty payments will be recoverable by Licensee, but Production
        Royalties actually received by Alpha Engines during each twelve-month
        period preceding the payment date for a Minimum Royalty will be credited
        against the annual Minimum Royalties due for that twelve-month period.

                                       11

     7.2 Provisions fog Payments.

               (a) Manner of Payment. All payments of money made under this
        Agreement shall be calculated and made in U. S. dollars, by wire
        transfer, to such banks and accounts as Alpha Engines shall from time
        to time designate in writing.

               (b) Non-Business Days. Whenever any payment or calculation of
        payment due hereunder shall be stated to be due or made on a day that
        is not a business day, the payment or calculation shall be made on the
        immediately succeeding business day.

               (c) Receipt. Payments shall not be considered to be made until
        the day they are received at Alpha Engines's final bank account that
        is designated by it for such purpose.

               (d) Payment Due Date. Payments of Production Royalties shall be
        due on the twentieth day of each month for the previous month's
        production.

               (e)  Late  Payments. In the event any payment of any type by
        Licensee to Alpha Engines shall at any time be overdue, Licensee shall
        pay interest to Alpha Engines on any and all such late payments at the
        rate of four percent per annum over the prime rate of interest listed
        in the Wall Street Journal for the first day the payment is past due.
        Interest will be calculated on each late payment from the date it
        became due to the date of actual payment. Payment of such interest
        shall be in addition to any of Alpha Engines's other rights under this
        Agreement resulting from Licensee's default in making timely payments.
        Interest shall accrue on late payments from the due date regardless of
        whether Alpha Engines has given Licensee written notice of the
        default.

     7.3  Taxes Withheld. If Licensee is required by any government with
jurisdiction to withhold any tax from any payment due by Licensee to Alpha
Engines, Licensee shall remit the net amount of the payment to Alpha Engines,
together with official receipts or other evidence acceptable to Alpha Engines
establishing payment of such tax to the taxing authority. Any such tax payments
shall be made by Licensee on time and in the proper amount to relieve Alpha
Engines from liabilities for failure to pay such payments timely or fully.

     7.4 No Set-Offs or Counterclaims. Under no circumstances shall any amount
payable to Alpha Engines be reduced, either by set-off, counterclaim, adjustment
or otherwise, except for taxes withheld in accordance with provisions of this
section, by virtue of any claim of Licensee or any other person or for any other
purpose. The licensee fee and royalties to be paid under this Agreement are in
consideration of Alpha Engines supplying the various services described in this
Agreement, for the benefits of its scientific research activities, for use of
the other technical information, and for the specific covenants and warranties
made by Alpha Engines, but do not include consideration for its design or
engineering services. The license fees and royalties are due without regard to
the issuance, scope or validity of any patents or other protected rights.

                                       12

     8. Reports and Records.

     8.1 Records and Books ofAccount.  Licensee shall make and keep complete and
accurate records and books of account describing all financial activities by it
under this Agreement in sufficient detail to enable license fees and royalties
payable under this Agreement to be determined. The records shall be kept on a
month-by-month basis and shall include, without limitation by reason of
enumeration, separate reports on the construction status and operation of
Licensee's manufacturing plants, the quantities of Detonation Engines produced,
and the names and addresses of distributors and other purchasers of the
Detonation Engines produced.

     8.2 Production Reports. Licensee shall deliver to Alpha Engines within
twenty days after the end of each calendar month, beginning with the calendar
month in which "Start-Up" is achieved for the Licensee's first manufacturing
plant (Start-Up meaning daily operation of the plant during scheduled operating
hours for at least ten consecutive business days without an unplanned stoppage
of more than eight hours at any one time), a written report, certified by the
plant manager for the plant and the financial officer of Licensee responsible
for the plant, as being true and correct, describing for the applicable calendar
month for each plant, the following:

               (a) Production and Price. All data necessary for the calculation
        of license fees, royalties and determination of Licensee's compliance
        with the terms of this Agreement for such payments and for marketing.

               (b) Royalties. Calculations showing the total royalties due for
        the month and the cumulative total royalties due and payable for the
        calendar year to date.

     8.3 PaymentAccompanyingReports. Each monthly report shall be accompanied by
evidence showing full payment to Alpha Engines, as provided in this Agreement,
of all license fees, royalties, technical and engineering service fees, and
other payments due. Any payments of any type due that are not paid when due
shall be deemed a material breach of this Agreement by Licensee.

     8.4 Reports of Certified Public Accountants. Licensee shall deliver to
Alpha Engines within ninety days after the end of each calendar year, (i) a
written report prepared by Licensee's certified public accountants which
summarizes for the calendar year just completed, all license fees and royalties
and other amounts due to Alpha Engines hereunder, month by month, and certifies
to the accuracy of the calculations, and (ii) a written report prepared and
certified by Licensee's chief financial officer which states that, with respect
to the calendar year just completed, Licensee is in compliance with the monetary
compensation provisions of this Agreement. Both of such reports shall be in
reasonable detail and satisfactory in scope to Alpha Engines. Licensee shall
also deliver to Alpha Engines such other financial data and written evidence as
Alpha Engines may reasonably request to verify the accuracy of the reports.

     8.5 Right to Audit. Licensee agrees, at the request of Alpha Engines,  to
permit Alpha Engines and its accountants, or any of them, to have full access
during customary business hours to the books and records of Licensee pertaining
to activities under this Agreement, and they shall have the right to make copies
there from at Alpha Engines's expense. This right to examine may be exercised at
any time during the term of this Agreement and for a period of two years after
its expiration or termination.

                                       13

     9. Confidentiality.

     9.1 Information That Is Confidential; Obligation of Confidentiality.
Licensee agrees that the terms of this Agreement are to be kept strictly
confidential except to the extent required to be disclosed by law. Licensee
agrees that all information that it receives from Alpha Engines relating to the
Detonation Engine Technology, all EIC Ignition Systems and component parts and
auxiliary systems used for operation of Detonation Engines, as well as designs
and specifications, including without limitation, the following, collectively
called "Confidential Information":

               (a) preliminary engineering designs and specifications, flow
        sheets, drawings related to the designs, aspects, configurations,
        operating conditions, and functions of Detonation Engines and
        component parts and auxiliary systems;

               (b) plans, engineering designs and specifications, and
        instrumentation drawings for those systems; cost estimates,
        construction standards and procedures;

               (c) processes, formulas, improvements, inventions, techniques,
        designs and plans for manufacturing plants;

               (d)  forecasts,   new  products,   customer  lists,   information
        regarding prospective financing sources, competitors, fee and royalty
        amounts charged by Alpha Engines; and non-published financial
        information relating to Alpha Engines;

               (e) all know-how, technology, trade secrets and other proprietary
        information of Alpha Engines.

Confidential Information shall be considered confidential, except as specified
in the next section of this Agreement. In addition, all information described as
confidential in documents submitted by Alpha Engines to Licensee or its agents
or in other written confidentiality agreements executed by the parties shall be
considered confidential, except as specified in the next section of this
Agreement. Licensee agrees that, except as necessary to protect itself against
infringement, it shall neither use such information, except pursuant to and in
accordance with the terms and conditions of this Agreement, nor disclose such
information to anyone except to its employees and agents that Licensee
determines need to know in connection with the development, financing, or
manufacturing of the Detonation Engines by Licensee, or for operation of the
Detonation Engines, and whose knowledge of such information is necessary to
effect the purposes of this Agreement. Licensee may only disclose Confidential
Information to such person if (i) such person has executed a confidentiality
agreement with Licensee, a copy of which is available to Alpha Engines, in
substantially the form of Exhibit A attached hereto and incorporated herein, or
(ii) Licensee has taken other steps to strictly ensure that such person will
maintain the confidentiality of the Confidential Information during the term of
this Agreement, and after termination or expiration of this Agreement until such
time as the information ceases being Confidential Information pursuant to the
provisions of the next section. Licensee shall maintain the confidentiality of
the Confidential Information during the continuance of this Agreement and
thereafter until the information ceases being confidential pursuant to the
provisions of the next section.

