Document:

exv10w38

 

Memory Pharmaceuticals Corp.

  100 Philips Parkway

  Montvale, New Jersey 07645

  Phone: (201) 802-7100

  Fax: (201) 802-7190

  www.memorypharma.com

February 19, 2008

Mr. Vaughn M. Kailian

[address]

Dear Vaughn:

     The following sets forth our agreement relating to your serving on an interim basis as the
Interim President and Chief Executive Officer of Memory Pharmaceuticals Corp. (the “Company”).

     1. Position. Your position will be Interim President and Chief Executive Officer,
reporting directly to the Company’s Board of Directors. We acknowledge that you will continue to
have an employment arrangement with MPM and will perform services for MPM Asset Management LLC
during the term of your employment with the Company.

     2. Starting Date/Nature of Relationship. Your employment will start on February 7,
2008 (the “Start Date”). No provision of this letter shall be construed to create an express or
implied employment contract for a specific period of time. The Company may terminate the
employment relationship at any time and for any reason, by written notice to you. You may
terminate the employment relationship by giving at least two weeks’ prior written notice to the
Company. In the event the Company terminates your employment prior to May 7, 2008, you will
continue to receive an amount equal to your base salary, less applicable deductions, that you
otherwise would have received for the period from the date of termination through such date.

     3. Compensation.

     (a) Your base salary will be at the semi-monthly rate of $17,083.33, less applicable
deductions, (annualized at $409,999.92).

     (b) On February 11, 2008 (the “Grant Date”), you will receive stock options (the “Options”)
to purchase 363,630 shares of the Company’s Common Stock, which will include an incentive stock
option, to the extent permissible under applicable law, with a non-qualified stock option for the
balance. The Options (i) will entitle you to purchase the Company’s Common Stock at the closing
price per share of the Company’s Common Stock on the Nasdaq Global Market (“NASDAQ”) on the Grant
Date, in accordance with the Company’s Amended and Restated 2004 Stock Incentive Plan (the
“Plan”), and (ii) shall be immediately vested in full. The Options shall be evidenced by Stock
Option Agreements in the standard form of agreement under the Plan, revised per the terms
specified in this Section 4(b), which you agree to promptly execute and deliver to the Company.
Pursuant to Section 8.1 of the Plan, you are authorized to assign the non-statutory Option to MPM Asset Management Investors BV4 LLC, provided that MPM Asset Management Investors BV4 LLC agrees with the Company in writing to be bound by the terms and
conditions of such Option.

     4. Benefits. You will be entitled as an employee of the Company to receive such
benefits as are generally provided its employees and executives and for which you are eligible in
accordance with Company policy as in effect from time to time. The Company retains the right to
change, add or cease any particular benefit relating to its employees and executives generally.
At this time, the Company is offering a benefit program, consisting of medical, dental, life and
short/long term disability insurance, as well as a 401(k) retirement plan and flexible spending
plan. Notwithstanding the foregoing, you hereby

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

waive any right, and decline to participate in
our life insurance, 401(k), disability, medical, dental benefit plans. Because this is an interim
assignment, it is mutually agreed that you will not accrue any right to paid vacation during the
first three months of your employment. In the event that your employment
continues after three months, the Company and you will discuss whether it would be
appropriate to allot a vacation accrual.

     (a) Commuting Expenses. During the period of your employment, the Company will, at
its expense, pay or reimburse you: (i) for all out-of-pocket expenses in connection with weekly
round trip flights from California to New York/New Jersey, apartment/hotel expenses and car rental
expenses, (ii) in accordance with the Company’s policy for meals, and (iii) for any Tax Payment
(as defined below) and any Gross-up Payment (as defined below), which may be billed directly to
the Company or paid by you and submitted for reimbursement. All such payments will be subject to
the Company’s receiving reasonably acceptable documentation evidencing the incurring of such cost,
expense or fee. In the event that it should be determined that any payment shall be due by you
for taxes of any kind or nature relating to amounts paid to you or on your behalf by the Company
in connection with your commuting expenses as provided above (“Taxes”), the Company will deliver
to you a payment equal to the amount of such Taxes (the “Tax Payment”) plus an additional payment
in an amount equal to any additional taxes payable by you applicable to your receipt of the Tax
Payment (the “Gross-Up Payment”). Reimbursement of commuting expenses pursuant to this paragraph
shall be paid to you no later than 2-1/2 months after the year in which you incur the expenses,
and any Tax Payment and Gross-Up Payment shall be paid to you no later then December 31 of the
year after the year in which you pay the related taxes.

     5. Confidentiality. The Company considers the protection of its confidential
information and proprietary materials to be very important. Therefore, as a condition of your
employment, you will be required to execute and deliver to the Company upon execution of this
Agreement a Confidentiality Agreement substantially in the form of Exhibit A to this
letter (the “Confidentiality Agreement”).

     6. General.

     (a) This letter agreement, together with the Confidentiality Agreement and the Stock Option
Agreement(s), when executed, will constitute our entire agreement as to your employment by the
Company and will supersede any prior agreements or understandings, whether in writing or oral.

     (b) This letter agreement shall be subject to our receipt of satisfactory documentation of
your freedom to operate in the CNS field. By signing this letter agreement, you represent and
warrant to the Company that your execution of this letter and performance by you of the activities
contemplated hereby on behalf of the Company will not conflict with, violate or constitute a
breach of any agreement to which you are a party or by which you may be bound.

     (c) This letter agreement shall be governed by the law of the State of New Jersey. In the
event of any legal proceedings relating to this letter agreement and/or the subject matter
thereof, the parties consent to the exclusive jurisdiction of the courts located in the State of
New Jersey. THE PARTIES HEREBY EXPRESSLY WAIVE THEIR RIGHT TO HAVE A JURY TRIAL.

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

     You may accept this offer of employment and the terms thereof by signing the enclosed
additional copy of this letter agreement and the Confidentiality Agreement, which execution will
evidence your agreement with the terms set forth herein and therein, and returning them to the
Company.

	 	 	 	 	 	 	 
	 	 	Sincerely,	 	 
	 
	 	 	 	 
	 	 	Memory Pharmaceuticals Corp.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jonathan Fleming	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Jonathan Fleming	 	 
	 

	 	 	 	Chairman of the Board	 	 

ACCEPTED AND AGREED:

/s/ Vaughan M. Kailian

Vaughn M. Kailian

Date: February 19, 2008

 

 

EXHIBIT A

Memory Pharmaceuticals Corp.

  100 Philips Parkway

  Montvale, New Jersey 07645

  Phone: (201) 802-7100

  Fax: (201) 802-7190

  www.memorypharma.com

FORM
OF CONFIDENTIALITY AGREEMENT

February 19, 2008

Mr. Vaughn M. Kailian

[address]

Dear Mr. Kailian:

     This letter is to confirm our understanding with respect to (i) your agreement to protect and
preserve information and property which is confidential and proprietary to Memory Pharmaceuticals
Corp. or its parent, subsidiaries or affiliates, if any, (the “Company”), and (ii) your agreement
not to compete with the Company (the terms and conditions agreed to in this letter shall
hereinafter be referred to as this “Agreement”). In consideration of the mutual promises and
covenants contained in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby mutually acknowledged, we have agreed as follows:

     1. Protected Information. You shall at all times, both during and after the
termination of your employment with the Company, by either you or the Company, with or without
cause, maintain in confidence and shall not, without the prior written consent of the Company,
directly or indirectly use, except in the course of performance of your duties for the Company,
directly or indirectly disclose or give to others any fact, information or document (whether
printed, typed, handwritten, electronic or stored on computer disks, tapes, hard drives or any
other tangible medium) which was disclosed to or developed by you during the course of performing
services for, and/or receiving training from, the Company, and is not generally available to the
public, including but not limited to, information, facts and documents concerning business plans,
research and development, customers, suppliers, licensors, licensees, partners, investors,
affiliates or others, training methods and materials, financial information, sales prospects,
client lists, methodologies, formulae, designs, schematics, charts, Inventions (as defined in
Section 2), or any other scientific, technical, trade or business secret or confidential or
proprietary information (“Confidential Information”) of the Company or of any third party provided
to you during the course of your training and/or employment. Confidential Information shall not
include information which (a) is or becomes generally known within the Company’s industry through
no fault of yours; (b) was known to you at the time it was disclosed; or (c) is lawfully and in
good faith made available to you while you are not an employee of the Company by a third party who
did not derive it from the Company and who imposes no obligation of confidence on you.

     In the event you are questioned by anyone not employed by the Company or by an employee of or
a consultant to the Company not authorized to receive such information, in regard to any
Confidential Information or any other secret or confidential work of the Company, or concerning any
fact or circumstance relating thereto, or in the event that you become aware of the unauthorized
use of Confidential Information by any party, whether competitive with the Company or not, you will
promptly notify the President and Chief Executive Officer and Vice President – Legal Affairs of the
Company.

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

     2. Ownership of Ideas, Copyrights and Patents.

          (a) Property of the Company. You agree that all ideas, discoveries, creations,
manuscripts and properties, innovations, improvements, know-how, Inventions, designs, developments,
apparatus, techniques, algorithms, software, mask works, methods, and formulae that are made,
conceived, devised, invented, created, developed, written, or otherwise reduced to practice or
tangible medium by you, under your direction, or jointly with others during any period that you are
employed or engaged by the Company (the “Term”) (i) that arose out of, or was incidental to, your
employment by the Company or (ii) using any Confidential Information or Inventions of the Company
(all of the foregoing being hereinafter referred to as the “Inventions”), whether patentable,
copyrightable, protectable as mask works or not, shall be the sole and exclusive property of the
Company, that you shall promptly disclose any such Inventions to the Company both during and after
the Term, and that you shall not publish any such Inventions without the prior written consent of
the Company. You hereby assign to the Company all of your rights, title and interests in and to all
of the foregoing. You further represent and agree that to the best of your knowledge and belief,
none of the Inventions will violate or infringe upon any right, patent, copyright, trademark or
right of privacy, or constitute libel or slander against or violate any other rights of any person,
firm or corporation, and that you will use your best efforts to prevent any such violation. You
also agree that you will neither disclose to the Company or any of its employees nor use for their
benefit any other person’s or company’s trade secret or proprietary information, or information
which you have agreed not to disclose or use.

          (b) Cooperation. At any time during or after the Term, you agree that you will fully
cooperate with the Company, its attorneys and agents in the preparation and filing of all papers
and other documents as may be required to perfect and protect the Company’s rights in and to any of
such Inventions, including, but not limited to, joining in any proceeding to obtain and enforce
letters patent, copyrights, mask work registrations, trademarks or other legal rights of the United
States and of any and all other countries on such Inventions, provided that the Company will bear
the expense of such proceedings, and that any patent, copyright, mask work registration, trademark
or other legal right so issued to you, personally, shall be assigned by you to the Company without
charge by you.

     3. Survival of Acknowledgments and Agreements. Your acknowledgments and agreements
set forth in Sections 1 and 2 shall survive the expiration or termination of this Agreement and the
termination of your employment with the Company for any reason.

     4. Disclosure to Future Employers. You agree that you will provide, and that the
Company may similarly provide in its discretion, a copy of the covenants contained in Sections 1
and 2 of this Agreement to any business or enterprise which you may directly, or indirectly, own,
manage, operate, finance, join, control or in which you participate in the ownership, management,
operation, financing, or control, or with which you may be connected as an officer, director,
employee, partner, principal, agent, representative, consultant or otherwise.

     5. Records. Upon termination of your relationship with the Company, you shall deliver
immediately to the Company any property of the Company which may be in your possession including
products, materials, memoranda, notes, records, reports, or other documents or photocopies of the
same, including, without limitation, any of the foregoing recorded on any computer or any machine
readable medium.

     6. No Conflicting Agreements. You have set forth on Exhibit 1 hereto all computer
software and/or Inventions made or conceived by you prior to the date of this Agreement which you
own an interest in and wish to exclude from this Agreement and have listed on Exhibit 1 any
employment or other agreements currently in effect under which you are obligated to provide
services to any third parties. You hereby represent and warrant that, except as set forth on
Exhibit 1, you have no commitments or obligations that conflict with the terms of this Agreement.

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

     7. General.

          (a) Notices. All notices, requests, consents and other communications hereunder shall
be in writing, shall be addressed to the receiving party’s address set forth below or to such other
address as a party may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telecopy or facsimile transmission, (iii) sent by overnight courier, or (iv) sent by
registered or certified mail, return receipt requested, postage prepaid.

	 	 	 
	If to the Company:

	 	Memory Pharmaceuticals Corp.
	 

	 	100 Philips Parkway
	 

	 	Montvale, New Jersey 07645
	 

	 	Attention: President and Chief Executive Officer
	 
	 	 
	With a copy to:

	 	Sills Cummis Epstein & Gross, P.C.
	 

	 	One Riverfront Plaza
	 

	 	Newark, New Jersey 07102
	 

	 	Attention: Ira A. Rosenberg, Esq.
	 
	 	 
	 

	 	If to Employee:
	 

	 	Vaughn M. Kailian
	 

	 	[address]

All notices, requests, consents and other communications hereunder shall be deemed to have been
given either (i) if by hand, at the time of the delivery thereof to the receiving party at the
address of such party set forth above, (ii) if made by telecopy or facsimile transmission, at the
time that receipt thereof has been acknowledged by electronic confirmation or otherwise, (iii) if
sent by overnight courier, on the next business day following the day such notice is delivered to
the courier service, or (iv) if sent by registered or certified mail, on the fifth business day
following the day such mailing is made.

          (b) Entire Agreement. This Agreement embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and supersedes all prior oral
or written agreements and understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set forth in this
Agreement shall affect, or be used to interpret, change or restrict, the express terms and
provisions of this Agreement.

          (c) Modifications and Amendments. The terms and provisions of this Agreement may be
modified or amended only by written agreement executed by the parties hereto.

          (d) Waivers and Consents. The terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document executed by the party
entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to
be or shall constitute a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not constitute a continuing
waiver or consent.

          (e) Assignment. The Company may assign its rights and obligations hereunder to any
person or entity who succeeds to all or substantially all of the Company’s business or that aspect
of the Company’s business in which you are principally involved. Your rights and obligations under
this Agreement may not be assigned by you without the prior written consent of the Company.

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

          (f) Benefit. All statements, representations, warranties, covenants and agreements in
this Agreement shall be binding on the parties hereto and shall inure to the benefit of the
respective successors and permitted assigns of each party hereto. Nothing in this Agreement shall
be construed to create any rights or obligations except among the parties hereto, and no person or
entity shall be regarded as a third-party beneficiary of this Agreement.

          (g) Governing Law. This Agreement and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of the State of New Jersey,
without giving effect to the conflict of law principles thereof.

          (h) Jurisdiction and Service of Process. Any legal action or proceeding with respect
to this Agreement shall be brought in the courts of the State of New Jersey or of the United States
District Court for the District of New Jersey. By execution and delivery of this Agreement, each
of the parties hereto accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts. Each of the parties hereto irrevocably
consents to the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the party at its
address set forth in Section 8(a) hereof.

          (i) Severability. The parties intend this Agreement to be enforced as written.
However, (i) if any portion or provision of this Agreement shall to any extent be declared illegal
or unenforceable by a duly authorized court having jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion
and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by
law; and (ii) if any provision, or part thereof, is held to be unenforceable because of the
duration of such provision or the geographic area covered thereby, the Company and you agree that
the court making such determination shall have the power to reduce the duration and/or geographic
area of such provision, and/or to delete specific words and phrases (“blue-pencilling”), and in its
reduced or blue-pencilled form such provision shall then be enforceable and shall be enforced.

          (j) Interpretation. The parties hereto acknowledge and agree that the terms and
provisions of this Agreement, shall be construed fairly as to all parties hereto and not in favor
of or against a party, regardless of which party was generally responsible for the preparation of
this Agreement.

          (k) Headings and Captions. The headings and captions of the various subdivisions of
this Agreement are for convenience of reference only and shall in no way modify, or affect the
meaning or construction of any of the terms or provisions hereof.