                                       14

     9.2 Exception to Confidentiality. It is agreed, as an exception to the
foregoing obligations of confidentiality, that information received by Licensee
from Alpha Engines as a result of this Agreement shall not be considered
confidential, and Licensee shall not be limited in disclosing the same, if and
to the extent that the information, as shown by competent evidence, (i) is or
becomes, through no fault of the party obligated to maintain confidentiality, in
the public domain; (ii) is lawfully obtained by Licensee from a source other
than Alpha Engines or its agents; (iii) was already known by Licensee at the
time of its receipt, as shown by credible proof filed with Alpha Engines within
thirty days after its receipt; or (iv) is required to be disclosed by law or
final order of any court or governmental authority having jurisdiction.
Disclosures that are specific, including but not limited to operating conditions
such as pressures, temperatures, formulas, procedures and other like standards
and conditions, shall not be deemed to be within the foregoing exceptions merely
because they are embraced by general disclosures available to the general public
or in Licensee's possession. Additionally, any combination of features shall not
be deemed to be within the foregoing exceptions merely because the individual
features are available to the general public or in Licensee's possession unless
the combination itself and its principle of operation are available to the
general public.

     9.3 Published Disclosure. It is agreed that the disclosure of certain
information by Alpha Engines in a publication, such as in letters patent,
technical and scientific articles, lectures, or by otherwise placing it in the
public domain, will not free Licensee from its obligation to maintain in
confidence any information not specifically disclosed in or fairly ascertainable
from the publication or other disclosure, such as, for example, the fact that
information in the publication or any portion of it is or is not used by either
party. Licensee shall have the right to publish information or articles
pertaining to the Detonation Engine Technology and its manufacturing plant only
if such information is not confidential, and, with respect to Confidential
Information, only upon prior written approval by Alpha Engines, which Alpha
Engines may withhold in its absolute discretion.

     9.4 Non-Use  after  Termination.  Licensee  shall not use the  Confidential
Information after termination or expiration of this Agreement until such time,
if any, as the information ceases being Confidential Information pursuant to the
provisions of this section and with no breach of these provisions by Licensee.

                                       15

     10. Protection of Licensed Technology.

     10.1 Licensee to Detect and Report Beach or Infringements. Licensee agrees
to keep watch to detect any actual or suspected unauthorized uses, infringements
and disclosures of the Detonation Engine Technology and Confidential
Information, and shall notify Alpha Engines of any actual or suspected
unauthorized uses, infringements and disclosures within thirty days after
receiving knowledge of the actual or suspected activities; provided, however, it
shall not be a material breach of this Agreement for mere negligence of Licensee
in failing to provide such written notice to Alpha Engines as required.

     10. 2 Alpha  Engines to Detect and Report  Infringements.  If Alpha Engines
detects any actual or suspected infringements of the Detonation Engine
Technology and any Licensed Patents for which Licensee is responsible, Alpha
Engines shall notify Licensee thereof. Such notice shall be given to Licensee
not more than thirty days after Alpha Engines has discovered any such actual or
suspected infringement.

     10.3 Responsibility for Infringements of Technology and Patents.

               (a) Infringements. Licensee shall take all actions, through
        judicial action or otherwise, to terminate infringements of the
        Detonation Engine Technology licensed to Licensee under this
        Agreement, including any Licensed Patents. The type and conduct of
        such actions shall be governed by Licensee. Alpha Engines agrees to
        reasonably cooperate with Licensee and to not interfere with any of
        the actions taken by Licensee so long as Licensee is, in the sole
        judgment of Alpha Engines, diligently and competently fulfilling such
        obligations. Licensee shall bear all the expenses of such technology
        and patent infringement actions.

               (b)  Information. Licensee shall fully and promptly inform Alpha
        Engines of the status and progress of all infringement actions
        considered or instituted by Licensee.

               (c) Alpha Engines's Action. If Licensee does not institute a
        technology or patent infringement action within ninety days after
        receiving notice from Alpha Engines of an infringement that is
        Licensee's responsibility under this Agreement, Alpha Engines may
        institute a infringement action with respect thereof. Licensee shall
        reimburse Alpha Engines for its reasonable expenses incurred in
        connection with such action. Licensee shall be kept informed by Alpha
        Engines of the status and progress of all infringement actions
        instituted by Alpha Engines pursuant to this section.

     10.4 Alpha Engines Responsible for Patent Validity Cases.

               (a) Licensee's Conduct of  Business.  The exact manner in which
        Licensee conducts its business is substantially within the discretion
        and decision of Licensee. Any risks of infringement of the rights of
        others that may be associated with using the Detonation Engine
        Technology and any Licensed Patents as permitted under this Agreement
        cannot be foreseen and evaluated until Licensee has established its
        own business practice techniques. Alpha Engines does not, therefore,
        accept responsibility for actual or alleged patent infringement by
        reason of the practice by Licensee of the Detonation Engine
        Technology, including any Licensed Patents, except as follows:

                                       16

               (b) Defense of Licensed Patents. As between Alpha Engines and
        Licensee, Alpha Engines shall have the sole responsibility for
        defending at its sole expense all legal actions asserting the
        invalidity of any of the Licensed Patents. The conduct of such defense
        shall be solely governed by Alpha Engines, and Licensee agrees to
        fully cooperate with and to not interfere with Alpha Engines's defense
        of such actions. If Alpha Engines does not defend or in the reasonable
        judgment of Licensee is not vigorously and adequately defending
        against any such action, including appropriate appeals, Licensee may,
        after written notice to Alpha Engines given a reasonable time in
        advance but not less than thirty days, defend against such an action.
        Alpha Engines shall be kept fully and promptly informed of the status
        and progress of each such defense by Licensee.

     10.5 Apportionment of Recoveries. Any recoveries or settlement fees
received from suits or settlements involving alleged or actual infringement of
the Detonation Engine Technology and any Licensed Patents initiated by either
party or agreed to by Alpha Engines shall be paid entirely to Alpha Engines
after Licensee recovers its actual damages, costs and reasonable expenses, if
any, incurred in maintaining the infringement action; provided, however,
Licensee shall pay all such costs and expenses if its wrongful conduct led to
the infringement.

     10.6 Alpha Engines's Name in Suit. When, in the reasonable judgment of
Licensee, it is necessary to use Alpha Engines's name for Licensee to prosecute
or defend an action asserting infringement or invalidity of any Licensed
Patents, Alpha Engines agrees to allow Licensee to use the name of Alpha Engines
in doing so; provided, however, Licensee agrees to hold Alpha Engines harmless
against any award of court costs or damages resulting from the use of Alpha
Engines's name by Licensee in any such action.

     10. 7 Notification of Suit. Licensee shall immediately notify Alpha Engines
of any suit or action wherein Licensee or any Affiliate of Licensee is named as
a party, and which directly or indirectly relates to the use of the Detonation
Engine Technology or the manufacture and sale of Detonation Engines.

     10.8  Action  Against   Breaches  of  Confidential   Information.   If  any
unauthorized disclosure or use of Confidential Information has not ceased within
a reasonable period, not to exceed fifteen days after written notice is given by
Alpha Engines which demands that the relevant person or entity terminate such
unauthorized disclosure or use, then Licensee shall have the right to
immediately bring legal action to enjoin and seek damages for such unauthorized
disclosure or use, and Alpha Engines shall join with Licensee in such action if
necessary in the judgment of Licensee; provided, however, if Licensee does not
bring any such legal action within thirty days after Alpha Engines gives the
written demand previously described or does not adequately commence or prosecute
such legal action in the sole judgment of Alpha Engines, then Alpha Engines
shall have the right to do so upon written notice to Licensee. The conduct of
such actions brought by Licensee shall be fully governed by Licensee, although
Alpha Engines shall have the right to participate and to be fully and promptly
informed if Alpha Engines joins or is joined with Licensee in such action. Alpha
Engines and Licensee shall individually bear their costs of such legal actions
that each may respectively incur. Any recoveries or settlement fees resulting
from legal action taken against parties making unauthorized disclosures or uses
shall be paid to Alpha Engines after Licensee recovers its actual damages, costs
and reasonable expenses, if any, in maintaining the action.

                                       17

     11. Defense of Claims of Trademark Infringement.

     11.l Defense of Trademark Infringement. Alpha Engines shall be solely
responsible for defending all actions brought against Licensee for infringement
and unfair competition in which the primary issue involves the use by Licensee
of trademarks licensed from Alpha Engines for the Detonation Engine Technology
in the Field of Use. Alpha Engines shall indemnify Licensee against any final
adverse monetary judgment rendered against Licensee in such legal actions for
infringement and unfair competition involving the trademarks.

     11.2 Right to Suspend Use of Trademarks. Notwithstanding anything in this
Agreement to the contrary, if considered by Alpha Engines to be appropriate or
necessary to protect it and Licensee from trademark infringement, and upon
notice from Alpha Engines, Licensee shall immediately take all steps necessary
to cease all use of the trademarks of Alpha Engines. There shall be no reduction
of or credit against any fee or royalty payable to Alpha Engines hereunder due
to such a cessation in the use of such trademarks. Alpha Engines shall not give
notice to Licensee to cease use of the trademarks unless a substantial claim for
or risk of trademark infringement or unfair competition or the like arises in
which the primary issue involves the use of the trademarks. Should Alpha Engines
or Licensee be exonerated from such substantial claim or risk pertaining to the
use of the trademarks, Alpha Engines shall immediately again authorize the use
by Licensee of the trademarks, and Licensee may again use the trademarks, but
shall not be obliged to do so. Should Licensee fail to immediately cease use of
the trademarks after receiving written notice from Alpha Engines, Alpha Engines
shall be relieved of any obligation to indemnify Licensee under the preceding
section.

     11.3 Alpha Engines's Obligations Pertain Only to Licensed Trademarks. In
claims pertaining to unfair competition and the like in which trademarks
licensed by Alpha Engines to Licensee, if any, are only a part of the overall
actions complained of, Alpha Engines's obligations to Licensee under the two
preceding sections shall apply only with respect to that portion or part of the
claim relating solely to the use of the trademarks.

     11.4 Trademark and Patent Applications. Except as may be expressly provided
for elsewhere in this Agreement, no one other than Alpha Engines shall file any
trademark or patent registration application in any jurisdiction with respect to
any Licensed Patents or trademarks. Licensee shall, at the request of Alpha
Engines, execute such documents as may be appropriate for filing or recording in
any jurisdiction or with any agency to evidence Alpha Engines's rights in the
trademarks or any Licensed Patent or to evidence Alpha Engines' status as
registered user. Alpha Engines may attempt to register such trademark or any
Licensed Patent with the appropriate governmental authorities in such
jurisdiction, but Alpha Engines's inability or failure to obtain such a
registration shall not be a breach of this Agreement and shall otherwise be of
no force and effect. If Alpha Engines is unable to obtain any such registration,
Licensee may, but is not required to, attempt to obtain such a registration. In
the event Licensee succeeds in obtaining such a registration, the costs and
reasonable expenses of Licensee in connection therewith (including without
limitation reasonable legal expenses) shall be paid by Alpha Engines, unless
Licensee succeeded in obtaining such a registration due to a change of law or
regulation. Licensee shall further, at the request of Alpha Engines, either
during or after the term of this Agreement, execute such documents and render
such assistance as may be appropriate to enable Alpha Engines to obtain further
registration of the trademarks or Licensed Patents in any jurisdiction. Alpha
Engines shall have no obligation, except as set forth in this section, to
register or attempt to register any trademark or any Licensed Patent in any
jurisdiction in which the trademark or Licensed Patent is not registered as of
the date of execution of this Agreement.

                                       18

     12. Representations, Warranties and Covenants.

     12.1 Representations, Warranties and Covenants of Licensee. Licensee hereby
represents, warrants and covenants to Alpha Engines as follows:

               (a) Right, Power and Authority. Licensee has full right, power
        and authority to enter into this Agreement, and there is no impediment
        that would inhibit its ability to perform the terms and conditions
        imposed upon it by this Agreement.

               (b) Binding Obligation. This Agreement has been duly authorized
        by all necessary corporate and stockholder action and constitutes a
        valid and binding obligation of Licensee, enforceable in accordance
        with its terms.

               (c) Corporate Good Standing. Licensee is a corporation duly
        organized and validly existing and in good standing under the laws of
        the place of its organization and is duly qualified and authorized to
        do business wherever the nature of its activities or properties
        requires such qualification or authorization.

               (d) No Government Approval Needed. No registration with or
        approval of any government agency or commission is necessary for the
        execution, delivery or performance by Licensee of any of the terms of
        this Agreement, or for the validity and enforceability hereof or with
        respect to the obligations of Licensee hereunder, except such
        registrations and approvals as have been previously made or obtained,
        certified copies of which have been delivered to Alpha Engines.

               (e) No Provisions Contravened. There are no provisions in the
        articles of association or articles of incorporation, as the case may
        be, or bylaws or operating agreement, if any, of Licensee, and no
        provision in any existing mortgage, indenture, contract or agreement
        binding upon Licensee that would be contravened by the execution,
        delivery or performance by Licensee of this Agreement.

                                       19

               (f) No Consent of Third Parties Needed. No consent of any lender,
        trustee or holder of any indebtedness of Licensee is or will be
        required as a condition to the validity of this Agreement, except such
        consents as have been previously obtained, certified copies of which
        have been delivered to Alpha Engines.

               (g) No Proceedings Pending. No actions or proceedings  are
        pending, or insofar as Licensee knows or ought to know, threatened
        against Licensee or any or its officers or directors in their
        capacities as officers and directors of Licensee before any court,
        administrative agency or other tribunal that might have a material
        adverse effect on its business or condition, financial or otherwise,
        or its operation.

               (h) Not Contravene Any Law. Neither the execution  nor the
        delivery of this Agreement by Licensee nor the fulfillment of or
        compliance with its terms and provisions by Licensee will contravene
        any provision of law including, without limitation, any statute, rule,
        regulation, judgment, decree, order, franchise or permit applicable to
        Licensee.

               (i) Shape  Capital  Fully Paid.  All of  Licensee's  issued share
        capital is fully paid; and Licensee has assets that exceed its
        liabilities, both determined in accordance with generally accepted
        accounting principles; and Licensee is solvent.

               (j) Experience. Licensee is experienced with production of
        engines and has fully tested or will fully test the Detonation Engine
        Technology in order to confirm its fitness for the purpose for which
        Licensee intends to use it.

               (k) Alpha Engines Held Harmless.

                    (i) Licensee shall indemnify and hold Alpha Engines
                    harmless, and cause permitted assignees of Licensee, if any,
                    to indemnify and hold Alpha Engines harmless, from and
                    against any and all claims, injuries, liabilities, costs and
                    expenses resulting from or caused by or claimed to have
                    resulted from any use or operation of the Detonation Engine
                    Technology, the Licensee's manufacturing plant or plants, or
                    Detonation Engines by Licensee, any Affiliate of Licensee or
                    other party, whether based on negligence, strict liability,
                    product liability, environmental damage, breach of warranty,
                    or any cause that was under their control, and from
                    liabilities and claims for consequential damages and lost
                    profits arising from use or operation by them. Licensee
                    agrees to defend, at its sole expense and with counsel of
                    its own choice, all such actions brought against Alpha
                    Engines. Licensee shall also indemnify against any adverse
                    final monetary judgment award rendered against Alpha Engines
                    in any such action. Licensee shall not compromise or settle
                    any such claim or action without the prior written consent
                    of Alpha Engines if the amount of such compromise or
                    settlement exceeds the sum of Licensee's relevant insurance
                    coverages and its respective net worth. Any such attempted
                    compromise or settlement shall be void and of no effect
                    whatsoever. Licensee shall maintain insurance policies
                    issued by reputable insurance companies approved by Alpha
                    Engines (such approval not to be unreasonably withheld) for
                    all of such risks and in appropriate amounts acceptable to
                    Alpha Engines. Alpha Engines shall be named as an additional
                    insured and loss payee on each such insurance policy.

                                       20

                    (ii) Nothing in this subsection requires Licensee to
                    indemnify and hold Alpha Engines harmless from and against
                    patent infringement actions previously described in this
                    Agreement.

               (l) Financial Statement Accurate. Licensee has previously
        furnished to Alpha Engines its most current profit and loss statement
        and balance sheet. These financial statements present fairly the
        financial condition of Licensee as of the specified date. Such
        financial statements show all material liabilities, direct or
        contingent, of Licensee as of the specified date, including, without
        limitation, liabilities for taxes and material commitments. Licensee
        acknowledges that such financial statements have been provided to
        Alpha Engines in partial consideration for Alpha Engines's grant of
        rights and licenses hereunder and that Alpha Engines has relied upon
        such financial statements in deciding to enter into this Agreement.