          (l) Injunctive Relief. You hereby expressly acknowledge that any breach or threatened
breach of any of the terms and/or conditions set forth in Sections 1 or 2 of this Agreement will
result in substantial, continuing and irreparable injury to the Company. Therefore, you hereby
agree that, in addition to any other remedy that may be available to the Company, the Company shall
be entitled to injunctive or other equitable relief by a court of appropriate jurisdiction, without
posting a bond, in the event of any breach or threatened breach of the terms of Sections 1 or 2 of
this Agreement.

          (m) No Waiver of Rights, Powers and Remedies. No failure or delay by a party hereto
in exercising any right, power or remedy under this Agreement, and no course of dealing between the
parties hereto, shall operate as a waiver of any such right, power or remedy of the party. No
single or partial exercise of any right, power or remedy under this Agreement by a party hereto,
nor any abandonment or discontinuance of steps to enforce any such right, power or remedy, shall
preclude such party from any other or further exercise thereof or the exercise of any other right,
power or remedy hereunder. The election of any remedy by a party hereto shall not constitute a
waiver of the right of such party to pursue other available remedies. No notice to or demand on a
party not expressly required under

 

 

MEMORY PHARMACEUTICALS CORP.

V. Kailian

this Agreement shall entitle the party receiving such notice or demand to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the rights of the
party giving such notice or demand to any other or further action in any circumstances without such
notice or demand.

          (n) Expenses. Should any party breach this Agreement, in addition to all other
remedies available at law or in equity, such breaching party shall pay all of any other party’s
costs and expenses resulting therefrom and/or incurred in enforcing this Agreement, including legal
fees and expenses.

     8. Counterparts. This Agreement may be executed in one or more counterparts, and by
different parties hereto on separate counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.

     If the foregoing accurately sets forth our agreement, please so indicate by signing and
returning to us the enclosed copy of this letter.

	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	MEMORY PHARMACEUTICALS CORP.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Jonathan Fleming	 	 
	 

	 	Title:
	 	Chairman of the Board	 	 

Accepted and Approved:

	 	 	 
	 

Vaughn M. Kailian

	 	  

 

 

EXHIBIT 1

PRIOR INVENTIONS AND/OR OTHER AGREEMENTS

[list any prior inventions to be expressly excluded]exv10w1

 

EXHIBIT 10.1

EXECUTION COPY

MERGER
AGREEMENT

Confidential Treatment has been requested for portions of this exhibit. The copy filed herewith
omits the information subject to the confidentiality request. Omissions are designated as “***”.
A complete version of this exhibit has been filed separately with the Securities and Exchange
Commission.

AGREEMENT AND PLAN OF MERGER

by and among

Bio-Imaging Technologies, Inc.

Bio-Imaging Acquisition Corporation

and

Phoenix Data Systems, Inc.

and

***, as Stockholders’ Representative

Dated as of March 24, 2008

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE I THE MERGER	 	 	2	 
	 
	 
	 	1.1	 	The Merger	 	 	2	 
	 
	 
	 	1.2	 	Closing; Effective Time	 	 	2	 
	 
	 
	 	1.3	 	Effects of the Merger	 	 	2	 
	 
	 
	 	1.4	 	Further Assurances	 	 	3	 
	 
	ARTICLE II CONVERSION OF SECURITIES	 	 	3	 
	 
	 
	 	2.1	 	Merger Consideration; Effect on Company Capital Stock	 	 	3	 
	 
	 
	 	2.2	 	Purchase Price Adjustment	 	 	5	 
	 
	 
	 	2.3	 	Exchange of Certificates and Distribution of Merger Consideration	 	 	8	 
	 
	 
	 	2.4	 	Distributions with Respect to Unexchanged Shares of Company Common Stock	 	 	9	 
	 
	 
	 	2.5	 	No Further Ownership Rights in Company Common Stock	 	 	10	 
	 
	 
	 	2.6	 	Lost Certificates	 	 	10	 
	 
	 
	 	2.7	 	Dissenters’ Rights	 	 	10	 
	 
	ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY	 	 	11	 
	 
	 
	 	3.1	 	Organization and Good Standing	 	 	12	 
	 
	 
	 	3.2	 	Capitalization	 	 	12	 
	 
	 
	 	3.3	 	Subsidiaries of the Company	 	 	14	 
	 
	 
	 	3.4	 	Authority and Enforceability	 	 	14	 
	 
	 
	 	3.5	 	No Conflict; Authorizations	 	 	15	 
	 
	 
	 	3.6	 	Financial Statements.	 	 	16	 
	 
	 
	 	3.7	 	No Undisclosed Liabilities	 	 	17	 
	 
	 
	 	3.8	 	Inventory	 	 	17	 
	 
	 
	 	3.9	 	Accounts Receivable	 	 	17	 
	 
	 
	 	3.10	 	Taxes	 	 	18	 
	 
	 
	 	3.11	 	Compliance with Law	 	 	20	 
	 
	 
	 	3.12	 	Authorizations	 	 	21	 
	 
	 
	 	3.13	 	Title to Personal Properties	 	 	21	 
	 
	 
	 	3.14	 	Condition of Tangible Assets	 	 	22	 
	 
	 
	 	3.15	 	Real Property	 	 	22	 
	 
	 
	 	3.16	 	Intellectual Property	 	 	23	 

i

 

TABLE OF CONTENTS

(Continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	3.17	 	Absence of Certain Changes or Events	 	 	28	 
	 
	 
	 	3.18	 	Contracts	 	 	30	 
	 
	 
	 	3.19	 	Litigation	 	 	32	 
	 
	 
	 	3.20	 	Employee Benefits	 	 	33	 
	 
	 
	 	3.21	 	Labor and Employment Matters	 	 	36	 
	 
	 
	 	3.22	 	Environmental	 	 	37	 
	 
	 
	 	3.23	 	Related Party Transactions	 	 	40	 
	 
	 
	 	3.24	 	Insurance	 	 	40	 
	 
	 
	 	3.25	 	Books and Records	 	 	41	 
	 
	 
	 	3.26	 	Product Warranty	 	 	41	 
	 
	 
	 	3.27	 	Conditions Affecting the Company	 	 	42	 
	 
	 
	 	3.28	 	Brokers or Finders	 	 	42	 
	 
	 
	 	3.29	 	No Illegal Payments	 	 	42	 
	 
	 
	 	3.30	 	Suppliers and Customers	 	 	42	 
	 
	 
	 	3.31	 	Bank Accounts	 	 	43	 
	 
	 
	 	3.32	 	Powers of Attorney	 	 	43	 
	 
	 
	 	3.33	 	Completeness of Disclosure	 	 	43	 
	 
	ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	 	 	43	 
	 
	 
	 	4.1	 	Organization and Good Standing	 	 	43	 
	 
	 
	 	4.2	 	Capital Structure	 	 	44	 
	 
	 
	 	4.3	 	Authority and Enforceability	 	 	44	 
	 
	 
	 	4.4	 	No Conflicts; Authorizations	 	 	44	 
	 
	 
	 	4.5	 	SEC Filings; Financial Statements	 	 	45	 
	 
	 
	 	4.6	 	Interim Operations of Sub	 	 	46	 
	 
	 
	 	4.7	 	Completeness of Disclosure	 	 	46	 
	 
	ARTICLE V COVENANTS OF THE COMPANY	 	 	46	 
	 
	 
	 	5.1	 	Non-Competition by Company Stockholders	 	 	46	 
	 
	ARTICLE VI COVENANTS OF PARENT	 	 	47	 
	 
	 
	 	6.1	 	Employees and Employee Benefit Plans	 	 	47	 
	 
	 
	 	6.2	 	Registration Rights	 	 	47	 

ii

 

TABLE OF CONTENTS

(Continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 
	 	6.3	 	Technology Committee	 	 	47	 
	 
	 
	 	6.4	 	Receivable Collectability Claims	 	 	47	 
	 
	ARTICLE VII COVENANTS OF THE COMPANY AND PARENT	 	 	48	 
	 
	 
	 	7.1	 	Regulatory Approvals	 	 	48	 
	 
	 
	 	7.2	 	Public Announcements	 	 	48	 
	 
	 
	 	7.3	 	Tax-Free Reorganization	 	 	48	 
	 
	 
	 	7.4	 	Expenses	 	 	48	 
	 
	 
	 	7.5	 	Further Assurances	 	 	49	 
	 
	 
	 	7.6	 	Preparation and Filing of Final S Corp Tax Return	 	 	49	 
	 
	ARTICLE VIII CLOSING DELIVERABLES	 	 	50	 
	 
	 
	 	8.1	 	Closing Deliverables of Company	 	 	50	 
	 
	 
	 	8.2	 	Closing Deliverables of Parent and Merger Sub	 	 	52	 
	 
	ARTICLE IX [INTENTIONALLY DELETED]	 	 	54	 
	 
	ARTICLE X INDEMNIFICATION	 	 	54	 
	 
	 
	 	10.1	 	Survival	 	 	54	 
	 
	 
	 	10.2	 	Indemnification by Company Stockholders	 	 	54	 
	 
	 
	 	10.3	 	Indemnity Escrow Fund	 	 	55	 
	 
	 
	 	10.4	 	Indemnification by Parent	 	 	56	 
	 
	 
	 	10.5	 	Third Party Claims	 	 	57	 
	 
	 
	 	10.6	 	Non-Third Party Claims	 	 	59	 
	 
	 
	 	10.7	 	Claims Upon Indemnity Escrow Fund	 	 	60	 
	 
	 
	 	10.8	 	Third Party ***	 	 	60	 
	 
	ARTICLE XI MISCELLANEOUS	 	 	61	 
	 
	 
	 	11.1	 	Notices	 	 	61	 
	 
	 
	 	11.2	 	Amendments and Waivers	 	 	62	 
	 
	 
	 	11.3	 	Successors and Assigns	 	 	63	 
	 
	 
	 	11.4	 	Governing Law	 	 	63	 
	 
	 
	 	11.5	 	Consent to Jurisdiction	 	 	63	 
	 
	 
	 	11.6	 	Counterparts	 	 	63	 
	 
	 
	 	11.7	 	Third Party Beneficiaries	 	 	64	 
	 
	 
	 	11.8	 	Entire Agreement	 	 	64	 

iii

 

TABLE OF CONTENTS

(Continued)

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 	11.9	 	Captions	 	 	64	 
	 
	 
	 	11.10	 	Severability	 	 	64	 
	 
	 
	 	11.11	 	Specific Performance	 	 	64	 
	 
	ARTICLE XII GENERAL DEFINITIONS	 	 	64	 
	 
	 
	 	12.1	 	Definitions	 	 	64	 
	 
	 
	 	12.2	 	Interpretation	 	 	67	 

iv

 

EXHIBITS

	 	 	 
	 
	 	 
	Form of Company Stockholder Letter Agreement

	 	Exhibit A
	Form of Transmittal Letter

	 	Exhibit B
	Form of Articles of Merger

	 	Exhibit C
	Form of Purchase Price Escrow Agreement

	 	Exhibit D-1
	Form of Indemnity Escrow Agreement

	 	Exhibit D-2
	Form of Employment Agreement

	 	Exhibit E
	Form of Lockup Agreement

	 	Exhibit F
	[Intentionally Omitted]

	 	Exhibit G
	Form of Legal Opinion of Saul Ewing LLP

	 	Exhibit H
	Example of Tangible Net Worth Calculation

	 	Exhibit I
	Form of Legal Opinion of Morgan, Lewis & Bockius LLP

	 	Exhibit J

 

 

AGREEMENT AND PLAN OF MERGER

     THIS AGREEMENT AND PLAN OF MERGER (“Agreement”), dated as of March 24, 2008, is by and among
Bio-Imaging Technologies, Inc., a Delaware corporation (“Parent”), Bio-Imaging Acquisition
Corporation, a Pennsylvania corporation and a wholly owned subsidiary of Parent (“Merger Sub”), and
Phoenix Data Systems, Inc., a Pennsylvania corporation (the “Company”), and, solely with respect
to Article X hereof, *** , in his capacity as representative of the Company Stockholders pursuant
to the Company Stockholder Letter Agreement (the “Stockholders’ Representative”). Capitalized terms
used in this Agreement are defined in Section 12.1, or in the applicable Section of this Agreement.

RECITALS:

     WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the Company deem it
advisable and in the best interests of their respective stockholders to consummate the business
combination provided for herein;

     WHEREAS, the Board of Directors and the stockholders of the Company have adopted this
Agreement in accordance with the requirements of the Pennsylvania Business Corporation Law of 1988,
as amended (the “BCL”);

     WHEREAS, Parent, as the sole stockholder of Merger Sub, has adopted this Agreement in
accordance with the requirements of the BCL;

     WHEREAS, it is intended that the acquisition of the Company by Parent by a merger with and
into the Merger Sub pursuant hereto shall qualify as a forward subsidiary merger under the
provisions of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986
(the “Code”); and

     WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parent to
enter into this Agreement, each stockholder of the Company (each, a “Company Stockholder”) shall
enter into a Stockholder Agreement in substantially the form attached hereto as Exhibit A
(collectively, the “Company Stockholder Letter Agreements”); and

     WHEREAS, concurrently with the execution of this Agreement, certain employee stockholders of
the Company listed on Annex A (each, an “Key Employee Stockholder”) and such other employees as
mutually agreed by the Parent and Company shall enter into an Employment Agreement in substantially
the form attached hereto as Exhibit E (collectively, the “Company Employment Agreements”);
and

     WHEREAS, concurrently with the execution of this Agreement, certain active stockholders listed
on Annex B (each, an “Active Stockholder”), shall each enter into a Lockup Agreement in
substantially the form attached hereto as Exhibit F (each, a “Lockup Agreement”).

 

 

     NOW, THEREFORE, in consideration of the foregoing premises and the respective representations,
warranties, covenants and agreements contained herein, and intending to be legally bound hereby,
Parent, Merger Sub and the Company agree as follows:

ARTICLE I

THE MERGER

     1.1 The Merger. Subject to the terms and conditions of this Agreement and the filing
of the Articles of Merger in the form attached hereto as Exhibit C, at the Effective Time,
Company shall be merged with and into the Merger Sub and the separate corporate existence of
Company shall thereupon cease (the “Merger”). As a result of the Merger, the outstanding shares of
capital stock of the Company shall be converted or canceled in the manner provided in Article II of
this Agreement, the separate corporate existence of the Company shall cease and the Merger Sub
shall be the surviving corporation under the BCL following the Merger as a wholly-owned subsidiary
of Parent. Merger Sub and the Company are sometimes referred to herein as the “Constituent
Corporations” and the Merger Sub as the surviving corporation following the Merger is sometimes
referred to herein as the “Surviving Corporation”.

     1.2 Closing; Effective Time. The closing of the Merger (the “Closing”) shall take
place simultaneously with the execution hereof (the “Closing Date”) either (a) in person at a
location to be mutually agreed upon by Company and Parent, or (b) by electronic transmission of the
signature pages of this Agreement and any other agreements contemplated hereby. Simultaneously
with the Closing, the Merger Sub as the surviving corporation shall file the Articles of Merger
with the Secretary of the Commonwealth of Pennsylvania as provided in Sections 1926 and 1927 of the
BCL. The Merger shall become effective at such time as the Articles of Merger is so filed, which
time is hereinafter referred to as the “Effective Time.”

     1.3 Effects of the Merger.

          (a) At and after the Effective Time, the Merger shall have all of the effects specified in
Section 1929 of the BCL.

          (b) At the Effective Time, the Articles of Incorporation of the Merger Sub in effect
immediately prior to the Merger shall be the Articles of Incorporation of the Surviving Corporation
at the Effective Time except that Article I of the Articles of Incorporation shall read: “The name
of this corporation is Phoenix Data Systems Inc.” As so amended, the Articles of Incorporation of
the Merger Sub shall be the Articles of Incorporation of the Surviving Corporation, until amended
thereafter in accordance with applicable Law.

          (c) At the Effective Time, the Bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation (except that all references to
Merger Sub in the Bylaws of the Surviving Corporation

2

 

shall be changed to reflect the name change of Merger Sub discussed in Section 1.3(b) above),
until amended thereafter in accordance with applicable Law.