               (m) No Adverse Financial Changes. There have been no changes in
        the business, operations, property, assets, ownership, management or
        condition (financial or otherwise) of Licensee since the date to its
        latest financial statements furnished to Alpha Engines on or prior to
        the date of this Agreement, that would, individually or in the
        aggregate, be material and adverse. Licensee is not aware of any fact
        or circumstances which (with or without notice or lapse or time or
        both) would or could result in any materially adverse change.

               (n) Continued Effect of Representations and Warranties. Licensee
        covenants and agrees that its representations and warranties contained
        in this Agreement shall remain true in all respects at all times after
        the date of this Agreement, and before the expiration of the term of
        this Agreement, with the same effect as though such representations
        and warranties had been made on and as of each such subsequent date.

     12.2 Representations, Warranties and Covenants of Alpha Engines. Alpha
Engines hereby represents and warrants to Licensee as of the date of execution
of this Agreement and hereby covenants to Licensee as follows: These
representations and warranties are subject to the right of first refusal held by
CNF Transportation, Inc. to form a joint venture with Alpha Engines, after the
development and testing of a demonstration engine, for the manufacture of
heavy-duty truck engines, both for the fleet of CNF and exclusive sales of heavy
duty truck engines.

               (a) Right, Power and Authority. Alpha Engines has full right,
        power and authority to enter into this Agreement, and there is no
        impediment that would inhibit its ability to perform the terms and
        conditions imposed upon it by this Agreement.

                                       21

               (b) Binding Obligation. This Agreement has been duly authorized
        by all necessary corporate and stockholder action and constitutes a
        valid and binding obligation of Alpha Engines, enforceable in
        accordance with its terms.

               (c) Corporate Good Standing. Alpha Engines is a corporation duly
        organized and validly existing and in good standing under the laws of
        the state of Delaware, United States of America, and is duly qualified
        and authorized to do business wherever the nature of its activities or
        properties requires such qualification or authorization.

               (d) No Government Approval Needed. No registration with or
        approval of any government agency or commission is necessary for the
        execution, delivery or performance by Alpha Engines of any of the
        terms of this Agreement, or for the validity and enforceability hereof
        or with respect to the obligations of Alpha Engines hereunder, except
        such registrations and approvals as have been previously made or
        obtained, certified copies of which have been delivered to Licensee.

               (e) No  Provisions  Contravened.  There are no  provisions in the
        articles of association or articles of incorporation, as the case may
        be, or bylaws or operating agreement, if any, of Alpha Engines, and no
        provision in any existing mortgage, indenture, contract or agreement
        binding on Alpha Engines that would be contravened by the execution,
        delivery or performance by Alpha Engines of this Agreement.

               (f) No Consent of Third Parties Needed. No consent of any lender,
        trustee or holder of any indebtedness of Alpha Engines or any other
        third party is or will be required as a condition to the validity of
        this Agreement, except such consents as have been obtained, certified
        copies of which have been delivered to Licensee.

               (g) No Proceedings  Pending.  There are no actions or proceedings
        pending, or in so far as Alpha Engines knows or ought to know,
        threatened against Alpha Engines or any of its officers or directors
        in their capacities as officers and directors of Alpha Engines, before
        any court, administrative agency or other tribunal that might have an
        adverse effect on its business or condition, financial or otherwise,
        or its operation of any business or operation.

               (h) Not Contravene Any Law. Neither the execution nor the
        delivery of this Agreement by Alpha Engines nor the fulfillment of or
        compliance with the terms and provisions hereof by Alpha Engines will
        contravene any provision of law including, without limitation, any
        statute, rule, regulation, judgment, decree, order, franchise or
        permit applicable to Alpha Engines.

               (i) No Patent Invalidity. To the best of Alpha Engines's
        knowledge, there are no U. S. letters patent or foreign patents that
        invalidate the Licensed Patents, and the use by Licensee of any
        Licensed Patents will not infringe upon any third-party rights,
        including patent rights.

                                       22

               (j) No Knowledge of Prior Trademarks. Alpha Engines knows of no
        prior use by others of any trademarks used with the Detonation Engine
        Technology other than those that are authorized by Alpha Engines as of
        the date of execution of this Agreement.

               (k) Alpha Engines Owner of Licensed Technology. Alpha Engines has
        the right to use the Detonation Engine Technology and has the right to
        grant licenses to the Detonation Engine Technology for use in the
        Field of Use subject to the rights of CNF to participate in a joint
        venture for heavy-duty truck engines. To the best of Alpha Engines's
        knowledge, the use by Licensee of the Detonation Engine Technology
        under the terms of this Agreement will not infringe upon any
        third-party rights.

               (l) No Current Restrictions on Providing Information to Licensee.
        Alpha Engines is not a party to any contract, confidence or obligation
        that would create liability for Alpha Engines by reason of (i)
        disclosure by Alpha Engines of information not formulated in whole or
        in part by Alpha Engines which pertains to applications to patent any
        aspect of Detonation Engine Technology or (ii) the use of such
        information by Alpha Engines or Licensee.

               (m) Licensing All Rights. The Detonation Engine Technology
        licensed under this Agreement represents all rights of Alpha Engines
        with respect to technologies for the Detonation Engine Technology,
        except Alpha Engines' right to manufacture and sell EIC Ignition
        Systems and other component parts and auxiliary systems.

               (n) Continued Effect of Representations and Warranties. Alpha
        Engines covenants and agrees that its representations and warranties
        contained in this Agreement shall remain true in all respects at all
        times after the date of this Agreement, and before the expiration of
        the term of this Agreement, with the same effect as though such
        representations and warranties had been made on and as of each such
        subsequent date.

     12.3 Limited Warranty. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
AGREEMENT OR OTHER WRITTEN AGREEMENT BETWEEN THE PARTIES, ALPHA ENGINES MAKES NO
AND HEREBY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS OF ANY
KIND, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, OR ANY OTHER WARRANTIES OR REPRESENTATIONS OF ANY KIND TO LICENSEE,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OR REPRESENTATION WITH RESPECT TO
USE OF THE DETONATION ENGINE TECHNOLOGY AS AUTHORIZED HEREUNDER.

     12.4 Limitation of Damages. Notwithstanding anything to the contrary
contained or construed to be contained in this Agreement, Alpha Engines shall
not be liable for any incidental, indirect, special, punitive, exemplary or
consequential damages of any kind whatsoever including lost profits or savings,
relating to, resulting from, arising out of or connected with the Detonation
Engine Technology, including the EIC Ignition System and other component parts,
and auxiliary systems or this Agreement, whether in contract or tort (including
negligence) even if Alpha Engines has been advised of or should be aware of the
possibility of such damages. In no event shall Alpha Engines's liability to
Licensee for any reason exceed one half of the amount of royalties paid to Alpha
Engines by Licensee for the previous calendar quarter.

                                       23

     13. Term and Termination.

     13.1 Term. This Agreement shall commence on the date of this Agreement. The
term of the license granted hereby shall extend only for so long as Licensee is
diligently developing or fully promoting, marketing, offering for sale, and
selling, using the Detonation Engine Technology in the Licensed Field on a
commercial basis to the fullest practical extent, or until expiration of the
last of the Licensed Patents to expire, whichever occurs first. Upon expiration
of the term, this Agreement shall automatically terminate except for obligations
previously incurred and the following provisions regarding winding up.

               (a) Termination for Breach.  Either party shall have the right to
        terminate this Agreement as a result of the other party's material
        breach. The party claiming breach of the Agreement shall give the
        other party written notice of the breach, specifying the nature
        thereof, and the other party shall have sixty days after such notice
        to cure such breach. Upon the failure of the party in breach to cure
        the breach within the sixty-day period, the other party shall have the
        right to terminate this Agreement by giving written notice of
        termination. This Agreement shall terminate effective on the date set
        forth in such termination notice. The right of a party to terminate
        this Agreement for material breach shall be in addition to and not in
        lieu of any other right or remedy that the terminating party may have
        at law or in equity, including without limitation, the right to sue a
        breaching party for any prior breach of the Agreement, or for breach
        of the whole Agreement or any unperformed balance thereof, as is the
        case under the Colorado Uniform Commercial Code (UCC § 2-106(4)) with
        respect to "cancellation" of a contract for breach.