          (d) At the Effective Time, each of the directors and officers of the Merger Sub immediately
prior to the Effective Time, being the individuals whose names and positions are listed on
Schedule 1.3(d) hereto, shall be the directors and officers of the Surviving Corporation,
each to hold office until such person’s respective death, permanent disability, resignation or
removal or until his or her respective successor is duly elected and qualified, all in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation and applicable Law.

     1.4 Further Assurances. If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances
or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation its right, title and interest in, to or under any
of the rights, privileges, powers, franchises, properties or assets of either of the Constituent
Corporations, or (b) otherwise to carry out the purposes of this Agreement, the Surviving
Corporation and its proper officers and directors or their designees shall be authorized to execute
and deliver, in the name and on behalf of either Constituent Corporation, all such deeds, bills of
sale, assignments and assurances and to do, in the name and on behalf of either Constituent
Corporation, all such other acts and things as may be necessary, desirable or proper to vest,
perfect or confirm the Surviving Corporation’s right, title and interest in, to and under any of
the rights, privileges, powers, franchises, properties or assets of such Constituent Corporation
and otherwise to carry out the purposes of this Agreement.

ARTICLE II

CONVERSION OF SECURITIES

     2.1 Merger Consideration; Effect on Company Capital Stock.

          (a) The aggregate merger consideration (the “Merger Consideration”) shall be an amount equal
to 2,287,582 shares of the Common Stock of Parent, par value $.00025 per share (the “Stock Merger
Consideration”), with an average closing price per share over the last thirty (30) trading days
ending and including March 19, 2008 of $7.42 (the “Average Price”), plus $7,000,000 in cash (the
“Cash Merger Consideration”).

          (b) At the Closing, the Parent shall pay to the holders of all Company Stock Options that are
vested and in-the-money, in complete satisfaction of all obligations owing from the Company to such
holder in respect of such Company Stock Options and in complete cancellation of those vested
Company Stock Options, an amount equal to the value of the Company Stock at the Effective Time
minus the exercise price of the Company Stock Option times the number of shares issuable upon
exercise of such vested outstanding Company Stock Options (the “Spread Value”), such aggregate

3

 

Spread Value to be deducted from the Merger Consideration at the Effective Time. The Spread
Value paid to each holder of a vested and in-the-money Company Stock Option shall be subject to the
collection of all applicable federal, state and local income and employment withholding taxes by
the Company (or Surviving Corporation), and the Spread Value paid to each such holder of a vested
and in-the-money Company Stock Option shall accordingly be reduced by the amount of those
withholding taxes, with the net amount to be paid to such holder at the Closing. At the Effective
Time, each Company Stock Option outstanding under the Company Stock Option Plan that is either
unvested or out-of-the-money shall, by virtue of the Merger and without any further action on the
part of the Company or the holder thereof, be terminated and canceled without any further force or
effect or right to exercise. The Company agrees that, prior to the Effective Time, all other
outstanding Company Common Stock Equivalents shall be cancelled or converted into, or exercised or
exchanged for, shares of Company Common Stock. “Company Common Stock Equivalents” means options,
warrants, purchase rights, subscription rights, conversion rights, exchange rights or any other
Contracts that, directly or indirectly, would require the Company to issue, sell or otherwise cause
to become outstanding shares of Company Common Stock. “Company Stock Options” means options to
purchase shares of Company Common Stock issued pursuant to the Company’s 2001 Stock Option Plan
(the “Company Stock Option Plan”).

          (c) At the Effective Time, by virtue of the Merger and without any further action on the part
of Parent, Merger Sub, the Company or any Company Stockholder

               (i) each share of Company Common Stock issued and outstanding immediately prior to the
Effective Time, other than (A) Dissenting Shares as provided in Section 2.6 and (B) Treasury Shares
as provided in Section 2.1(c)(ii), shall be canceled, extinguished and converted into the right to
receive and become exchangeable for the following:

                    (A) with respect to Company Common Stock owned by each of the Company Stockholders listed on
Schedule 2.1(c)(i)(A) hereto (the “Electing Stockholders”), 584,669 shares of the Parent Common
Stock plus $4,338,241.77 cash;

                    (B) with respect to all other shares of Company Common Stock, 1,359,776 shares of the Parent
Common Stock plus $1,238,092.05 cash;

               (ii) each share of Company Common Stock held in the Company’s treasury (“Treasury Shares”)
immediately prior to the Effective Time shall not represent the right to receive any Merger
Consideration, and each such share shall be canceled and retired and shall cease to exist, and no
cash, securities or other property shall be payable in respect thereof; and

               (iii) each share of common stock of Merger Sub, par value $ 0.0001 per share, issued and
outstanding immediately prior to the Effective Time shall be converted into and become one fully
paid and nonassessable share of common stock, par value $0.0001 per share, of the Surviving
Corporation.

4

 

               (iv) The Stock Merger Consideration to be issued to each Company shareholder at the Effective
Time shall be a whole number of shares of Parent Common Stock, with any fractional shares rounded
down and amount equal to the value of such fractional shares (with such value per share being equal
to the Average Price) paid to the applicable Company shareholder in cash.

          (d) At the Effective Time, Parent shall deposit with an escrow agent mutually agreed by the
Parent and the Company Stockholders (the “Escrow Agent”) the following:

               (i) A number of shares of Parent Common Stock equal to 5% of the Stock Merger Consideration
receivable by all Company Stockholders (the “Purchase Price Escrow Shares”) and an amount of cash
equal to 5% of the Cash Merger Consideration received by all Company Stockholders (the “Purchase
Price Escrow Cash” and, together with the Purchase Price Escrow Shares and all income, proceeds and
interest thereon, the “Purchase Price Escrow Fund”), to be held by such Escrow Agent for a period
not to exceed three (3) business days following the final Closing Tangible Net Worth Statement
pursuant to Section 2.2 below and pursuant to the terms of an escrow agreement in the form attached
hereto as Exhibit D-1 (the “Purchase Price Escrow Agreement”);

               (ii) A number of shares of Parent Common Stock equal to 10% of the Stock Merger Consideration
received by all Company Stockholders (the “Indemnity Escrow Shares”) and an amount of cash equal to
10% of the Cash Merger Consideration received by all Company Stockholders (the “Indemnity Escrow
Cash” and, together with the Indemnity Escrow Shares and all income, proceeds and interest thereon,
the “Indemnity Escrow Fund”), to be held by such Escrow Agent for a period of equal to the longer
of 12 months from the Effective Date or March 31, 2009 (the “Indemnity Escrow Period”) pursuant to
the terms of an escrow agreement in the form attached hereto as Exhibit D-2 (the “Indemnity
Escrow Agreement”).

     2.2 Purchase Price Adjustment.

          (a) For purposes of this Section 2.2, the following terms shall have the meanings assigned to
them in this Section 2.2(a):

               (i) “Accounting Principles” means U.S. GAAP applied on a basis consistent with those used in
the preparation of the Audited Financial Statements.

               (ii) “Base Amount” means One Million Dollars ($1,000,000).

               (iii) “Closing Tangible Net Worth Statement” means an unaudited statement of Tangible Net
Worth that is prepared in accordance with the Accounting Principles.

               (iv) “Final Tangible Net Worth” means the Tangible Net Worth (A) as shown in the Closing
Tangible Net Worth Statement delivered by Parent to Stockholder’s Representative pursuant to
Section 2.2(b), if no Notice of Objection with

5

 

respect thereto is timely delivered by Stockholder’s Representative to Parent pursuant to
Section 2.2(c); or (B) if a Notice of Objection is so delivered, (1) as agreed by Parent and
Stockholder’s Representative pursuant to Section 2.2(c) or (2) in the absence of such agreement, as
shown in the Independent Expert’s calculation delivered pursuant to Section 2.2(d).

               (v) “Tangible Net Worth” means (A) total assets, excluding uncollectible accounts receivable
(meaning accounts receivable that are not collectible within 120 days after commercially reasonable
efforts of collection) in excess of applicable reserves maintained on the Company’s financial
statements, minus total liabilities (total liabilities shall include any Transaction Expenses of
the Company incurred by the Company but not yet paid as of Closing) less (B) intangible assets,
including, without limitation, goodwill, licenses, patents, trademarks, trade names, copyrights,
capitalized software and organizational costs, licenses and franchises, as of the Closing Date, in
each case calculated in accordance with Accounting Principles. Such calculation of Tangible Net
Worth shall be consistent with the methods set forth in the example of such calculation attached
hereto at Exhibit I. “Transaction Expenses” shall mean all expenses incurred by the Company
in connection with this Agreement, for itself or on behalf of Company Stockholders, and the
consummation of the transactions contemplated hereby, including, but not limited to, any and all
legal, accounting, financial, advisory and consulting fees and expenses incurred as of Closing
Date, whether or not paid as of Closing Date, and whether or not accrued in the Balance Sheet, as
set forth in greater detail in Schedule 2.2(a)(v) attached hereto, but excluding expenses
that would have to be incurred by the Company even in the absence of the transactions contemplated
by this Agreement that are otherwise already included in the total liabilities.

          (b) Within 60 days after the Closing Date, Parent will prepare, or cause to be prepared, and
deliver to Stockholder’s Representative the Closing Tangible Net Worth Statement which shall set
forth Parent’s calculation of Tangible Net Worth. At Parent’s option, Parent may conduct a physical
inventory for purposes of preparing the Closing Tangible Net Worth Statement, and Stockholder’s
Representative and its representatives shall have the right to observe the taking of such physical
inventory.

          (c) Upon receipt from Parent, Stockholder’s Representative shall have 15 days to review the
Closing Tangible Net Worth Statement (the “Review Period”). If Stockholder’s Representative
disagrees with Parent’s computation of Tangible Net Worth, Stockholder’s Representative may, on or
prior to the last day of the Review Period, deliver a notice to Parent (the “Notice of Objection”),
which sets forth the objections of the Stockholders’ Representative to Parent’s calculation of
Tangible Net Worth. Any Notice of Objection shall specify those items or amounts with which
Stockholder’s Representative disagrees, together with a detailed written explanation of the reasons
for disagreement with each such item or amount, and shall set forth the Stockholder’s
Representative’s calculation of Tangible Net Worth based on such objections. To the extent not set
forth in the Notice of Objection, Stockholder’s Representative shall be deemed to have agreed with
Parent’s calculation of all other items and amounts contained in the Closing Tangible Net Worth
Statement.

6

 

          (d) Unless Stockholder’s Representative delivers the Notice of Objection to Parent within the
Review Period, Stockholder’s Representative shall be deemed to have accepted Parent’s calculation
of Tangible Net Worth and the Closing Tangible Net Worth Statement shall be final, conclusive and
binding. If Stockholder’s Representative delivers the Notice of Objection to Parent within the
Review Period, Parent and Stockholder’s Representative shall, during the 30 days following such
delivery or any mutually agreed extension thereof, use their commercially reasonable efforts to
reach agreement on the disputed items and amounts in order to determine the amount of Tangible Net
Worth. If, at the end of such period or any mutually agreed extension thereof, Parent and
Stockholder’s Representative are unable to resolve their disagreements, they shall jointly retain
and refer their disagreements to a nationally recognized independent accounting firm mutually
acceptable to Parent and Stockholder’s Representative (the “Independent Expert”). The parties
shall instruct the Independent Expert promptly to review this Section 2.2 and to determine solely
with respect to the disputed items and amounts so submitted whether and to what extent, if any, the
Tangible Net Worth set forth in the Closing Tangible Net Worth Statement requires adjustment. The
Independent Expert shall base its determination solely on written submissions by Parent and
Stockholder’s Representative and the example set forth on Exhibit I and not on an
independent review. In so reviewing, the Independent Expert shall only be permitted to ascribe a
value to any particular item of dispute within the range of the highest and lowest values ascribed
to that item by Stockholder’s Representative and Parent, as the case may be. Parent and
Stockholder’s Representative shall make available to the Independent Expert all relevant books and
records and other items reasonably requested by the Independent Expert. As promptly as practicable
but in no event later than 45 days after its retention, the Independent Expert shall deliver to
Parent and Stockholder’s Representative a report which sets forth its resolution of the disputed
items and amounts and its calculation of Tangible Net Worth; provided that in no
event shall Tangible Net Worth as determined by the Independent Expert be less than Parent’s
calculation of Tangible Net Worth set forth in the Closing Tangible Net Worth Statement nor more
than Stockholder’s Representative’s calculation of Tangible Net Worth set forth in the Notice of
Objection. The decision of the Independent Expert shall be final, conclusive and binding on the
parties. The costs and expenses of the Independent Expert shall be allocated by the Independent
Expert between the parties based upon the percentage which the portion of the contested amount not
awarded to each party bears to the amount actually contested by such party.

          (e) Within three (3) Business Days after Tangible Net Worth has been finally determined
pursuant to this Section 2.2, if Tangible Net Worth is less than the Base Amount, Stockholder’s
Representative shall instruct the Escrow Agent to release from the Purchase Price Escrow Fund and
pay to Parent, as an adjustment to the Merger Consideration, on a dollar for dollar basis, in the
manner provided below and in the Purchase Price Escrow Agreement, an amount of Purchase Price
Escrow Shares and/or Purchase Price Escrow Cash having an aggregate value equal to the difference
between the Base Amount and Final Tangible Net Worth (the “Deficit Amount”); provided,
however, that to the extent the Deficit Amount exceeds the Purchase Price Escrow Fund (the
“Remaining Balance”), then the Remaining Balance may be deducted from the Indemnity Escrow Fund
pursuant to Article X.

7

 

          (f) To the extent that Parent is entitled to receive any amount from the Purchase Price Escrow
Fund pursuant to subsection (e) above and any portion of such amount is to be received in the form
of Parent Common Stock held in the Purchase Price Escrow Fund, then for the purposes of determining
the number of shares of Parent Common Stock to be included in such amount, the shares of Parent
Common Stock shall be valued at a price per share equal to the volume weighted average of the
closing price per share of Parent Common Stock over the last thirty (30) trading days ending one
business day prior to the date that Parent receives such amount, as adjusted for stock splits,
stock dividends, and similar events during such period.

     2.3 Exchange of Certificates and Distribution of Merger Consideration.

          (a) Parent shall enter into an agreement with its registered transfer agent, or such other
bank or trust company of recognized standing that may be designated by Parent (the “Exchange
Agent”).

          (b) No later than five business days prior to the Closing, the Company shall furnish to Parent
mailing labels or a computer file containing the names and addresses of the record holders of
certificates representing Company Shares.

          (c) Parent shall cause the Exchange Agent to mail to each holder of record of Company Shares a
letter of transmittal in the form attached as Exhibit B (the “Transmittal Letter”). Parent
shall deposit, or shall cause to be deposited, with the Exchange Agent, for the benefit of the
Company Stockholders, certificates representing the shares of Parent Common Stock issuable pursuant
to Section 2.1 as of the Effective Time in respect of the Company Shares (other than Dissenting
Shares). Parent shall also deliver cash in an amount sufficient to make the payments in lieu of
fractional shares pursuant to Section 2.1(c)(iv). At Closing, Parent shall deliver the Cash Merger
Consideration to the Company Stockholders in accordance with Section 2.1(c)(i).

          (d) Upon surrender to the Exchange Agent of a certificate or certificates representing all of
such Company Stockholder’s outstanding shares of Company Common Stock (collectively,
“Certificates”), together with (i) a duly executed Transmittal Letter, and (ii) an executed Company
Stockholder Letter Agreement, each Company Stockholder shall be entitled to receive, in exchange
therefor, (A) a certificate representing that number of whole shares of Parent Common Stock which
such Company Stockholder has the right to receive in respect of the Certificate surrendered
pursuant to the provisions of this Article II, less (i) the number of Escrow Shares allocable to
such Company Stockholder that is deposited into the Escrow Fund and (B) the cash which such Company
Stockholder has the right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, less the Escrow Cash that is deposited into the Escrow Fund. Each
Certificate so surrendered shall forthwith be canceled.