               (b) Termination for Bankruptcy.  Unless  impermissible  under the
        applicable laws as of the date that written notice of termination is
        given, either party shall have the right to terminate this Agreement
        by giving the other party written notice of a termination as a result
        of such other party being: (i) the subject, for more than sixty days,
        of any voluntary or involuntary proceeding relating to bankruptcy, or
        composition of or assignment for the benefit of creditors, (ii)
        insolvent; (iii) subject to liquidation or receivership pursuant to
        the order of any court or tribunal of (a) any nation; (b) any state of
        such foreign nation, or (c) any political subdivision of such foreign
        nation (foreign court); (iv) admitted to the benefits of any procedure
        of a foreign court for the settlement of debts; declared bankrupt by
        any foreign court; dissolved by any foreign court; or otherwise
        admitting in writing its inability to pay its debts. This Agreement
        shall terminate effective on the date set forth in the termination
        notice.

     13.2 Defaults - General. Except for the arbitration provisions of this
Agreement, should there be a material breach as to any obligation hereunder that
does not involve payment of a fee, royalty, or other amount of money due to
Alpha Engines, and should the breaching party fail to put into action, within
forty-five days after receiving written notice thereof from the other party, and
diligently thereafter pursue, a reasonable remedy designed to diligently cure
(in the reasonable judgment of the other party) such material breach or default,
then this Agreement may thereupon be terminated by the other party by giving
written notice of termination to the breaching party.

                                       24

     13.3 Defaults - Non-Payment by Licensee. (a) Should Licensee fail to pay
any contract sum, fee, royalty or other amount due to Alpha Engines when it is
due hereunder, and following such failure of payment, should Licensee fail to
pay such contract sum, fee, royalty or amount in full within fifteen days after
receiving written notice thereof from Alpha Engines, this Agreement may
thereupon be terminated by Alpha Engines giving written notice of termination to
Licensee.

     13.4 License Termination for Infringement of U.S. Letters Patents.

               (a) Licensee Termination Based on Infringement. Should an adverse
        judgment be entered against Alpha Engines or Licensee for reason of
        infringement of U.S. Letters Patent that arises out of the grant of
        the license pursuant to this Agreement, Licensee shall have the right
        to terminate this Agreement by giving ninety days prior written notice
        to Alpha Engines. For the period from the receipt of such notice by
        Alpha Engines through such ninetieth day, Licensee shall comply with
        the terms of the judgment insofar as restrictions imposed by it are
        concerned. If such restrictions materially affect Licensee's ability
        to use the Detonation Engine Technology as licensed under this
        Agreement, Licensee will not be required to pay any further royalties
        pursuant to this Agreement that would have accrued during such period
        but for termination. If the restrictions do not materially affect use
        of the Detonation Engine Technology in the Licensed Field, as defined
        in this Agreement, Licensee's further royalty obligations shall not be
        affected.

               (b) License Abatement Based Upon Infringement. In lieu of the
        preceding subsections of this section, should an adverse judgment be
        entered against Alpha Engines or Licensee for reason of infringement
        of U. S. Letters Patent that arise out of the Licensed Patents and
        that partially reduce Licensee's ability to use the Detonation Engine
        Technology, Licensee shall have the right to reduce the amount of the
        royalties payable under this Agreement by a percentage equal to the
        percentage decrease in the value of the use of the Detonation Engine
        Technology to Licensee due to such adverse judgment. The amount of
        such percentage decrease in the value of the Detonation Engine
        Technology shall be determined by the parties hereto, or failing their
        agreement, by arbitration pursuant to this Agreement.

     13.5 No Termination Rights Regarding Adverse Trademark Decisions. Neither
Alpha Engines nor Licensee shall have the right to terminate this Agreement for
reason of an adverse final judgment respecting infringement or unfair
competition that involves a use of any trademarks used or licensed by Alpha
Engines for the Detonation Engine Technology.

     13.6 Winding Up. On the effective date of any termination, cancellation or
expiration of this Agreement, the right and license granted herein to Licensee
shall terminate; provided, however, that, except where such termination,
cancellation or expiration is the result of Licensee's failure to pay license
fees or royalties when due, Licensee may use, sell, or otherwise dispose of its
Detonation Engines in stock or in production on the effective date of
termination, cancellation or expiration provided Licensee complies with the
reporting and royalty payment provisions of this Agreement with respect to such
Detonation Engines.

                                       25

     13.7 Payment Obligations. Licensee's obligation to pay for technical
consulting services and the license fees and royalties specified in this
Agreement shall survive any termination, cancellation or expiration of this
Agreement. After any termination, cancellation or expiration of this Agreement,
Alpha Engines shall have no obligation to refund any money paid to it under this
Agreement.

     13.8 No Damage. Neither party shall be liable for damages of any kind as a
result of properly exercising its respective right to terminate this Agreement
according to the terms and conditions of this Agreement.

     13.9 Confidentiality Continues. All confidentiality obligations imposed on
the parties under this Agreement shall survive any termination, cancellation or
expiration of this Agreement.

     13.10 Payment Obligations Continue.  Upon termination of this Agreement for
any reason, nothing shall be construed to release Licensee from any of its
obligations or liabilities to Alpha Engines hereunder, including without
limitation, Licensee's obligations to pay Alpha Engines any and all fees,
royalties or other amounts accrued but unpaid before or after the date of such
termination.

     13.11 Licensee To Cease Practice of the Technology. Upon termination or
expiration of this Agreement, Licensee shall take the following actions and have
the following rights:

               (a) Discontinue Use and Operations. Licensee shall immediately
        discontinue operations of the manufacturing plant or plants permitted
        under this Agreement for the manufacture of Detonation Engines.

               (b) Period Preceding Termination. If the date of termination or
        expiration is known in advance, Licensee shall, during the period
        immediately preceding the date of termination or expiration, complete
        use of the Detonation Engine Technology, finish and wind up production
        of Detonation Engines within three months after the date of
        termination or expiration, and liquidate its inventory of Detonation
        Engines, all in accordance with the terms and conditions of this
        Agreement.

               (c) One Year Following Termination. Licensee shall have the right
        for a period of one year, but not more, after the date of termination
        or expiration, to sell any Detonation Engines produced after
        termination or expiration during the three-month winding up period.
        Licensee shall sell and return to Alpha Engines or its designee, but
        not to anyone else, at the place specified by Alpha Engines, any
        Detonation Engines remaining in inventory at the end of the one-year
        period, at Licensee's Cost for those engines. Licensee shall also sell
        and return to Alpha Engines those parts and items of production
        equipment comprising any part of the manufacturing plant or plants
        that might enable others to appropriate or use Confidential
        Information. The purchase price for the parts and equipment shall be
        the lesser of their depreciated value carried on the books of Licensee
        or $1,000. Reasonable shipping charges shall be paid by Alpha Engines
        or its designee.

                                       26

               (d) Use and Supply  Contacts.  Any  separate  agreement or supply
        contract for consulting services and EIC Ignition Systems entered into
        between Alpha Engines and Licensee, or any Affiliate, shall be
        terminated as of the date this Agreement terminates or expires.

     14. Miscellaneous.

     14.1 Assignment by Alpha Engines. This Agreement and any and all of the
rights of Alpha Engines hereunder shall be freely assignable by Alpha Engines to
any party.

     14.2 Assignment By Licensee.  This Agreement and the rights and obligations
of Licensee hereunder may be assigned by Licensee only to a purchaser of the
entire ownership of the business or all the assets of Licensee to which this
Agreement pertains (regardless of the form of the sale of such business or
assets, and only with the express written consent of Alpha Engines, which it may
withhold in its sole and absolute discretion). Alpha Engines is entering into
this Agreement because of its evaluation of the capabilities of Licensee and its
personnel and other factors that are important in the judgment of Alpha Engines.
Accordingly, this Agreement is personal to Licensee, is granted only to it, and
may be performed only by it. This Agreement and the rights and obligations of
Licensee hereunder may not be assigned, transferred or delegated by Licensee to
any assignee, transferee or successor of Licensee, voluntarily or by operation
of law or otherwise, regardless of the form of transfer, including transfer of
Licensee's business or assets or merger or consolidation of entities. Alpha
Engines may withhold its consent to any proposed assignment, transfer or
delegation that is not satisfactory to it in its sole judgment and discretion.
With respect to any permitted assignment by Licensee, neither the Licensee nor
the assignee shall be released or otherwise relieved of any liability for
obligations and infringements occurring prior to the date of the assignment.

     14.3 Arbitration and Injunctive Relief.

               (a) Procedure for Arbitration; Judgment. Except as specified in
        this Agreement for the non-payment of sums of money due to Alpha
        Engines, any dispute, controversy or claim arising out of or relating
        to this Agreement or to a breach thereof, including its
        interpretation, performance or termination, which the parties are
        unable to resolve within sixty days after written notice by a party to
        the other, shall be submitted to arbitration by any party after giving
        the other party fifteen days prior written notice of such intent.
        Thereafter, such dispute, controversy or claim shall be finally
        resolved by arbitration, which shall be the exclusive means for
        deciding the matter. The arbitration shall be in accordance with the
        commercial rules of the American Arbitration Association, which shall
        administer the arbitration and act as appointing authority. In the
        event of any conflict between the rules and this section, the
        provisions of this section shall govern. The arbitration, including

                                       27

        the rendering of the award, shall take place in the city of Denver,
        Colorado, United States of America, which shall be the exclusive forum
        for resolving such dispute, controversy or claim. For the purpose of
        the arbitration, the provisions of this Agreement and all rights and
        obligations hereunder shall be governed or construed in accordance
        with the laws of the state of Colorado, United States of America,
        without regard to the conflicts of law doctrine observed in Colorado.
        The parties shall allow and participate in discovery in accordance
        with the United States Federal Rules of Civil Procedure. Unresolved
        discovery disputes and other motions may be brought to the attention
        of the chair of the arbitration panel and may be finally disposed of
        by the chair of the panel. The arbitration award shall be in writing
        and specify the factual and legal basis for the award, and shall be
        accompanied by a reasoned opinion. The decision of the arbitrators
        shall be final and binding upon the parties hereto, and the expense of
        the arbitration (including without limitation the award of attorneys'
        fees to the prevailing party) shall be paid as the arbitrators
        determine. Each party hereby submits itself to the jurisdiction of the
        courts of the place arbitration is held for the entry of judgment
        thereunder. Notwithstanding this provision, judgment upon the award of
        the arbitration may be entered in any court where the arbitration
        takes place or any court having jurisdiction thereof, and application
        may be made to any court for a judicial acceptance of the award and
        order of enforcement. The parties acknowledge that this Agreement and
        any award rendered pursuant to it if applicable, shall be governed by
        the 1958 United Nations Convention on the Recognition and Enforcement
        of Foreign Arbitral Awards. In the event any such dispute, controversy
        or claim involves a claim of damages in excess of Fifty Thousand
        Dollars ($50,000), the arbitration shall be conducted by three
        arbitrators, one to be appointed by Alpha Engines, one to be appointed
        by Licensee and a third to be nominated by the two arbitrators so
        selected or, if they cannot agree on a third arbitrator within thirty
        days after the first has named an arbitrator, by the chief judge of
        the District Court for the City and County of Denver, Colorado;
        provided, however, that the arbitrators named by the parties shall be
        licensed mechanical engineers knowledgeable in turbine engine
        technology who are certified to practice engineering in at least one
        of the states of the United States. The arbitrator nominated by the
        arbitrators so selected and any arbitrator nominated by the chief
        judge of the District Court for the City and County of Denver, shall
        be an attorney located in Denver, Colorado who is a licensed member of
        the U.S. patent bar. In the event that either party within one month
        of any notification made to it of the submission to arbitration by the
        other party shall not have appointed its arbitrator, such arbitrator
        shall be appointed by the chief judge of the District Court for the
        City and County of Denver, Colorado. The decision of any two of the
        three arbitrators shall be deemed the decision of the arbitrators. In
        the event any such dispute, controversy or claim involves a claim of
        damages for Fifty Thousand Dollars ($50,000) or less, the arbitration
        shall be conducted by one arbitrator appointed by the chief executive
        officer of the American Arbitration Association located in Denver,
        Colorado, and such arbitrator shall be a licensed mechanical engineer
        knowledgeable in turbine engine technology who is certified to
        practice engineering in at least one of the states of the United
        States.

                                       28

               (b) Judicial Action for Specific Performance or Injunction.
        Notwithstanding anything contained in the preceding section to the
        contrary, each party shall have the right to institute judicial
        proceedings against the other party or anyone acting by, through or
        under such other party in order to enforce the instituting party's
        rights hereunder through rectification of contract, specific
        performance, injunction or similar equitable relief. For the purpose
        of such proceedings, the provisions of this Agreement and all rights
        and obligations hereunder shall be governed and construed in
        accordance with the laws of the state of Colorado, United States of
        America, without regard to the conflicts of law doctrine observed in
        Colorado. The parties irrevocably submit to the jurisdiction of the
        courts of the state of Colorado and of the United States of America
        for the District of Colorado for these purposes; provided, however,
        that nothing herein shall preclude either party, if it thinks fit,
        from instituting proceedings for rectification of contract, specific
        performance, injunction or similar equitable relief against any other
        party or anyone acting by, through or under such other party in any
        country or place which may have jurisdiction for the purpose of
        protecting and enforcing the instituting party's rights either under
        this Agreement or pursuant to any other agreements, documents,
        instruments or otherwise. Licensee irrevocably designates and appoints
        the Secretary of State of Colorado as its agent for the service of
        process in Colorado and agrees to consider any legal process or any
        demand or notice made or served on said agent as being made on it;
        provided, however, that Alpha Engines shall within forty-eight hours
        of such service send to Licensee a copy of the documents so served,
        and such copies shall be sent by air courier to Licensee's address as
        set out in this Agreement or to such other address as Licensee may
        have given notice of in writing to Alpha Engines. In the alternative,
        service of process may be made by postage prepaid certified or
        recorded delivery air mail letter transmitted by either party to the
        other party at the address for notices set forth in this Agreement
        with a duplicate copy sent by postage prepaid certified or recorded
        delivery air mail letter to such other party's agent for service of
        process at its present office identified in this Agreement. The
        foregoing, however, shall not limit the right of either party to serve
        process in any other manner permitted by law or to bring any legal
        action or proceeding to protect and enforce through rectification of
        contract, specific performance, injunction or similar equitable relief
        its rights either hereunder or pursuant to any other agreements,
        documents, instruments or otherwise or to obtain execution of judgment
        in any court of competent jurisdiction. Each party hereby irrevocably
        waives any objection that it may now or hereafter have to the laying
        of venue of any suit, action or proceeding for rectification of
        contract, specific performance, injunction or similar equitable relief
        relating to this Agreement in the state of Colorado and further
        irrevocably waives any claim that the state of Colorado is not a
        convenient forum for any such suit, action or proceeding.

     14.4 Third Parties. The parties intend to confer no benefit or right on any
person not a party to this Agreement. No third party shall have the right to
claim the benefit of any provision hereof as a third party beneficiary of any
such provision.

     14.5 No Other Relationship. Nothing herein contained shall be deemed to
create an agency, joint venture, partnership, franchise or similar relation
between the parties hereto. Each party shall conduct all business in such
party's own name as an independent contractor. Neither party shall be liable for
the representations, acts, or omissions of the other party contrary to the terms
of this Agreement. Neither party has the right or power to act for or on behalf
of the other or to bind the other in any respect whatsoever, other than as
expressly provided for herein.

     14.6 Conversion to Dollars. If any payment due to Alpha Engines is stated
in a currency other than U.S. Dollars, such payment shall be converted into U.S.
Dollars at the commercial rate quoted in Denver, Colorado by Wells Fargo Bank
West, Colorado, N.A., or its successor, for a prime commercial customer to buy
U.S. Dollars with such other currency for spot value at or about eleven a.m.
(Denver time) eve business days immediately preceding the date on which the
payment becomes due. If no such commercial rate is or can be quoted at such
time, such payment shall be converted into U. S. Dollars at the commercial rate
most recently quoted in Denver, Colorado by Wells Fargo Bank West, N.A., or its
successor, for a commercial customer to buy U.S. Dollars with such other
currency for spot value prior to the due date. If no such commercial rate has
been quoted at any time during the three-month period preceding the payment due
date, such payment shall be converted into U.S. Dollars at the rate most
recently used for the currency other than U. S. Dollars by Licensee, or an
Affiliate resident in the United States of America, or if none, by Alpha
Engines. In the event that any payment, whether pursuant to a judgment or
otherwise, upon such conversion and transfer does not result in payment of such
amount of U.S. Dollars in Denver, Colorado, United States of America, Licensee
shall, immediately upon demand by Alpha Engines, make up any such deficiency and
Alpha Engines shall have a separate cause of action against Licensee in respect
to the deficiency.