          (e) As soon as practicable after the Effective Time, Parent or the Exchange Agent shall cause
to be delivered (i) to Escrow Agent the Escrow Cash and a certificate or certificates representing
the Escrow Shares and (ii) to each Company

8

 

Stockholder a certificate representing those shares of Parent Common Stock issuable to such
Company Stockholder which are not Escrow Shares. The Escrow Shares and Escrow Cash shall be held
in escrow by the Escrow Agent pursuant hereto and to the Escrow Agreements and shall be available
to compensate Parent for certain adjustments under Section 2.2, damages as provided in Article X,
and the Escrow Agreements. To the extent not used for such purposes, the Escrow Shares and Escrow
Cash shall be released as provided in the Escrow Agreements.

          (f) If any certificate representing shares of Parent Common Stock is to be issued in a name
other than that in which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the Certificate(s) so surrendered shall be properly endorsed
for transfer (or accompanied by an appropriate instrument of transfer) and shall otherwise be in
proper form for transfer, and that the Person requesting such exchange shall pay any transfer or
other taxes required by reason of the issuance of certificates for such shares of Parent Common
Stock in a name other than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of Parent that any such taxes have been paid or are not applicable.

          (g) None of Parent, Merger Sub or the Company shall be liable to any Person in respect of any
cash or other property delivered to a public official of competent jurisdiction pursuant to any
applicable abandoned property, escheat or similar Law. If any Certificates shall not have been
surrendered prior to seven years after the Effective Time (or immediately prior to such earlier
date on which any payment pursuant to this Article II would otherwise escheat to or become the
property of any Governmental Entity), the shares of Parent Common Stock issuable, or cash payment
determined in accordance with Section 2.2(d), in respect of such Certificate shall, to the extent
permitted by applicable Law, become the property of Parent free and clear of all claims or
interests of any Person previously entitled thereto.

          (h) The Company acknowledges that the offer and sale of shares of Parent Common Stock to the
Company Stockholders pursuant to the Merger is intended to be exempt from registration under
Regulation D promulgated under the Securities Act (“Regulation D”) and such shares may not be
re-offered or resold other than in conformity with the registration requirements of the Securities
Act and applicable state securities Laws or pursuant to an exemption therefrom. The certificates
representing shares of Parent Common Stock shall bear a legend to the effect described above and
shall include such additional legends as necessary to comply with applicable federal and state
securities Laws and other applicable restrictions. The Company acknowledges that Parent is relying
on certain written representations by each Company Stockholder in the Company Stockholder Letter
Agreements to determine whether the offer and sale of shares of Parent Common Stock to the Company
Stockholders pursuant to the Merger meets the conditions of Regulation D.

     2.4 Distributions with Respect to Unexchanged Shares of Company Common Stock.
Notwithstanding any other provisions of this Agreement, no dividends or other distributions on
shares of Parent Common Stock shall be paid with respect to any share of Company Common Stock or
other securities represented by a Certificate until such

9

 

Certificate is surrendered for exchange as provided herein. Subject to the effect of
applicable Laws, following surrender of any such Certificate there shall be paid to the holder of
certificates representing shares of Parent Common Stock issued in exchange therefor, without
interest, (a) at the time of such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore payable with respect to such shares of Parent
Common Stock and not paid, less the amount of any withholding taxes which may be required thereon,
and (b) at the appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender thereof and a payment date subsequent
to surrender thereof payable with respect to such shares of Parent Common Stock, less the amount of
any withholding taxes which may be required thereon. No holder of unsurrendered Certificates shall
be entitled, until the surrender of such Certificate, to vote the shares of Parent Common Stock
which such holder shall have the right to receive pursuant to this Article II.

     2.5 No Further Ownership Rights in Company Common Stock. The payment of the Merger
Consideration in respect of each share of Company Common Stock owned by the Company Stockholders
shall be deemed to have been paid in full satisfaction of all rights pertaining to each such share
of Company Common Stock, and 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 for transfer to the Surviving Corporation, they shall be canceled and exchanged for
certificates representing shares of Parent Common Stock in accordance with the procedures set forth
in this Article II.

     2.6 Lost Certificates. In the event any Certificate shall have been lost, stolen or
destroyed, Parent may, in its discretion and as a condition precedent to the disbursement of the
Merger Consideration in respect of shares of Company Common Stock represented by such Certificate,
require the owner of such lost, stolen or destroyed Certificate to make an affidavit of that fact
containing such indemnification provisions as Parent may reasonably deem appropriate, including the
posting of a standard bond required by Parent’s transfer agent as indemnity against any claim that
may be made against it or the Surviving Corporation with respect to such Certificate.

     2.7 Dissenters’ Rights.

          (a) Notwithstanding anything in this Agreement to the contrary, any shares of Company Common
Stock held by any Company Stockholder who shall have demanded and not lost or withdrawn, or who
shall be eligible to demand, appraisal rights with respect to such shares of Company Common Stock
in the manner provided in the BCL (“Dissenting Shares”) shall not represent the right to receive
the Merger Consideration. If any Company Stockholder shall fail to perfect or shall effectively
withdraw or lose his right to appraisal and payment under the BCL, each share of Company Common
Stock held by such Company Stockholder shall thereupon, in accordance with and subject to the
provisions set forth in this Article II, represent the right to receive the Merger Consideration.

10

 

          (b) The Company shall give Parent prompt notice of any demands for appraisal received by the
Company, withdrawals of such demands, and any other communications received by the Company in
connection with any demands for appraisal. The Company shall not, except with the written consent
of Parent, voluntarily make any payment with respect to any such demands. Parent shall have the
right to control all negotiations and proceedings with respect to demands for appraisal, including
the right to settle any such demands. To the extent that Parent or the Company makes any payment
in respect of any Dissenting Shares, Parent shall be entitled to recover under Article X hereof (i)
the aggregate amount by which such payment exceeds the Merger Consideration and (ii) any other
costs and expenses, including attorney fees and expenses, incurred in connection with
investigating, defending and settling such demands for appraisal (the amounts in clauses (i) and
(ii) collectively, “Dissenting Share Payments”).

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     The Company represents and warrants to Parent and Merger Sub as of the date hereof that the
statements contained in this Article III are true and correct, except as set forth in the
disclosure schedule dated and delivered as of the date hereof by the Company to Parent (the
“Company Disclosure Schedule”), which is being concurrently delivered to Parent in connection
herewith and is designated therein as being the Company Disclosure Schedule. The Company
Disclosure Schedule shall be arranged in paragraphs corresponding to each representation and
warranty set forth in this Article III. Each exception to a representation and warranty set forth
in the Company Disclosure Schedule shall be deemed to qualify the specific representation and
warranty which is referenced in the applicable paragraph of the Company Disclosure Schedule, and no
other representation or warranty unless such other applicable schedule is cross-referenced or
unless the applicability of such exception to another schedule is reasonably apparent under the
circumstances.

11

 

     3.1 Organization and Good Standing.

          (a) The Company is a corporation duly organized and validly subsisting under the Laws of the
jurisdiction of its incorporation, has all requisite corporate power to own, lease and operate its
properties and to carry on its business as now being conducted, and except as set forth in the
Company Disclosure Schedule, is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which it owns or leases property or conducts any business so as
to require such qualification, except for those jurisdictions where the failure to be so qualified
and in good standing would not reasonably be expected to be, individually or in the aggregate,
material to the Company taken as a whole. The Company Disclosure Schedule lists each jurisdiction
in which the Company is qualified to do business.

          (b) The Company has complied with and is not in default under its Charter Documents. The
Charter Documents of the Company in the forms attached to the Company Disclosure Schedule are the
Charter Documents of the Company as in effect on the date of this Agreement and as of the Closing
Date. “Charter Documents” means, with respect to any entity, the certificate of incorporation, the
articles of incorporation, by-laws, articles of organization, limited liability company agreement,
partnership agreement, formation agreement, joint venture agreement or other similar organizational
documents of such entity (in each case, as amended).

     3.2 Capitalization.

          (a) The authorized capital stock of the Company consists of 20,000,000 shares of Company
Common Stock, of which 10,029,166 shares are issued and outstanding as of the date hereof. All
issued and outstanding shares of Company Common Stock (the “Company Shares”) have been duly
authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with
all applicable federal and state securities Laws.

          (b) The Company Disclosure Schedule contains a true and complete list of the record holders of
the Company Shares and sets forth the full name, current address and number and class of Company
Shares owned by each.

          (c) The Company has duly reserved 1,412,500 shares of Company Common Stock for future issuance
pursuant to the Company Stock Option Plan, of which Company Stock Options to purchase 775,715
shares of Company Common Stock are outstanding as of the date hereof. The Company has made
available to Parent a report dated as of the date hereof that sets forth with respect to each
Company Stock Option that is outstanding as of such date: (i) the name of the holder of such
Company Stock Option; (ii) the date on which such Company Stock Option was granted; (iii) the term
of such Company Stock Option; (iv) the total number of shares of Company Common Stock that were
originally subject to such Company Stock Option; (v) the number of shares of Company Common Stock
that remain subject to such Company Stock Option, the number of such shares of Company Common Stock
that have vested, and the number of shares of Company Common Stock for which such Company Stock
Option has been

12

 

exercised; (vi) the vesting schedule for such Company Stock Option; (vii) the exercise price
per share of Company Common Stock purchasable under such Company Stock Option; and (viii) whether
such Company Stock Option has been designated an “incentive stock option” as defined in section 422
of the Code. The Company has delivered to Parent accurate and complete copies of (A) its standard
form of option agreement, (B) any option agreement which deviates in any material respect from the
standard form of option agreement and (C) the Company Stock Option Plan.

          (d) Except for (i) the Company Shares outstanding as of the date hereof, (ii) the Company
Stock Options under the Company Stock Option Plan outstanding as of the date hereof and (iii) the
other Company Common Stock Equivalents that are disclosed in Section 3.2(d)(iii) of the Company
Disclosure Schedule (the Common Stock Equivalents required to be disclosed pursuant to this Section
3.2(d)(iii), the “Other Purchase Rights”), the Company does not have outstanding securities of any
kind. Except as set forth in the preceding sentence or as disclosed in Section 3.2(d) of the
Company Disclosure Schedule, the Company is not a party to any Contract obligating the Company,
directly or indirectly, to issue additional securities and, to the Company’s Knowledge, there is no
circumstance or condition that may give rise to a claim by any Person that such Person is entitled
to acquire any securities of the Company.

          (e) All outstanding Company Stock Options and Other Purchase Rights have been duly authorized
and validly issued and were issued in compliance with all applicable federal and state securities
Laws.

          (f) No Company Stock Option will by its terms require an adjustment in connection with the
Merger, except as contemplated by this Agreement. Neither the consummation of the transactions
contemplated by this Agreement, nor any action taken or to be taken by the Company in connection
with such transactions, will result in (i) any acceleration of exercisability or vesting
(including, without limiting the foregoing, any right to acceleration of vesting that is contingent
upon the occurrence of a subsequent event) in favor of any holder of any Company Stock Option, (ii)
any additional benefits for any holder of any Company Stock Option, or (iii) the inability of
Parent after the Effective Time to exercise any right or benefit held by the Company prior to the
Effective Time with respect to any Company Stock Option assumed by Parent or any Company Restricted
Share. The treatment by Parent of the Company Stock Plans and the Company Stock Options in
accordance with this Agreement will not give rise to any event described in clauses (i) through
(iii) of the immediately preceding sentence. Each holder of a Company Stock Option has been or
will be given, or shall have properly waived, any required notice of the Merger prior thereto, and
all such rights of notice will terminate at or prior to the Effective Time.

          (g) None of the Company Shares, Company Stock Options and Other Purchase Rights were issued or
have been transferred in violation of, or, except as disclosed in Section 3.2(g) of the Company
Disclosure Schedule, are subject to, any preemptive rights, rights of first offer or subscription
agreements. Except as disclosed in Section 3.2(g) of the Company Disclosure Schedule, the Company
is not a party to any stockholder agreements, voting agreements, voting trusts or any such other
similar

13

 

arrangements with respect to the transfer, voting or other rights associated with its
securities, and there are no such agreements relating to Company Shares to which the Company is not
a party.

          (h) None of the Company Stock Options which were not fully vested as of December 31, 2004 have
been exercised.

          (i) The conversion, exercise and/or exchange of Company Stock Options and Other Purchase
Rights prior to the Effective Time will be in compliance with the terms of the agreement pursuant
to which such securities were issued and in compliance with all federal and state securities Laws,
and the issuance of shares of Company Common Stock upon conversion, exercise and/or exchange of
such securities shall have been duly authorized by all requisite corporate action on the part of
the Company. Any such issuance of shares of Company Common Stock upon conversion, exercise and/or
exchange of such securities shall be in accordance with the Company’s Charter Documents and shall
not violate the rights of any Company Stockholder.

          (j) Except for the repurchase at cost of shares of Company Common Stock from employees of the
Company in connection with the termination of their employment or as disclosed in Section 3.2(j) of
the Company Disclosure Schedule, the Company has not repurchased or otherwise reacquired any of its
securities. The repurchase of any such securities was duly approved and authorized by the Board of
Directors and complied in all respects with applicable Law, and except as disclosed in Section
3.2(j) of the Company Disclosure Schedule, the Company has no liability, contingent or otherwise,
to make any payments with respect to any such repurchased securities. Except as disclosed in
Section 3.2(j) of the Company Disclosure Schedule, there are no obligations, contingent or
otherwise, of the Company to repurchase, redeem or otherwise acquire any of its securities. There
are no declared or accrued unpaid dividends with respect to any of the Company’s securities.

          (k) The Company does not have outstanding or authorized any stock appreciation, phantom stock,
profit participation, or similar rights.

          (l) Except as disclosed in Section 3.2(l) of the Company Disclosure Schedule, the Company does
not have outstanding any bonds, debentures, notes or other obligations or debt securities the
holders of which have the right to vote (or convertible into, or exercisable or exchangeable for,
securities having the right to vote) on any matter.

     3.3 Subsidiaries of the Company. Except as set forth in the Company Disclosure
Schedule, the Company has no Subsidiaries.

     3.4 Authority and Enforceability.

          (a) The Company has all necessary corporate power and authority to enter into this Agreement,
and to perform its obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated

14

 

hereby have been duly authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by Parent and Merger Sub, constitutes the valid and binding obligation of
the Company, enforceable against it in accordance with its terms, except as such enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar Laws
affecting or relating to creditors’ rights generally, and (ii) the availability of injunctive
relief and other equitable remedies.

          (b) The Board of Directors of the Company has, by the unanimous vote of all directors in
office, (i) duly approved this Agreement, the Merger and the transactions contemplated hereby, (ii)
determined that the Merger is advisable and in the best interests of the Company Stockholders and
(iii) recommended that the Company Stockholders adopt this Agreement and directed that this
Agreement be submitted to the Company Stockholders for adoption.

          (c) The Company Stockholders have duly approved this Agreement, the Merger and the
transactions contemplated hereby by the affirmative vote of (i) holders of a majority of the
outstanding Company Shares held by all Electing Shareholders, and (ii) holders of a majority of all
the outstanding Company Shares other than those held by the Electing Shareholders on the record
date of a duly convened meeting of the Company Stockholders, or by written consent in lieu of such
meeting (the “Company Stockholder Approval”).

     3.5 No Conflict; Authorizations.

          (a) The execution and delivery of this Agreement by the Company do not, and the performance by
the Company of its obligations hereunder and the consummation by the Company of the transactions
contemplated hereby (in each case, with or without the giving of notice or lapse of time, or both)
will not, directly or indirectly, (i) violate the provisions of the Company’s Charter Documents,
(ii) except as set forth in Section 3.5(a) of the Company Disclosure Schedule, violate or conflict
with, or constitute a default, an event of default or an event creating rights of acceleration,
termination, cancellation, imposition of additional obligations or loss of rights, or require a
consent to assignment, under any Contract (A) to which the Company is a party, (B) of which the
Company is a beneficiary or (C) by which the Company or any of its assets is bound, (iii) assuming
compliance by the Company with the matters referred to in Section 3.5(b),violate or conflict with
any Law, Authorization or Order applicable to the Company, or give any Governmental Entity or other
Person the right to challenge any of the transactions contemplated hereby or to exercise any
remedy, obtain any relief under or revoke or otherwise modify any rights held under, any such Law,
Authorization or Order, or (iv) result in the creation of any Liens upon any of the assets owned or
used by the Company, except for any such violations, conflicts, defaults and events referred to in
clause (ii) and for any such violations, conflicts, challenges, remedies, relief, revocations,
modifications or Liens referred to in clauses (iii) and (iv) that would not reasonably be expected
to be, individually or in the aggregate, material to the Company taken as a whole. Section 3.5(a)
of the Company Disclosure Schedule sets forth all consents,

15

 

waivers, assignments and other approvals and actions that are required in connection
with the transactions contemplated by this Agreement under any Contract to which the Company is a
party (collectively, “Consents”) in order to preserve all rights of, and benefits to, the Surviving
Corporation thereunder.

          (b) No Authorization or Order of, registration, declaration or filing with, or notice to any
Governmental Entity or other Person, is required to be made, obtained, performed or given to or
with respect to the Company in connection with the execution and delivery of this Agreement and the
consummation of the Merger, other than the filing of the Articles of Merger with the Department of
State of the Commonwealth of Pennsylvania.

     3.6 Financial Statements.

          (a) True and complete copies of the Company’s audited financial statements consisting of the
balance sheet of the Company as at December 31, 2007 and in each of the three (3) years through
December 31, 2007 and the related statements of income and retained earnings, stockholders’ equity
and cash flow, for the years then ended (the “Audited Financial Statements”), and unaudited
financial statements consisting of the balance sheet of the Company as at January 31, 2008 and the
related statements of income and retained earnings, stockholders’ equity and cash flow for the two
(2) month period then ended (the “Interim Financial Statements” and together with the Audited
Financial Statements, the “Financial Statements”), are included in the Company Disclosure Schedule.

          (b) The Financial Statements and the Audited Financial Statements have been prepared in
accordance with United States generally accepted accounting principles (“GAAP”) applied on a
consistent basis throughout the periods involved. The Financial Statements are based on the books
and records of the Company, and fairly present, in all material respects, the financial condition
of the Company as of the respective dates they were prepared and the results of the operations of
the Company for the periods indicated. The balance sheet of the Company as of December 31, 2007 is
referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the
balance sheet of the Company as of January 31, 2008 is referred to herein as the “Interim Balance
Sheet” and the date thereof as the “Interim Balance Sheet Date.” The Company maintains a standard
system of accounting established and administered in accordance with GAAP.

          (c) The Company maintains reasonable measures in place to assure that there are no significant
deficiencies or material weaknesses in the design or operation of Company’s internal controls which
would adversely affect Company’s ability to record, process, summarize and report financial data.
There is and has been no fraud, whether or not material, that involves management or other
employees who have a significant role in Company’s internal controls. Section 3.6(c) of the
Company Disclosure Schedule lists, and the Company has made available to Parent, accurate and
complete copies of, all formally written descriptions of, and all policies, manuals and other
documents promulgating, such internal controls and procedures.

16

 

     3.7 No Undisclosed Liabilities. The Company has no liabilities or obligations of any
nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or
unaccrued, matured or unmatured or otherwise (“Liabilities”), except (a) those which are adequately
reflected or reserved against or disclosed in the Balance Sheet as of the Balance Sheet Date, in
accordance with GAAP or which are not required to be disclosed under GAAP, (b) those which have
been incurred in the ordinary course of business and consistent with past practice since the
Balance Sheet Date and which are not, individually or in the aggregate, material in amount, (c)
obligations under Contracts, and (d) those described in Section 3.7 of the Company Disclosure
Schedule. A complete and accurate list of the accounts payable reflected on the Interim Balance
Sheet, showing, among other things, the aging thereof, any deferred revenue and accrued expenses,
is included in Section 3.7 of the Company Disclosure Schedule. The Company has not received any
written notice from a trade creditor stating that any account payable in an amount in excess of
$5,000 is subject to any contest, claim or setoff by such account creditor.

     3.8 Inventory. The Company maintains no inventory directly related to Company
products or services at the facilities of the Company or any affiliate of the Company and no
inventory is held on a consignment basis.

     3.9 Accounts Receivable. Section 3.9 of the Company Disclosure Schedule sets forth a
true and correct list of all billed accounts receivable and unbilled receivables (for services
performed prior to Closing) of the Company (“Accounts Receivable”) as of the Interim Balance Sheet
Date. All Accounts Receivable as of the Interim Balance Sheet Date (other than those paid since
such date) and that have arisen since the Interim Balance Sheet Date represent valid obligations
and are not subject to any setoffs or counterclaims of which the Company has Knowledge. All
Accounts Receivable as of the Interim Balance Sheet, as adjusted, or arising from the date thereof
until the Closing (subject to the reserve for bad debts, if any, reflected on the Interim Balance
Sheet) are owned by the Company free and clear of any Lien (other than Permitted Liens), and except
as set forth in Section 3.9 of the Company Disclosure Schedule, are collectible in the aggregate
face amounts thereof, without resort to litigation or extraordinary collection activity, within one
hundred twenty (120) days of the Closing Date. Except as set forth in Section 3.9 of the Company
Disclosure Schedule, no Accounts Receivable have been outstanding for more than one hundred twenty
(120) days. The Company has not received any written notice from an account debtor stating that
any Account Receivable in an amount in excess of $5,000 is subject to any contest, claim or setoff
by such account debtor. No discount or allowance from any Accounts Receivable has been made or
agreed to (other than legal perquisites, discounts or allowances made in the ordinary course of
business consistent with industry practices), and none represents billings prior to actual sale of
goods or provision of services.

17

 

     3.10 Taxes.

          (a) As used in this Agreement, the following words and terms have the following definitions:

               (i) “Tax” or “Taxes” means any and all federal, state, local, or foreign net or gross income,
gross receipts, net proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or add-on minimum,
environmental, profits, windfall profits, transaction, license, lease, service, service use,
occupation, severance, energy, unemployment, social security, workers’ compensation, capital,
premium, and other taxes, assessments, customs, duties, fees, levies, or other governmental charges
of any nature whatever, whether disputed or not, together with any interest, penalties, additions
to tax, or additional amounts with respect thereto.

               (ii) “Tax Returns” means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.

               (iii) “Taxing Authority” means any Governmental Entity having jurisdiction with respect to any
Tax.

          (b) The Company has duly and timely filed all Tax Returns required to have been filed by or
with respect to the Company on or before the Closing Date, taking any timely-filed extensions into
account. Each such Tax Return correctly and completely reflects all liability for Taxes and all
other information required to be reported thereon. All Taxes owed by the Company (whether or not
shown on any Tax Return) have been timely paid, and there are no unpaid Taxes, except as shown on
the Interim Balance Sheet or Taxes incurred in the ordinary course of business since the Interim
Balance Sheet Date.

          (c) As of the Closing Date, the Company has withheld and timely paid all Taxes required to
have been withheld and paid by it and has complied with all Tax-related information reporting and
backup withholding requirements, including maintenance of required records with respect thereto.

          (d) The statute of limitations for the assessment of federal income Taxes has expired for all
periods through December 31, 2003. The Company is not the beneficiary of any extension of time
within which to file any Tax Return, nor has the Company made (or had made on its behalf) any
requests for such extensions. The Company has not waived (or is subject to a waiver of) any statute
of limitations in respect of Taxes or has agreed to (or is subject to) any extension of time with
respect to a Tax assessment or deficiency.

          (e) The Company Disclosure Schedule indicates those Tax Returns that have been audited and
those Tax Returns that currently are the subject of audit. Except as set forth in the Company
Disclosure Schedule there is no Action now pending or threatened against or with respect to the
Company in respect of any Tax or any

18

 

assessment or deficiency. There are no liens for Taxes (other than current Taxes not yet due
and payable) upon the assets of the Company. The Company has delivered to Parent correct and
complete copies of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company for December 31, 2004, 2005, and 2006.
For purposes of clarity, nothing disclosed on Company Disclosure Schedule 3.10(e) shall limit or
modify this Section 3.10(e).

          (f) The Company Disclosure Schedule lists, as of the date of this Agreement, all jurisdictions
in which the Company currently files Tax Returns. No claim has been made in writing to the Company
by an authority in a jurisdiction where the Company does not file Tax Returns that the Company is
or may be subject to taxation by that jurisdiction or that the Company must file Tax Returns.

          (g) The Company has not filed a consent pursuant to the collapsible corporation provisions of
Section 341(f) of the Code (or any corresponding provisions of state, local or foreign income Tax
Law). None of the assets or properties of the Company constitutes tax-exempt bond financed
property or tax-exempt use property within the meaning of Section 168 of the Code. The Company is
not a party to any “safe harbor lease” within the meaning of Section 168(f)(8) of the Code, as in
effect prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982, or to any
“long-term contract” within the meaning of Section 460 of the Code. The Company has not ever been
a United States real property holding corporation within the meaning of Section 897(c) (2) of the
Code. The Company is not a “foreign person” within the meaning of Section 1445 of the Code. The
Company has not made any payments, is obligated to make any payments, or is a party to any
agreement that would obligate it to make payments that would result in a nondeductible expense
under Section 280G of the Code or an excise tax to the recipient of such payments pursuant to
Section 4999 of the Code.

          (h) Except as set forth in Section 3.10(h) of the Company Disclosure Schedule, the Company has
not agreed to nor is required to make by reason of a change in accounting method or otherwise, any
adjustment under Section 481(a) of the Code. The Company has not been the “distributing
corporation” (within the meaning of Section 355(c)(2) of the Code) with respect to a transaction
described in Section 355 of the Code within the 5-year period ending as of the date of this
Agreement. The Company has not received (or is subject to) any ruling from any Taxing Authority or
has entered into (or is subject to) any agreement with a Taxing Authority. The Company has
disclosed on its federal income Tax Returns all positions taken therein that would give rise to a
substantial understatement of federal income Tax within the meaning of Section 6662 of the Code.

          (i) The Company (i) has not ever been a party to any Tax allocation or sharing agreement or
Tax indemnification agreement, (ii) has not ever been a member of an affiliated, consolidated,
condensed or unitary group, or (iii) does not have any liability for or obligation to pay Taxes of
any other Person under Treas. Reg. 1.1502-6 (or any similar provision of Tax Law), or as transferee
or successor, by contract or otherwise.

19

 

The Company is not a party to any joint venture, partnership, or other arrangement that is
treated as a partnership for federal income tax purposes.

          (j) The Company will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the
Effective Time as a result of any: (i) intercompany transactions or excess loss accounts described
in Treasury regulations under Section 1502 of the Code (or any similar provision of state, local,
or foreign Tax Law), (ii) installment sale or open transaction disposition made on or prior to the
Effective Time or (iii) prepaid amount received on or prior to the Effective Time.

          (k) The Company has not entered into any transaction that constitutes a “reportable
transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).

          (l) The Company Disclosure Schedule lists each person who Company reasonably believes is, with
respect to Company or any Affiliate of the Company, a “disqualified individual” (within the meaning
of Section 280G of the Code and the Regulations thereunder).

          (m) Neither the Company nor, to the Knowledge of Company, any of its Affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement) that would reasonably
be expected to prevent the Merger from constituting a “reorganization” under Section 368 of the
Code. The Company is not aware of any agreement or plan to which the Company or any of its
Affiliates is a party or other circumstances relating to the Company or any of its Affiliates that
would reasonably be expected to prevent the Merger from so qualifying as a “reorganization” under
Section 368 of the Code.

          (n) The unpaid Taxes of Company (i) did not, as of the Balance Sheet Date and the Interim
Balance Sheet Date, exceed the reserve for Tax liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set forth on the face
of the Balance Sheet or the Interim Balance Sheet, respectively, (rather than in any notes thereto)
and (ii) will not exceed that reserve as adjusted for the passage of time through the Closing Date
in accordance with the past custom and practice of Company in filing its Tax Returns. Since the
Balance Sheet Date the Company has not incurred any liability for Taxes arising from extraordinary
gains or losses, as that term is used in GAAP, outside the ordinary course of business consistent
with past custom and practice.

          (o) At all times since incorporation, for federal income tax purposes, the Company has validly
been treated as an “S corporation” within the meaning of Section 1361(a) of the Code and has
validly been treated in a similar manner for purposes of the income tax laws of all states in which
it has been subject to taxation.

     3.11 Compliance with Law.

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          (a) The Company has complied in all material respects with each, and is not in violation in
any material respect of, any applicable Law to which the Company or its business, operations,
assets or properties is subject.

          (b) No event has occurred and, to the Company’s Knowledge, no circumstances exist that (with
or without the passage of time or the giving of notice) may result in a violation of, conflict with
or failure on the part of the Company to comply with, any Law, except for any such violations,
conflicts or failures to comply that would not reasonably be expected to be, individually or in the
aggregate, material to the Company taken as a whole. The Company has not received written notice
regarding any such violation of, conflict with, or failure to comply with, any Law.

     3.12 Authorizations.

          (a) The Company owns, holds or lawfully uses in the operation of its business all
Authorizations which are necessary for it to conduct its business as currently conducted or for the
ownership and use of the assets owned or used by the Company in the conduct of its business free
and clear of all Liens, except where the failure to own, hold, possess or lawfully use any such
Authorizations would not reasonably be expected to be, individually or in the aggregate, material
to the Company taken as a whole. Such Authorizations are valid and in full force and effect and
none of such Authorizations will be terminated or impaired or become terminable as a result of the
transactions contemplated by this Agreement. All material Authorizations are listed in the Company
Disclosure Schedule.

          (b) No event has occurred and, to the Company’s Knowledge, no circumstances exist that (with
or without the passage of time or the giving of notice) may result in a violation of, conflict
with, failure on the part of the Company to comply with the terms of, or the revocation,
withdrawal, termination, cancellation, suspension or modification of any material Authorization.
The Company has not received written notice regarding any violation of, conflict with, failure to
comply with the terms of, or any revocation, withdrawal, termination, cancellation, suspension or
modification of, any material Authorization. The Company is not in default, nor has the Company
received notice of any claim of default, with respect to any material Authorization.

          (c) No Person other than the Company owns or has any proprietary, financial or other interest
(direct or indirect) in any Authorization which the Company owns, possesses or uses in the
operation of its business as now conducted.

     3.13 Title to Personal Properties.

          (a) The Company Disclosure Schedule sets forth a complete and accurate list of all the
personal properties and assets owned, leased or used by right under an agreement by the Company as
of the date of this Agreement, with a book value in excess of $1000.00, specifying whether and by
whom each such asset is owned or leased and, in the case of leased assets, indicating the parties
to, execution dates of and annual payments under, the lease.

21

 

          (b) With respect to personal properties and assets that they purport to own, including all
properties and assets reflected as owned on the Interim Balance Sheet (other than inventory sold in
the ordinary course of business since the date thereof), the Company has good and valid title to
all of such properties and assets, free and clear of all Liens other than Permitted Liens.
“Permitted Liens” means (i) liens for current real or personal property taxes not yet due and
payable and with respect to which the Company maintains adequate reserves, (ii) workers’, carriers’
and mechanics’ or other like liens incurred in the ordinary course of business with respect to
which payment is not due and that do not impair the conduct of the Company’s business in any
material respect and (iii) liens that are immaterial in character, amount, and extent and which do
not detract from the value or interfere with the present use of the properties they affect.

          (c) With respect to personal properties and assets that are leased, the Company has a valid
leasehold interest in such properties and assets and all such leases are in full force and effect
and constitute valid and binding obligations of the other party(ies) thereto. Neither the Company
nor, to the Company’s Knowledge, any other party thereto is in violation of any of the terms of any
such lease other than any such violations that would not reasonably be expected to be, individually
or in the aggregate, material to the Company taken as a whole.

     3.14 Condition of Tangible Assets. To the Company’s knowledge, all facilities,
equipment and other items of tangible property and assets which are owned, leased or used by the
Company, other than Real Property, are structurally sound, are in good operating condition and
repair (subject to normal wear and tear given the use and age of such assets), are usable in the
regular and ordinary course of business and conform in all material respects to all Laws and
Authorizations relating to their construction, use and operation.

     3.15 Real Property.

          (a) The Company does not own any Real Property. The Company Disclosure Schedule contains list
of all real property and interests in real property leased by the Company (the “Real Property”).
The Real Property listed on the Company Disclosure Schedule includes all interests in real property
used in or necessary for the conduct of the businesses and operations of the Company as currently
conducted.