                                       29

     14.7 Fees Payable. Alpha Engines and Licensee acknowledge that there are
no broker's commissions, finder's fees or other like amounts payable with regard
to this transaction. Alpha Engines and Licensee agree to indemnify and hold the
other harmless from and against all liability, claims, demands, damages or costs
of any kind arising from or connected with any broker's or finder's fee,
commission or charge claimed to be due any person arising from the indemnitor's
conduct with respect to this Agreement and the transactions described in it.

     14.8 Force Majeure.

               (a) No Liability for Certain Delays or Defaults. Neither Alpha
        Engines nor Licensee shall be liable in damages, or have the right to
        terminate this Agreement, for any delay or default in performing any
        obligation hereunder if that failure or delay is due to any cause
        beyond the reasonable control and without default or negligence of
        that party and it is making efforts in good faith to comply with the
        terms of this Agreement; provided, however, in order to excuse its
        delay or default hereunder, a party shall notify the other within five
        business days of the delay or default of the occurrence or the cause
        specifying the nature and particulars thereof and the expected
        duration thereof; and provided, further, that within five business
        days of the termination of such occurrence or cause, such party shall
        give notice to the other party specifying the date of termination
        thereof. All obligations of both parties shall return to being in full
        force and effect upon the termination of such occurrence or cause
        (including without limitations any payment that became due and payable
        hereunder prior to the termination of such occurrence or cause).
        However, in the event that the duration of such occurrence or cause
        extends beyond one year, the non-excused party shall then have the
        right, by giving sixty days prior written notice to the other party,
        to terminate this Agreement unless the other party shall substantially
        cure such occurrence or cause within the sixty-day period.

               (b) Cause Beyond the Reasonable Control. For the purposes of this
        section, a "cause beyond the reasonable control" of a party shall mean
        any act of any government or other authority or statutory undertaking,
        labor walkout or work stoppage that compels termination of all work on
        a plant for the production of Detonation Engines or EIC Ignition
        Systems and continues for more than three months; ire; explosion;
        failure of electric power supply for thirty consecutive days; flood;
        riot or war (declared or undeclared) that renders a party unable to
        proceed with construction or continue, despite all reasonably
        commercial efforts to proceed or continue.

                                       30

     14.9 Cumulative Remedies; Waive; Time. Each and every power and remedy in
this Agreement shall be cumulative and shall be in addition to every other
right, power and remedy herein or now or hereafter existing at law, in equity,
or by statute. Each and every right, power and remedy, whether specifically
provided in this Agreement or otherwise existing, may be exercised from time to
time and as often and in such order as may be deemed expedient by the party
exercising the right, power or remedy. The exercise or the beginning of the
exercise of any right, power or remedy shall not be construed to be a wavier of
the right to exercise at the same time or thereafter any other right, power or
remedy. It is expressly understood and agreed by Licensee that time is of the
essence of the Agreement and that no delay or omission by Alpha Engines in the
exercise of any right or power or in the pursuit of any remedy accruing upon any
ground for termination hereunder shall impair any such right, power or remedy or
be construed to be a waiver thereof or of any such or to be an acquiescence
therein, nor shall the acceptance by Alpha Engines of any payment be deemed a
waiver of any right to take advantage of any future ground for termination or of
any past ground for termination not completely cured thereby.

     14.10 Table of Contents and Headings. The table of contents accompanying
this Agreement and the section headings contained herein are for ease of
reference only. They do not constitute a part of this Agreement, and shall not
be employed in interpreting this Agreement.

     14.11 Notices. Any notice, payment, request, demand or other communication
hereunder shall be in writing and shall be deemed to have been duly given when
(i) delivered personally, upon personal delivery to the party to be notified; or
(ii) one business day after sent by facsimile transmission with confirmation
that the facsimile message was received at the facsimile machine of the party to
be notified, or (iii) five business days after sent by registered or certified
mail, postage paid, to the party to be notified; or (iv) five business days
after sent by ordinary mail, postage paid, to the party to be notified, at the
address set forth below:

Alpha Engines:                                     Licensee:
President                                          President
Alpha Engines Corporation                          Turbine Truck Engines, Inc.
P. O. Box 9483                                     1200 Flightline Blvd., Ste. 5
Daytona Beach, Florida 32120-9483                  Deland, FL 32724
Facsimile: (904) 322-4594                          Facsimile: (904) 943-9910

Either Alpha Engines or Licensee may change its address, facsimile number or
representative to be notified by written notice to the other party.

     14.12 Survival of Contents. Notwithstanding anything else in this Agreement
to the contrary, the parties agree that those provisions of this Agreement that
by their nature survive the termination or expiration of this Agreement shall do
so to the extent required for the full observation and performance of them by
any or all of the parties to this Agreement.

                                       31

     14.13 Accrued Obligations Not Released. Unless otherwise specifically
provided in this Agreement, all rights and obligations of Alpha Engines and
Licensee hereunder shall remain in effect throughout the term of this Agreement.
Neither cancellation, expiration or other termination of this Agreement shall
relieve either party of any obligation arising under this Agreement which shall
have accrued prior to such cancellation, expiration or other termination, or
which accrues thereafter pursuant to the terms of this Agreement.

     14.14 Integration. This Agreement represents the entire agreement of the
parties with respect to the subject matter herein contained and supersedes all
prior correspondence, conversations, negotiations and understandings with
respect to those subjects, except as to other written agreements referred to in
this Agreement. No change or modification to this Agreement shall be valid
unless in writing and signed by the parties to this Agreement.

     14.15 Construction. This Agreement has been prepared, examined, negotiated
and revised by each party and their respective attorneys, and no implication
shall be drawn and no provision shall be construed against any party to this
Agreement by virtue of the purported identity of the drafter of this Agreement,
or any portion thereof.

     14.16 Invalidity of Provision. If any of the provisions of this Agreement
shall be held by arbitrators or a court or administrative agency of competent
jurisdiction to contravene the laws of any country, it is agreed that such
invalidity or illegality should not invalidate the whole Agreement, but this
Agreement shall be construed as if it did not contain the provision or
provisions held to be invalid or illegal in the particular jurisdiction
concerned, and insofar as such construction does not affect the substance of
this Agreement and the rights and obligations of the parties hereto, it shall be
construed and enforced accordingly. In the event, however, that such invalidity
or illegality will substantially alter the relationship between the parties to
this Agreement, affecting adversely the interest of either party, then the
parties hereto shall negotiate a mutually acceptable alternative provision not
in conflict with such laws.

     14.17 Further Assurances. Each party shall execute and deliver all such
further documents and instruments and take all such further actions as may be
reasonably required or appropriate to carry out the intent and purposes
expressed in this Agreement.

     14.18 Counterparts. This Agreement may be executed in several counterparts.
All copies so executed shall  constitute but one and the same  agreement,  which
shall be binding on all the parties hereto notwithstanding that less than all of
the   parties  may  have   signed  the   original   or  the  same   counterpart.

                                       32

          IN WITNESS WHEREOF, the parties have executed duplicate originals of
this Agreement by their duly authorized officers as of the date first mentioned
above.

 Alpha Engines Corporation                      ATTEST:

 By: /s/ Robert L. Scragg                      /s/ Barbara J. Scragg
         Robert L. Scragg, President               B.J. Scragg, Secretary

 Licensee: Turbine Truck Engines, Inc.          ATTEST:

 By: /s/ Michael Rouse                         /s/ James A. Teters, Jr.
         Michael Rouse, Chairman and CEO           James A. Teters, Jr., President and COO

                                       33

                                    EXHIBIT A

                            Confidentiality Agreement

     This Agreement is entered into as of _______________________,  200__ by and
between TURBINE TRUCK ENGINES, INC., a corporation incorporated in the USA under
provisions of the laws of Delaware (Turbine Truck Engines), and
____________________________________________, a corporation organized under the
laws of ___________________, (Recipient) whose address is
________________________________ in consideration of the following
circumstances.