          (b) With respect to Real Property, the Company has delivered to Parent a true and complete
copy of every lease and sublease pursuant to which the Company is a party or by which any of them
is bound (each, a “Lease”). The Company has peaceful, undisturbed and exclusive possession of the
Real Property.

          (c) The uses for which the buildings, facilities and other improvements located on the Real
Property are zoned do not materially restrict, or materially impair, the use of the Real Property
for purposes of the business. The Company has not received any written notice from any
Governmental Entity or other Person that the Real Property does not comply with all applicable
material building and zoning codes, deed restrictions, ordinances and rules.

22

 

          (d) No Governmental Entity having the power of eminent domain over the Real Property has
commenced or, to the Company’s Knowledge, intends to exercise the power of eminent domain or a
similar power with respect to all or any part of the Real Property. There are no pending or, to the
Company’s Knowledge, threatened condemnation, fire, health, safety, building, zoning or other land
use regulatory proceedings, lawsuits or administrative actions relating to any portion of the Real
Property or any other matters which do or may adversely effect the current use, occupancy or value
thereof. The Company has not received written notice of any pending or threatened special
assessment proceedings affecting any portion of the Real Property.

          (e) To the Company’s Knowledge, the Real Property and all present uses and operations of the
Real Property comply in all material respects with all Laws, Authorizations, covenants, conditions,
restrictions, easements, disposition agreements and similar matters affecting the Real Property.
The continued use, occupancy and operation of the Real Property as currently used, occupied and
operated do not constitute a nonconforming use and are not the subject of a special use permit
under any Law.

          (f) The Real Property is in suitable condition for the business of the Company as currently
conducted and as proposed by the Company to be conducted. The Company has good and valid rights of
ingress and egress to and from all Real Property from and to the public street systems for all
usual street, road and utility purposes.

          (g) No Person other than the Company is in possession of any of the Real Property or any
portion thereof, and there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any Person other than the Company the right of use or occupancy of the
Real Property or any portion thereof. No easement, utility transmission line or water main located
on the Real Property adversely affects the use of the Real Property or any improvement on the Real
Property in any material respect.

          (h) All water, sewer, gas, electric, telephone and drainage facilities, and all other
utilities required by any Law or necessary for the current use and operation of the Real Property
are installed to the property lines of the Real Property, are connected pursuant to valid permits
to municipal or public utility services or proper drainage facilities, are, to the Company’s
Knowledge, are fully operable and adequate to service the Real Property in the operation of the
business as currently conducted and to permit compliance with the requirements of all Laws in the
operation thereof. To the Company’s Knowledge, no fact or condition exists which would result in
the termination or reduction of the current access from the Real Property to existing roads or to
sewer or other utility services presently serving the Real Property.

     3.16 Intellectual Property.

          (a) As used in this Agreement, “Intellectual Property” means: (i) inventions (whether or not
patentable), trade secrets, technical data, databases, customer lists, designs, tools, methods,
processes, technology, ideas, know-how, source code,

23

 

product road maps and other proprietary information and materials (“Proprietary Information”);
(ii) trademarks and service marks (whether or not registered), trade names, logos, trade dress and
other proprietary indicia and all goodwill associated therewith; (iii) documentation, advertising
copy, marketing materials, web-sites, specifications, mask works, drawings, graphics, databases,
recordings and other works of authorship, whether or not protected by Copyright; (iv) computer
programs, including any and all software implementations of algorithms, models and methodologies,
whether in source code or object code, design documents, flow-charts, user manuals and training
materials relating thereto and any translations thereof (collectively, “Software”); and (v) all
forms of legal rights and protections that may be obtained for, or may pertain to, the Intellectual
Property set forth in clauses (i) through (iv) in any country of the world (“Intellectual Property
Rights”), including all letters patent, patent applications, provisional patents, design patents,
PCT filings, invention disclosures and other rights to inventions or designs (“Patents”), all
registered and unregistered copyrights in both published and unpublished works (“Copyrights”), all
trademarks, service marks and other proprietary indicia (whether or not registered) (“Marks”),
trade secret rights, mask works, moral rights or other literary property or authors rights, and all
applications, registrations, issuances, divisions, continuations, renewals, reissuances and
extensions of the foregoing.

          (b) The Company Disclosure Schedule lists (by name, owner and, where applicable, registration
number and jurisdiction of registration, application, certification or filing) all Intellectual
Property that is owned by the Company (whether exclusively, jointly with another Person or
otherwise) (“Company Owned Intellectual Property”); provided that the Company
Disclosure Schedule is not required to list, and Company Owned Intellectual Property shall not be
deemed to include, items which are both (i) immaterial to the Company and (ii) not registered or
the subject of an application for registration. Except as described in the Company Disclosure
Schedule, the Company owns the entire right, title and interest to all Company Owned Intellectual
Property free and clear of all Liens.

          (c) The Company Disclosure Schedule lists all licenses, sublicenses and other Contracts
(“In-Bound Licenses”) pursuant to which a third party authorizes the Company to use, practice any
rights under, or grant sublicenses with respect to, any Intellectual Property owned by such third
party, including the incorporation of any such Intellectual Property into the Company’s products
and, with respect to each In-Bound License, whether the In-Bound License is exclusive or
non-exclusive; provided, however, that the Company Disclosure Schedule is not
required to list, and In-Bound Licenses shall not be deemed to include, items that consist solely
of “shrink-wrap” and similar commercially available end-user licenses that are not material to
Company’s Intellectual Property Rights, service offerings or business.

          (d) The Company Disclosure Schedule lists all licenses, sublicenses and other Contracts
(“Out-Bound Licenses”) pursuant to which the Company authorizes a third party to use, practice any
rights under, or grant sublicenses with respect to, any Company Owned Intellectual Property or
pursuant to which the Company grants rights to use or practice any rights under any Intellectual
Property owned by a third party and, with

24

 

respect to each Out-Bound License, whether the Out-Bound License is exclusive or
non-exclusive.

          (e) Except as described in Section 3.16(e) of the Company Disclosure Schedule, the Company (i)
owns the entire right, interest and title to all Intellectual Property that is used in or necessary
for the businesses of the Company as they are currently conducted or proposed by the Company to be
conducted free and clear of Liens (including the design, manufacture, license and sale of all
products currently under development or in production), or (ii) otherwise rightfully use or
otherwise enjoy such Intellectual Property pursuant to the terms of a valid and enforceable
In-Bound License that is listed in the Company Disclosure Schedule. The Company Owned Intellectual
Property, together with the Company’s rights under the In-Bound Licenses listed in the Company
Disclosure Schedule, together with items expressly permitted to be excluded from the foregoing
categories (collectively, the “Company Intellectual Property”), constitutes all the Intellectual
Property used in or necessary for the operation of the Company’s businesses as they are currently
conducted and as proposed by the Company to be conducted.

          (f) All registration, maintenance and renewal fees related to Patents, Marks, Copyrights and
any other certifications, filings or registrations that are owned by the Company (“Company
Registered Items”) that are currently due have been paid and all documents and certificates related
to such Company Registered Items have been filed with the relevant Governmental Entity or other
authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of
maintaining such Company Registered Items. All Company Registered Items are in good standing, held
in compliance with all applicable legal requirements and enforceable by the Company. All Patents
that have been issued to the Company are valid.

          (g) The Company is not aware of any challenges (or any basis therefor) with respect to the
validity or enforceability of any Company Intellectual Property. The Company Disclosure Schedule
lists the status of any Actions before the United States Patent and Trademark Office or any other
Governmental Entity anywhere in the world related to any of the Company Intellectual Property,
including the due date for any outstanding response by the Company in such Actions. Except as set
forth in Section 3.16(g) of the Company Disclosure Schedule, The Company has not taken any action
or failed to take any action that would reasonably be expected to result in the abandonment,
cancellation, forfeiture, relinquishment, invalidation, waiver or unenforceability of any Company
Intellectual Property. The Company Disclosure Schedule lists all previously held Company Registered
Items that the Company has abandoned, cancelled, forfeited or relinquished during the 12 months
prior to the date of this Agreement.

          (h) Except as described in Section 3.16(h) of the Company Disclosure Schedule; (i) none of the
products or services currently developed manufactured, sold, distributed, provided, shipped or
licensed, by the Company, or which are currently under development, has infringed or infringes
upon, or otherwise unlawfully used or uses, the Intellectual Property Rights of any third party;
(ii) the Company has not, by conducting

25

 

its business as currently conducted, has infringed or infringes upon, or otherwise unlawfully
used or uses, any Intellectual Property Rights of a third party; (iii) the Company has not received
any communication alleging that the Company or any of their respective products, services,
activities or operations infringe upon or otherwise unlawfully use any Intellectual Property Rights
of a third party nor, to the Company’s Knowledge, is there any basis therefor; (iv) no Action has
been instituted, or, to the Company’s Knowledge, threatened, relating to any Intellectual Property
formerly or currently used by the Company and none of the Company Intellectual Property is subject
to any outstanding Order. To the Company’s Knowledge, no Person has infringed or is infringing any
Intellectual Property Rights of the Company or has otherwise misappropriated or is otherwise
misappropriating any Company Intellectual Property.

          (i) With respect to the Company’s Proprietary Information, the documentation relating thereto
is current, accurate and sufficient in detail and content to identify and explain it and to allow
its full and proper use without reliance on the special knowledge or memory of others. The Company
has taken commercially reasonable steps to protect and preserve the confidentiality of all
Proprietary Information owned by the Company that is not covered by an issued Patent, including but
not limited to causing third parties who are given or have access to Proprietary Information owned
by the Company to enter into binding written confidentiality agreements between the Company and
such third party (“Nondisclosure Agreements”). True and complete copies of the Nondisclosure
Agreements, and any amendments thereto, have been made available to Parent. The Company is, and to
the Company’s Knowledge, all other parties thereto are, in compliance with the provisions of the
Nondisclosure Agreements. Except as disclosed in Section 3.16(i) of the Company Disclosure
Schedule, the Company is in compliance with the terms of all Contracts pursuant to which a third
party has disclosed to, or authorized the Company to use, Proprietary Information owned by such
third party.

          (j) Except as described in Section 3.16(j) of the Company Disclosure Schedule, all current and
former employees, consultants and contractors of the Company who have access to Proprietary
Information have executed and delivered, and are in compliance with, enforceable agreements
regarding the protection of Proprietary Information and providing valid written assignments of all
Intellectual Property conceived or developed by such employees, consultants or contractors in
connection with their services for the Company (“Work Product Agreements”). True and complete
copies of the Work Product Agreements have been made available to Parent. No current or former
employee, consultant or contractor or any other Person has any right, claim or interest to any of
the Company Intellectual Property.

          (k) To the Company’s Knowledge, no employee, consultant or contractor of the Company has been,
is or will be, by performing services for the Company, in violation of any term of any employment,
invention disclosure or assignment, confidentiality, noncompetition agreement or other restrictive
covenant or any Order as a result of such employee’s, consultant’s or independent contractor’s
employment by the Company or any services rendered by such employee, consultant or independent
contractor.

26

 

          (l) All Intellectual Property that has been distributed, sold or licensed to a third party by
the Company that is covered by a warranty conformed to or materially conforms to, and performed or
performs in accordance with, the representations and warranties provided with respect to such
Intellectual Property by or on behalf of the Company for the time period during which such
representations and warranties apply. True and complete copies have been made available to Parent
of all Contracts pursuant to which the Company has agreed to indemnify a third party in connection
with any Intellectual Property that has been distributed, sold or licensed by the Company.

          (m) The execution and delivery of this Agreement by the Company does not, and the consummation
of the Merger (in each case, with or without the giving of notice or lapse of time, or both), will
not, directly or indirectly, result in the loss or impairment of, or give rise to any right of any
third party to terminate or re-price or otherwise renegotiate any of the Company’s rights to own
any of its Intellectual Property or their respective rights under any Out-Bound License or In-Bound
License, nor require the consent of any Governmental Entity or other third party in respect of any
such Intellectual Property, except those consents identified in Section 3.16(m) of the Company
Disclosure Schedule.

          (n) Software.

               (i) The Software owned, or purported to be owned by the Company (collectively, the “Company
Owned Software”), was either (A) developed by employees of the Company within the scope of their
employment by the Company, (B) developed by independent contractors who have assigned all of their
right, title and interest therein to the Company pursuant to written agreements or (C) otherwise
acquired by the Company from a third party pursuant to a written agreement in which such third
party assigns all of its right, title and interest therein. None of the Company Owned Software
contains any programming code, documentation or other materials or development environments that
embody Intellectual Property Rights of any person other than the Company, other than such materials
obtained by the Company from other Persons who make such materials generally available to all
interested purchasers or end-users on standard commercial terms or otherwise rightfully licensed. 

               (ii) Each of the Company’s existing and currently supported and marketed Software products
performs, in all material respects, the functions described in any agreed specifications or
end-user documentation, subject only to routine bugs and errors, that can be corrected promptly by
the Company in the course of providing customer support without further liability to the Company,
and all of the code, which includes both object and source code, of such products has been
developed in a manner that meets common industry practice. To the Company’s Knowledge, each of
the Company’s existing and currently supported and marketed Software products is free of all
viruses, worms, trojan horses and material known contaminants and does not contain any bugs,
errors, or problems that would substantially disrupt its operation or have a substantial adverse
impact on the operation of the Software.

27

 

               (iii) The Company has taken all actions customary in the software industry to document the
Software and its operation, such that the materials comprising the Software, including the source
code and documentation, have been written in a clear and professional manner so that they may be
understood, modified and maintained in an efficient manner by reasonably competent programmers.

               (iv) The Company has not exported or transmitted Software or other material in connection with
the Company’s business to any country to which such export or transmission is restricted by any
applicable Law, without first having obtained all necessary and appropriate Authorizations.

               (v) The Company Owned Software is free of any disabling codes or instructions (a “Disabling
Code”), and any virus or other intentionally created, undocumented contaminant (a “Contaminant”),
that may, or may be used to, access, modify, delete, damage or disable any Systems to the detriment
of the end user. The Company has taken reasonable steps and implemented reasonable procedures to
ensure that its and their internal computer systems used in connection with the Company’s business
are free from Disabling Codes and Contaminants. The Software licensed by the Company is free of
any Disabling Codes or Contaminants that may, or may be used to, access, modify, delete, damage or
disable any of the hardware, software, databases or embedded control systems of the Company
(“Systems”) or that might result in damage thereto. The Company has taken all reasonable steps to
safeguard their respective Systems and restrict unauthorized access thereto.

               (vi) No Public Software: (A) forms part of any Company Intellectual Property; (B) was, or is,
used in connection with the development of any Company Owned Intellectual Property or any products
or services developed or provided by the Company; or (C) was, or is, incorporated or distributed,
in whole or in part, in conjunction with Company Intellectual Property. “Public Software” means
any software that contains, or is derived in any manner (in whole or in part) from, any software
that is distributed as free software, open source software or similar licensing or distribution
models, including software licensed or distributed under any of the following licenses or
distribution models, or licenses or distribution models similar to any of the following: (i) GNU’s
General Public License or Lesser/Library GPL; (ii) Mozilla Public License; (iii) Netscape Public
License; (iv) Sun Community Source/ Industry Standard License; (v) BSD License; and (vi) Apache
License.