     A. Turbine Truck Engines has obtained from Alpha Engines Corporation a
limited license to use certain technology developed by Alpha Engines for a new
gas turbine engine system (called Detonation Cycle Gas Turbine Engine or
Detonation Engine), that uses cyclic detonations, provided by a process called
"electromagnetic isothermal combustion" (EIC), for complete combustion of any
fuel. The Detonation Engine may be designed and manufactured in many sizes and
configurations that enable it to produce the desired horsepower and meet the
design, weight and other special requirements for various discrete applications.
Alpha Engines is in the business of licensing use of its technology for the
Detonation Engine for many different applications.

     B. Alpha Engines also owns and Turbine Truck Engines has licensed certain
technical information, data, know-how and unpatented inventions (Alpha Engines
Technical Information) that are useful with the Detonation Engine. The
technology for practice of the Patent Rights, including the Alpha Engines
Technical Information, is collectively called "Detonation Engine Technology."

     C. For the purpose of evaluating or practicing the Detonation Engine
Technology for heavy duty highway truck engines, Recipient desires to receive
confidential information about the Detonation Engine Technology that is licensed
by Turbine Truck Engines and is proprietary to Alpha Engines and material to
Turbine Truck Engines and Alpha Engines's businesses and not generally known in
the industry. During the term of this Agreement and any further agreement for
use of the Detonation Engine Technology, the Recipient may receive additional
confidential information relating to the Detonation Engine Technology. All of
the foregoing confidential information, including the Detonation Engine
Technology, is collectively called Confidential Information.

     D. Licensee agrees that all information that it receives from Turbine Truck
Engines and Alpha Engines and their agents relating to the Detonation Engine
Technology, all EIC Ignition Systems and the component parts and auxiliary
systems used for operation of Detonation Engines, as well as designs and
specifications, including without limitation, (a) preliminary engineering
designs and specifications, flow sheets, drawings related to the designs,
aspects, configurations, operating conditions, and functions of Detonation
Engines and component parts and auxiliary systems; (b) plans, engineering
designs and specifications, and instrumentation drawings for those systems; (c)
cost estimates, construction standards and procedures; (d) processes, formulas,
improvements, inventions, techniques, designs and plans for manufacturing
plants; (e) forecasts, new products, customer lists, information regarding
prospective financing sources, competitors, fee and royalties charged by Alpha
Engines; (fj all know-how, technology, trade secrets and other proprietary
information of Turbine Truck Engines and Alpha Engines, and (g) non-published
financial information relating to Turbine Truck Engines and Alpha Engines
(Confidential Information) shall be considered confidential.

                                       34

     Now,  therefore,  in consideration of the preceding  circumstances  and the
following covenants, promises and agreements, Turbine Truck Engines agrees to
disclose to the Recipient, on the following terms and conditions, certain
aspects of the Confidential Information.

     1. Receipt and Confidentiality. Whether or not Recipient enters into any
further transaction with Turbine Truck Engines or Alpha Engines, Recipient will
not use such information except for the purpose of evaluating, or if a
sublicense is granted by Turbine Truck Engines to Recipient that is approved by
Alpha Engines, to practicing the Detonation Engine Technology described in this
Agreement. Recipient will not disclose such information to anyone except its
employees and agents that Recipient determines need to know in connection with
such purposes, and to them only if (i) they have executed a confidentiality
agreement maintained by Recipient, with a true copy delivered to Turbine Truck
Engines, in substantially the form and with the terms of this Agreement, or (ii)
Recipient has taken other steps to strictly ensure that such persons will
maintain its confidentiality. The Confidential Information shall be kept
confidential during the term of this Agreement and after termination or
expiration of this Agreement until such time as the information ceases being
Confidential Information pursuant to the following provisions of paragraph 2.

     2. Limit on Obligation. Confidential Information, for the purpose of this
Agreement, shall not include, and Recipient and its employees and agents shall
not be limited in disclosing the same, if and to the extent that the
information, as shown by competent evidence:

          (a) is or becomes, through no fault of the party obligated to maintain
     confidentiality, in the public domain;

          (b) is lawfully obtained by Recipient from a source other than Turbine
     Truck Engines, Alpha Engines or their agents;

          (c) was already known by  Recipient at the time of its receipt, as
     shown by reasonable proof filed with Turbine Truck Engines within thirty
     days after its receipt by the Recipient; or

          (d) is required to be disclosed by order of any court or governmental
     authority having jurisdiction.

     Disclosures that are specific, including but not limited to operating
conditions such as pressures, temperatures, formulas, procedures and other such
standards and conditions, shall not be deemed to be within the foregoing
exceptions merely because they are embraced by general disclosures available to
the general public or in Recipient's possession. Additionally, any combination
of features shall not be deemed to be within the foregoing exceptions merely
because the individual features are available to the general public or in
Recipient's possession unless the combination itself and its principle of
operation are available to the general public.

                                       35

     3.  Published Disclosure.  It is agreed that the disclosure of certain
information by Turbine Truck Engines or Alpha Engines in a publication, such as
in letters patent, technical and scientific articles, lectures, or by otherwise
placing it in the public domain, will not free Recipient from its obligation to
maintain in confidence any information not specifically disclosed in or fairly
ascertainable from the publication or other disclosure, such as, for example,
the fact that information in the publication or any portion of it is or is not
used by either party.

     4.  Duration of Obligations. Recipient shall not use the Confidential
Information after termination or expiration of this Agreement until such time,
if any, as the information ceases being Confidential Information pursuant to the
provisions of paragraph 2.

     5. Remedies for Breach. Recipient hereby agrees that the violation, breach
or threatened violation or breach of the agreements contained herein may cause
immediate and irreparable harm to Turbine Truck Engines and Alpha Engines and
their affiliated entities, which may be difficult to calculate, and that any
award of any sum of money damages may not be adequate relief to Turbine Truck
engines or Alpha Engines. Recipient therefore agrees that, in the event of any
actual or threatened violation of the provisions of the Agreement, Turbine Truck
Engines and Alpha Engines shall have the right to injunctive and other equitable
relief against Recipient in addition to any other judicial and equitable
remedies in any court of competent jurisdiction, without bond.

     6.  Legal and Accounting Fees. In the event that a court of competent
jurisdiction judicially determines that there has been a breach of this
Agreement by either party, the prevailing party shall be entitled to all costs
and expenses incurred by the other in the enforcement hereof, including, without
limitation, all actual and reasonable attorney fees and accounting fees, as well
as damages.

     7. Conflicting Obligations. The Recipient believes that it is free to enter
into this Agreement and perform in accordance therewith. If, however, the
Recipient finds, upon its receipt of Confidential Information, that a conflict
appears likely to occur because of Recipient's previous and continuing
obligations or commitments to other parties, then Recipient will promptly so
advise Turbine Truck Engines in writing and, unless otherwise then agreed by the
parties, will return any documents and other materials containing Confidential
Information to Turbine Truck Engines without copying, retaining copies,
summaries, analyses or extracts thereof. Thereafter, Recipient shall maintain
the confidentiality of the Confidential Information as provided in this
Agreement.

     8.  Effects of Agreement.  The execution of this Agreement creates and
ratifies only the relationship and prior agreements recited. It conveys no right
to use any of the Confidential Information disclosed for any commercial purposes
beyond the contemplated evaluation without the specific written authorization of
Turbine Truck Engines in the form of a sublicense that has been approved in
writing by Alpha Engines to practice and use the Detonation Engine Technology.
Termination of this Agreement shall not operate to terminate obligations of the
parties arising under the Agreement.

                                       36

     9. Binding Effect; Governing Law. The agreements contained herein shall be
binding upon and inure to the benefit of Recipient, Turbine Truck Engines and
Alpha Engines, their successors, assigns and legal representatives. This is a
contract, made and to be performed in the state of, United States of America,
whose substantive laws, without regard to conflict of laws, shall apply to its
construction and enforcement. The agreements contained in this Agreement
supersede any and all prior agreements between Recipient and Turbine Truck
Engines relating to the subject matter.

                                                      RECIPIENT:
ATTEST:

                                                      By:
                                                      Name:
                                                      Title:

                                                      TURBINE TRUCK ENGINES, INC.
ATTEST:

                                                      By:
                                                      Name:
                                                      Title:

                                       37

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00056-of-00352.parquet"}]]