     3.17 Absence of Certain Changes or Events. Since the Balance Sheet Date:

          (a) there has not been any material adverse change in the business, financial condition,
operations or results of operations of the Company taken as a whole, excluding changes in general
economic, regulatory, legal or political conditions, such as changes in prevailing interest rates,
affecting the United States, the geographic areas in which the Company does business, or the
industries in which the Company operates;

          (b) The Company has not amended or otherwise modified its Charter Documents;

28

 

          (c) The Company has not declared, set aside or paid any dividend or other distribution
(whether in cash, stock or property) with respect to any of its securities;

          (d) except as disclosed in Section 3.17 of the Company Disclosure Schedule, the Company has
not split, combined or reclassified any of its securities, or issued, or authorized for issuance,
any securities other than the grant of Company Stock Options and the issuance of shares of Company
Common Stock upon exercise of Company Stock Options;

          (e) The Company has not altered any term of any outstanding securities;

          (f) except in accordance with Section 3.17 of the Company Disclosure Schedule, the Company has
not (i) increased or modified the compensation or benefits payable or to become payable to any of
their respective current or former directors, employees, contractors or consultants, (ii) increased
or modified any bonus, severance, termination, pension, insurance or other employee benefit plan,
payment or arrangement made to, for or with any of its current or former directors, employees,
contractors or consultants or (iii) entered into any employment, severance or termination
agreement;

          (g) The Company has not sold, leased, transferred or assigned any property or assets of the
Company, except for the grant of Out-Bound Licenses on a non-exclusive basis, in each case in the
ordinary course of business consistent with past practice;

          (h) except in accordance with Section 3.17 of the Company Disclosure Schedule, the Company has
not incurred, assumed or guaranteed any Indebtedness, or modified the terms of any Indebtedness
outstanding as of the Balance Sheet Date;

          (i) except in accordance with Section 3.17 of the Company Disclosure Schedule, the Company has
not incurred any material Liability or created or assumed any Lien on any asset, except for
Permitted Liens, Liens arising under lease financing arrangements existing as of the Balance Sheet
Date and Liens for taxes not yet due and payable with respect to which the Company maintains
adequate reserves;

          (j) the Company has not made any loan, advance or capital contribution to, or investment in,
any Person other than travel loans or advances in the ordinary course of business consistent with
past practice;

          (k) (i) no Material Contract has been modified, (ii) no rights under any Material Contract
have been waived or accelerated, and (iii) no Contract that would be required to be listed as a
Material Contract pursuant to Section 3.18 hereof if such Contract were in effect on the date
hereof has been terminated or cancelled;

          (l) the Company has not sold, transferred, pledged or assigned any Company Intellectual
Property except for Out-Bound Licenses entered into in the ordinary course of business;

29

 

          (m) there has not been any labor dispute, other than individual grievances, or any activity or
proceeding by a labor union or representative thereof to organize any employees of the Company;

          (n) there has not been any violation of or conflict with any Law to which the business,
operations, assets or properties of the Company are subject, except for any such violations and
conflicts that would not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Company taken as a whole;

          (o) there has not been any material damage, destruction or loss with respect to the property
and assets of the Company, whether or not covered by insurance;

          (p) The Company has not made any change in accounting practices;

          (q) The Company has not made any Tax election, changed its method of Tax accounting or settled
any claim for Taxes; or

          (r) The Company has not agreed, whether in writing or otherwise, to do any of the foregoing.

     3.18 Contracts.

          (a) The Company Disclosure Schedule contains a complete and accurate list of each Material
Contract (defined below) to which the Company is a party or is subject, or by which any of their
respective assets are bound. For purposes of this Agreement, “Material Contracts” shall mean all
contracts to which the Company is a party or is subject to, and:

               (i) for the purchase of materials, supplies, goods, services, equipment or other assets and
that involves or would reasonably be expected to involve (A) annual payments by the Company of
$50,000 or more, or (B) aggregate payments by the Company of $100,000 or more;

               (ii) (A) for the sale by the Company of materials, supplies, goods, services, equipment or
other assets, and that involves (1) a specified annual minimum dollar sales amount by the Company
of $50,000 or more, or (2) aggregate payments to the Company of $100,000 or more, or (B) pursuant
to which the Company received payments of more than $50,000 in the year ended December 31, 2007 or
expects to receive payments of more than $50,000 in the year ending December 31, 2007;

               (iii) that requires the Company to purchase its total requirements of any product or service
from a third party;

               (iv) that continues over a period of more than six (6) months from the date hereof and
involves payments to or by the Company exceeding $50,000, other than arrangements disclosed
pursuant to the preceding subparagraphs (i) and (ii);

30

 

               (v) that is an employment, consulting, termination or severance Contract, other than any such
Contract that is terminable at-will by the Company without liability to the Company;

               (vi) that is a partnership, joint venture or similar Contract;

               (vii) that is a distribution, dealer, representative or sales agency Contract;

               (viii) that is a (A) Lease or (B) Contract for the lease of personal property, in either case
which provides for payments to or by the Company in any one case of $20,000 or more annually or
$50,000 or more over the term of the lease;

               (ix) which provide for the indemnfication by the Company of any Person, the undertaking of the
Company to be responsible for consequential damages, or the assumption by the Company of any Tax,
environmental or other Liability;

               (x) with any Governmental Entity;

               (xi) that is a note, debenture, bond, equipment trust, letter of credit, loan or other
Contract for Indebtedness or lending of money (other than to employees for travel expenses in the
ordinary course of business) or Contract for a line of credit or guarantee, pledge or undertaking
of the Indebtedness of any other Person;

               (xii) for a charitable or political contribution in any one case in excess of $1,000 or any
such Contracts in the aggregate greater than $2,000;

               (xiii) for any capital expenditure or leasehold improvement in any one case in excess of
$10,000 or any such Contracts in the aggregate greater than $50,000;

               (xiv) that restricts or purports to restrict the right of the Company to engage in any line of
business, acquire any property, develop or distribute any product or provide any service (including
geographic restrictions) or to compete with any Person or granting any exclusive distribution
rights, in any market, field or territory;

               (xv) that is an In-Bound License or Out-Bound License;

               (xvi) that relates to the acquisition or disposition of any material portion of the Company’s
business (whether by merger, sale of stock, sale of assets or otherwise); and

               (xvii) that is a collective bargaining Contract or other Contract with any labor organization,
union or association.

31

 

          (b) As to the Company and, to the Company’s Knowledge, to each other party thereto, each
Material Contract is in full force and effect and valid and enforceable in accordance with its
terms.

          (c) The Company is not, and to the Company’s Knowledge, no other party thereto is, in default
in the performance, observance or fulfillment in any material respect of any obligation, covenant,
condition or other term contained in any Material Contract, and The Company has not given or
received notice to or from any Person relating to any such alleged or potential default that has
not been cured. No event has occurred which with or without the giving of notice or lapse of time,
or both, may conflict in any material respect with or result in a violation or breach in any
material respect of, or give any Person the right to exercise any remedy under or accelerate the
maturity or performance of, or cancel, terminate or modify, any Material Contract.

          (d) The Company has made available to Parent accurate and complete copies of each Material
Contract.

          (e) All Contracts other than Material Contracts to which the Company is a party or is subject,
or by which any of its assets are bound (collectively, the “Minor Contracts”), are in all material
respects valid and enforceable in accordance with their terms. The Company is not in default in the
performance, observance or fulfillment of any obligation, covenant or condition contained therein,
and no event has occurred which with or without the giving of notice or lapse of time, or both,
would constitute a default thereunder by the Company, except where any such default or defaults
could not reasonably be expected have, individually or in the aggregate, a material adverse effect
on the Company taken as a whole.

          (f) Set forth on Section 3.18(f) of the Company Disclosure Schedule is a list of all Company
clients and backlog as of the Interim Balance Sheet date, including (i) the start and end date of
the client relationship, (ii) the total value of any contracts related to the client, (iii) the
current value of services performed and products delivered to client, and (iv) the remaining value
of services to be performed and products delivered to client.

     3.19 Litigation.

          (a) There is no action, suit or proceeding, claim, arbitration, litigation or investigation
(each, an “Action”) pending or, to the Company’s Knowledge, threatened (i) against or affecting the
Company or (ii) that challenges or seeks to prevent, enjoin or otherwise delay the Merger. To the
Company’s Knowledge, no event has occurred or circumstances exist that may give rise or serve as a
basis for any such Action except as set forth in Section 3.19(a) of the Company’s Disclosure
Schedule. To the Company’s Knowledge, there is no Action pending against any current or former
director or employee of the Company with respect to which the Company has or is reasonably likely
to have an indemnification obligation.

32

 

          (b) There is no unsatisfied judgment, penalty or award against or affecting the Company or any
of its properties or assets. There is no Order to which the Company or any of its properties or
assets are subject.

     3.20 Employee Benefits.

          (a) The Company Disclosure Schedule sets forth a complete and accurate list of all Company
Benefit Plans. A current, accurate and complete copy of each Company Benefit Plan has been made
available to Parent. The Company has not committed to create any additional Company Benefit Plan or
amend any Company Benefit Plan. “Company Benefit Plan” means any “employee benefit plan” as defined
in Section 3 (3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), including any
(a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee
Pension Benefit Plan (as defined in ERISA Section 3(2)), (b) qualified defined contribution
retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined
benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan (as defined in ERISA Section 3(37)), (d) Employee Welfare Benefit Plan (as
defined in ERISA Section 3(1)) or material fringe benefit plan or program, or (e) stock purchase,
stock option, severance pay, employment, change-in-control, vacation pay, company awards, salary
continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or
other employee benefit plan, contract, program, policy or other arrangement, whether or not subject
to ERISA, in each case which is sponsored, maintained or contributed to by the Company, or any
ERISA Affiliate, or with respect to which the Company or any ERISA Affiliate otherwise has any
present or future Liability. “ERISA Affiliate” means any entity which is a member of a “controlled
group of corporations” with, under “common control” with or a member of an “affiliated services
group” with, the Company, as defined in Section 414(b), (c), (m) or (o) of the Code.

          (b) Each Company Benefit Plan has been and is currently administered in compliance in all
material respects with its constituent documents and with all reporting, disclosure and other
requirements of ERISA and the Code applicable to such Company Benefit Plan. Each Company Benefit
Plan that is an Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code (a “Pension Plan”), has been determined
by the Internal Revenue Service to be so qualified and, to the Company’s Knowledge, no condition
exists that would adversely affect any such determination. No Company Benefit Plan is a “defined
benefit plan” as defined in Section 3(35) of ERISA.

          (c) None of the Company, any ERISA Affiliate or any trustee or agent of any Company Benefit
Plan has been or is currently engaged in any prohibited transactions as defined by Section 406 of
ERISA or Section 4975 of the Code for which an exemption is not applicable which would subject
Company, any ERISA Affiliate or any trustee or agent of any Company Benefit Plan to the tax or
penalty imposed by Section 4975 of the Code or Section 502 of ERISA.

33

 

          (d) To the Company’s Knowledge, there is no event or condition existing which would be deemed
a “reportable event” (within the meaning of Section 4043 of ERISA) with respect to which the 30-day
notice requirement has not been waived. To the Company’s Knowledge, no condition exists which would
subject the Company to a penalty under Section 4071 of ERISA.

          (e) None of the Company or any ERISA Affiliate is, or has been, party to any “multi-employer
plan,” as that term is defined in Section 3(37) of ERISA.

          (f) True and correct copies of the most recent annual report on Form 5500 and any attached
schedules for each Company Benefit Plan (if any such report was required by applicable Law) and a
true and correct copy of the most recent determination letter issued by the Internal Revenue
Service for each Pension Plan have been made available to Parent.

          (g) With respect to each Company Benefit Plan, there are no actions, suits or claims (other
than routine claims for benefits in the ordinary course) pending or, to the Company’s Knowledge,
threatened against any Company Benefit Plan, the Company, any ERISA Affiliate or any trustee or
agent of any Company Benefit Plan.

          (h) With respect to each Company Benefit Plan to which the Company or any ERISA Affiliate is a
party which constitutes a group health plan subject to Section 4980B of the Code, each such Company
Benefit Plan complies, and in each case has complied, in all material respects with all applicable
requirements of Section 4980B of the Code.

          (i) Full payment has been made of all amounts which the Company or any ERISA Affiliate was
required to have paid as a contribution to any Company Benefit Plan as of the last day of the most
recent fiscal year of each of the Benefit Plans ended prior to the date of this Agreement, and none
of the Company Benefit Plans has incurred any “accumulated funding deficiency” (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the
most recent fiscal year of each such Company Benefit Plan ended prior to the date of this
Agreement.

          (j) Each Company Benefit Plan is, and its administration is and has been during the six-year
period preceding the date of this Agreement, in all material respects in compliance with, and none
of Company or any ERISA Affiliate has received any claim or notice that any such Company Benefit
Plan is not in material compliance with, all applicable Laws and Orders and prohibited transaction
exemptions, including to the extent applicable, the requirements of ERISA.

          (k) None of the Company or any ERISA Affiliate is in default in any material respect in
performing any of its contractual obligations under any of the Company Benefit Plans or any related
trust agreement or insurance contract.

          (l) There are no material outstanding Liabilities of any Company Benefit Plan other than
Liabilities for benefits to be paid to participants in any Company

34

 

Benefit Plan and their beneficiaries in accordance with the terms of such Company Benefit
Plan.

          (m) Subject to ERISA and the Code, each Company Benefit Plan may be amended, modified,
terminated or otherwise discontinued by the Company or an ERISA Affiliate at any time without
liability.

          (n) No Company Benefit Plan other than a Pension Plan, retiree medical plan or severance plan
provides benefits to any individual after termination of employment.

          (o) The consummation of the Merger alone will not (i) entitle any current or former director,
employee, contractor or consultant of the Company to severance pay, unemployment compensation or
any other payment, (ii) except as disclosed in Section 3.20 of the Company Disclosure Schedule,
accelerate the time of payment or vesting, or increase the amount of compensation due to any such
director, employee, contractor or consultant, or result in the payment of any other benefits to any
Person or the forgiveness of any Indebtedness of any Person, (iii) result in any prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code for which an exemption is
not available, or (iv) result in the payment or series of payments by any Company or any of its
Affiliates to any person of an “excess parachute payment” within the meaning of Section 280G of the
Code.

          (p) With respect to each Company Benefit Plan that is funded wholly or partially through an
insurance policy, all premiums required to have been paid to date under the insurance policy have
been paid, all premiums required to be paid under the insurance policy through the Closing will
have been paid on or before the Closing.

          (q) Each Company Benefit Plan that constitutes a “welfare benefit plan,” within the meaning of
Section 3(1) of ERISA, and for which contributions are claimed by the Company or any ERISA
Affiliate as deductions under any provision of the Code, is in compliance in all material respects
with all applicable requirements pertaining to such deduction. With respect to any welfare benefit
fund (within the meaning of Section 419 of the Code) related to a welfare benefit plan, there is no
disqualified benefit (within the meaning of Section 4976(b) of the Code) that would result in the
imposition of a tax under Section 4976(a) of the Code. All welfare benefit funds intended to be
exempt from tax under Section 501(a) of the Code have been determined by the Internal Revenue
Service to be so exempt and no event or condition exists which would adversely affect any such
determination.

          (r) The Company Disclosure Schedule sets forth all Company Benefit Plans covering employees of
the Company outside of the United States (the “Foreign Plans”). The Foreign Plans have been
operated in accordance, and are in compliance, in all material respects with their constituent
documents and all applicable Laws. There are no material unfunded Liabilities under or in respect
of the Foreign Plans, and all contributions or other payments required to be made to or in respect
of the Foreign Plans prior to the Closing Date have been made or will be made prior to the Closing
Date.

35

 

          (s) Section 3.20(s) of the Company Disclosure Schedule sets forth a list of all plans,
programs, contracts or arrangements to which the Company or any of its Subsidiaries is a party, or
to which either is subject, which the Company provides for the payment of deferred compensation
subject to Section 409A of the Code.

          Each such plan, program, contract or arrangement of the Company or any of its Subsidiaries
that provides deferred compensation subject to Section 409A of the Code has been administered and
operated in good faith compliance with the applicable requirements of Code Section 409A and the
transitional guidance provided under Code Section 409A by the Internal Revenue Service or the
United States Treasury Department.

     3.21 Labor and Employment Matters.

          (a) The Company Disclosure Schedule sets forth (i) a list of all directors, employees,
contractors and consultants of the Company (including title and position) as of the date hereof,
and (ii) the base compensation and benefits of each such director, employee, contractor and
consultant whose base compensation and target bonus exceeds $130,000.00 as of the year ending
December 31, 2007. Except as disclosed in Section 3.21 of the Company Disclosure Schedule, all
directors, employees, contractors and consultants of the Company may be terminated by the Company
at any time with or without cause and without any severance or other Liability to the Company.

          (b) The Company is not a party or subject to any labor union or collective bargaining
Contract. There have not been since inception and there are not pending or, to the Company’s
Knowledge, threatened any labor disputes, work stoppages, requests for representation, pickets,
work slow-downs due to labor disagreements or any actions or arbitrations which involve the labor
or employment relations of the Company. There is no unfair labor charge or complaint pending,
unresolved or, to the Company’s Knowledge, threatened before the National Labor Relations Board. No
event has occurred or, to the Company’s Knowledge, no circumstances exist that may provide the
basis of any work stoppage or other labor dispute.

          (c) The Company has complied in all material respects with each, and is not in violation in
any material respect of any, Law relating to anti-discrimination and equal employment opportunities
and there are, and, to the Company’s Knowledge, have been, no material violations of any other Law
respecting the hiring, hours, wages, occupational safety and health, employment, promotion,
termination or benefits of any employee or other Person. The Company has filed all reports,
information and notices required under any Law respecting the hiring, hours, wages, occupational
safety and health, employment, promotion, termination or benefits of any employee or other Person.

          (d) The Company has paid or properly accrued in the ordinary course of business all wages and
compensation due to employees, including all vacations or vacation pay, holidays or holiday pay,
sick days or sick pay, and bonuses.

36

 

          (e) The Company is not a party to any contract which restricts the Company from relocating,
closing or terminating any of its operations or facilities or any portion thereof. The Company has
not since inception effectuated a “plant closing” (as defined in the Worker Adjustment and
Retraining Notification Act of 1988 (the “WARN Act”)) or (ii) a “mass lay-off” (as defined in the
WARN Act), in either case affecting any site of employment or facility of the Company, except in
accordance with the WARN Act.

          (f) The Company has complied, and is in compliance, in all material respects with the
requirements of the Immigration Reform and Control Act of 1986. The Company Disclosure Schedule
sets forth a true and complete list of all employees working in the United States who are not U.S.
citizens and a description of the legal status under which each such employee is permitted to work
in the United States.

     3.22 Environmental.

          (a) As used in this Agreement, the following words and terms have the following definitions:

               (i) “Environment” means all air, surface water, groundwater, land, including land surface or
subsurface, including all fish, wildlife, biota and all other natural resources.

               (ii) “Environmental Action” means any claim, proceeding or other Action brought or threatened
under any Environmental Law or otherwise asserting that the Company has incurred any Environmental
Liability.

               (iii) “Environmental Clean-up Site” means any location which is listed on the National
Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information
System, or on any similar state or foreign list of sites requiring investigation or cleanup, or
which is the subject of any pending or threatened Action related to or arising from any alleged
violation of any Environmental Law, or at which there has been a threatened or actual Release of a
Hazardous Substance.

               (iv) “Environmental Laws” means any and all applicable Laws and Authorizations issued,
promulgated or entered into by any Governmental Entity relating to the Environment, worker health
and safety, preservation or reclamation of natural resources, or to the management, handling, use,
generation, treatment, storage, transportation, disposal, manufacture, distribution, formulation,
packaging, labeling, Release or threatened Release of or exposure to Hazardous Substances, whether
now existing or subsequently amended or enacted, including but not limited to: the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq.
(“CERCLA”); the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Clean Air
Act, 42 U.S.C. Section 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq.; the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.; the Emergency Planning
and Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.; the Safe Drinking Water

37

 

Act, 42 U.S.C. Section 300(f) et seq.; the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq.; the Federal Insecticide, Fungicide and Rodenticide Act 7 U.S.C. Section 136
et seq.; the Resource Conservation and Recovery Act of 1976 (“RCRA”), 42 U.S.C. Section 6901 et
seq.; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Oil Pollution Act of
1990, 33 U.S.C. Section 2701 et seq.; and any similar or implementing state or local Law, and any
non-U.S. Laws and regulations of similar import, and all amendments or regulations promulgated
thereunder; and any common law doctrine, including but not limited to, negligence, nuisance,
trespass, personal injury, or property damage related to or arising out of the presence, Release,
or exposure to Hazardous Substances.

               (v) “Environmental Liabilities” means Liabilities based upon or arising out of (A) the
ownership or operation of the business of the Company or (B) the ownership, operation or condition
of the Real Property or any other real property currently or formerly owned, operated or leased by
the Company, in each case to the extent based upon or arising out of (i) Environmental Law, (ii) a
failure to obtain, maintain or comply with any Environmental Permit, (iii) a Release of any
Hazardous Substance or (iv) the use, generation, storage, transportation, treatment, sale or other
off-site disposal of Hazardous Substances.

               (vi) “Environmental Permit” means any Authorization under Environmental Law, and includes any
and all Orders issued or entered into by a Governmental Entity under Environmental Law.

               (vii) “Hazardous Substances” means all explosive or regulated radioactive materials or
substances, hazardous or toxic materials, wastes or chemicals, petroleum and petroleum products
(including crude oil or any fraction thereof), asbestos or asbestos containing materials, and all
other materials, chemicals or substances which are regulated by, form the basis of liability or are
defined as hazardous, extremely hazardous, toxic or words of similar import, under any
Environmental Law, including materials listed in 49 C.F.R. Section 172.101 and materials defined as
hazardous pursuant to Section 101(14) of CERCLA.

               (viii) “Release” means any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, or disposing of Hazardous Substances into the
Environment.

          (b) The Company has secured, and is in compliance in all material respects with, all
Environmental Permits required in connection with its operations and the Real Property. Each
Environmental Permit, together with the name of the Governmental Entity issuing such Environmental
Permit, is set forth in the Company Disclosure Schedule. All such Environmental Permits are valid
and in full force and effect and none of such Environmental Permits will be terminated or impaired
or become terminable as a result of the Merger. The Company has been, and is currently, in
compliance in all material respects with all Environmental Laws. The Company has not received
notice alleging that the Company is not in such compliance with Environmental Laws.

38

 

          (c) There are no past, pending or, to the Company’s Knowledge, threatened Environmental
Actions against or affecting the Company, and the Company is not aware of any facts or
circumstances which would be expected to form the basis for any Environmental Action against the
Company.

          (d) The Company has not entered into or agreed to any Order, and the Company is not subject to
any Order, relating to compliance with any Environmental Law or to investigation or cleanup of a
Hazardous Substance under any Environmental Law.

          (e) No Lien has been attached to, or asserted against, the assets, property or rights of the
Company pursuant to any Environmental Law, and, to the Company’s Knowledge, no such Lien has been
threatened. To the Company’s Knowledge, there are no facts, circumstances or other conditions that
would be expected to give rise to any Liens on or affecting any Real Property.

          (f) To the Company’s Knowledge, there has been no treatment, storage, disposal or Release of
any Hazardous Substance at, from, into, on or under any Real Property or any other property
currently or formerly owned, operated or leased by the Company, except for reasonable quantities of
Hazardous Substances that are used in the operations of the Company, including ordinary office
supplies, cleaning supplies, pesticides, insecticides and paint, provided such Hazardous Substances
are used, stored, handled and disposed of in accordance with Environmental Laws.

          (g) The Company has not received a CERCLA 104(e) information request nor has the Company been
named a potentially responsible party for any National Priorities List site under CERCLA or any
site under analogous state Law. The Company has not received an analogous notice or request from
any non-U.S. Governmental Entity.

          (h) To the Company’s Knowledge, there are no aboveground tanks or underground storage tanks
on, under or about the Real Property, and any aboveground or underground tanks previously situated
on the Real Property or any other property currently or formerly owned, operated or leased by the
Company have been removed in accordance with all Environmental Laws and no residual contamination,
if any, remains at such sites in excess of applicable standards.

          (i) To the Company’s Knowledge, there are no polychlorinated biphenyls (“PCBs”) leaking from
any article, container or equipment on, under or about the Real Property and there are no such
articles, containers or equipment containing PCBs, nor any asbestos containing material or lead
based paint containing materials in at, on, under or within the Real Property.

          (j) To the Company’s Knowledge, none of the Real Property is an Environmental Clean-up Site.

          (k) The Company has made available to Parent true and complete copies of, or access to, all
written environmental assessment materials and reports that

39

 

have been prepared by or on behalf of the Company with respect to the current year and the
preceding five years.

     3.23 Related Party Transactions. Except as disclosed in Section 3.23 of the Company
Disclosure Schedule, there are no Contracts of any kind, written or oral, entered into by the
Company with, or for the benefit of, any officer, director or stockholder of the Company or, to the
Knowledge of the Company, any Affiliate of any of them, except in each case, for (a) employment
agreements, fringe benefits and other compensation paid to directors, officers and employees
consistent with previously established policies (including normal merit increases or other budgeted
increases in such compensation in the ordinary course of business) and copies of which have been
made available to Parent and are listed on the Company Disclosure Schedule, (b) reimbursements of
ordinary and necessary expenses incurred in connection with their employment or service, and (c)
amounts paid pursuant to Company Benefit Plans of which copies have been made available to Parent.
To the Knowledge of the Company, none of such Persons has any material direct or indirect ownership
interest in any firm or corporation with which the Company has a business relationship, or with any
firm or corporation that competes with the Company (other than ownership of securities in a
publicly traded company representing less than one percent of the outstanding stock of such
company). To the Company’s Knowledge, no officer or director of the Company or member of his or
her immediate family or greater than 5% stockholder of the Company or any Affiliate of any of them
or any employee of the Company is directly or indirectly interested in any Material Contract.

     3.24 Insurance.

          (a) The Company Disclosure Schedule sets forth (i) an accurate and complete list of each
insurance policy, binder of insurance and fidelity bond which covers the Company or their
respective businesses, properties, assets, directors or employees (the “Policies”) and (ii) a list
of all pending claims and the claims history for the Company during the current year and the
preceding three years (including with respect to insurance obtained but not currently maintained).
There are no pending claims under any of such Policies as to which coverage has been questioned,
denied or disputed by the insurer or in respect of which the insurer has reserved its rights.

          (b) The Company Disclosure Schedule describes any self-insurance arrangement by or affecting
the Company, including any reserves thereunder, and describes the loss experience for all claims
that were self-insured in the current year and the preceding three years.

          (c) All Policies are issued by an insurer that is financially sound and reputable, are in full
force and effect and are enforceable in accordance with their terms and will continue in full force
and effect with respect to the Company following the Merger. Such Policies provide adequate
insurance coverage for the Company and its businesses, properties, assets and employees, and are
sufficient in all material respects for compliance with all Laws and Contracts to which the Company
is a party or by which it is bound.

40

 

          (d) All premiums due under the Policies prior to the Closing Date have been paid in full. The
Company has not received a written notice of cancellation of any Policy or of any material changes
that are required in the conduct of the business of the Company as a condition to the continuation
of coverage under, or renewal of, any such Policy. To the Company’s Knowledge, there is no existing
default or event which, with the giving of notice or lapse of time or both, would constitute a
default under any Policy or entitle any insurer to terminate or cancel any Policy. The Company has
no Knowledge of any threatened termination of, or material premium increase with respect to, any
Policy and none of such Policies provides for retroactive premium adjustments.

     3.25 Books and Records. The books, records and accounts of the Company accurately and
fairly reflect, in reasonable detail, the transactions and the assets and Liabilities of the
Company. The Company has not engaged in any transaction, maintained any bank account or used any
of the funds of the Company other than transactions, bank accounts and funds which have been and
are reflected in the normally maintained books and records of the business. The minute books
(containing the records of the meetings, or written consents in lieu of such meetings, of the
stockholders, the board of directors and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and complete in all
material respects, and have been maintained in accordance with sound business practices. There are
no resolutions or other actions of the stockholders, the board of directors or any committee of the
board of directors other than as disclosed in the records of the meetings and written consents
contained in the minute books. At the Closing, all of those books and records will be in the
possession of the Company. At the Closing, the Company will deliver, or cause to be delivered, to
Parent or its designee all of the minute books of the Company.

     3.26 Product Warranty.

          (a) Except as set forth in the Company Disclosure Schedule, there are no warranties (express
or implied) outstanding with respect to any products currently or formerly manufactured, sold,
distributed, provided, shipped or licensed (“Products”), or any services rendered, by the Company,
beyond that set forth in the standard conditions of sale or service, copies of which are included
in the Company Disclosure Schedule.

          (b) Each Product manufactured, sold, distributed, provided, shipped or licensed, or service
rendered, by the Company has been in conformity with all applicable contractual commitments and
warranties. There are no material design, manufacturing or other defects, latent or otherwise, or
recurring errors with respect to any Products when used in accordance with their intended use.
Each Product that has been manufactured, sold, distributed, provided, shipped or licensed prior to
Closing contains all warnings required by applicable Law and such warnings are in accordance with
reasonable industry practice.

          (c) The Interim Balance Sheet reflects adequate reserves (in accordance with GAAP) for product
design and warranty claims and other damages in connection with any Product manufactured, sold,
distributed, shipped or licensed, or

41

 

service rendered, by the Company on or prior to the Interim Balance Sheet Date. The
accounting records of the Business will reflect adequate reserves (in accordance with GAAP) for all
such claims in connection with Products manufactured, sold, distributed, shipped or licensed, or
services rendered by, the Company on or prior to the Closing Date.

     3.27 Conditions Affecting the Company. No employee, agent, customer or supplier of
the Company has given the Company written notice that he/she/it intends to terminate his/her/its
relationship with the Company solely as a result of the consummation of the Merger.

     3.28 Brokers or Finders. There is no investment banker, broker, finder, financial
advisor or other intermediary which has been retained by or is authorized to act on behalf of the
Company or the Company Stockholders who is entitled to any fee or commission in connection with the
transactions contemplated by this Agreement, except Cross Tree Capital Partners, LP (the “Company
Broker Fee”). The Company has made available a true and complete copy of the Company’s Contract
with Cross Tree Capital Partners, LP to Parent. No claim exists or will exist against the Company
or the Surviving Corporation or, based on any action by the Company against Parent for payment of
any “topping,” “break-up” or “bust-up” fee or any similar compensation or payment arrangement as a
result of the transactions contemplated hereby.

     3.29 No Illegal Payments. None of the Company or, to the Knowledge of the Company,
any Affiliate, officer, agent or employee thereof, directly or indirectly, has, since inception, on
behalf of or with respect to the Company, (a) made any unlawful domestic or foreign political
contributions, (b) made any payment or provided services which were not legal to make or provide or
which the Company or any Affiliate thereof or any such officer, employee or other Person should
reasonably have known were not legal for the payee or the recipient of such services to receive,
(c) received any payment or any services which were not legal for the payer or the provider of such
services to make or provide, (d) had any material transactions or payments which are not recorded
in its accounting books and records or (e) had any off-book bank or cash accounts or “slush funds.”

     3.30 Suppliers and Customers. The Company Disclosure Schedule sets forth (a) the
names of the ten (10) suppliers with the greatest dollar volume of sales to the Company in the
years ended December 31, 2006 and 2007; (b) each supplier who constitutes a sole source of supply,
or is otherwise material, to the Company; and (c) the names of the ten (10) customers with the
greatest dollar volume of purchases from the Company in the years ended December 31, 2006 and 2007.
No such supplier or customer has canceled or otherwise terminated, or threatened in writing to
cancel or otherwise terminate, its relationship with the Company. The Company has not received
written notice nor does it have knowledge that any such supplier or customer will cancel or
otherwise materially and adversely modify its relationship with the Company or limit its services,
supplies or materials to the Company, solely as a result of the Merger.

42

 

     3.31 Bank Accounts. The Company Disclosure Schedule sets forth the name of each bank,
safe deposit company or other financial institution in which the Company has an account, lock box
or safe deposit box and the names of all persons authorized to draw thereon or have access thereto.

     3.32 Powers of Attorney. Except as set forth in the Company Disclosure Schedule,
there are no outstanding powers of attorney executed by or on behalf of the Company in favor of any
Person.

     3.33 Completeness of Disclosure. No representation or warranty by the Company in this
Agreement, and no statement made by the Company in the Company Disclosure Schedule, the Exhibits
attached hereto or any certificate furnished or to be furnished to Parent pursuant hereto contains
or will at the Closing contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make any statement herein or therein, in light of the
circumstances under which they were made, not misleading. Except as specifically set forth in this
Agreement or the Company Disclosure Schedule, there are no facts or circumstances of which the
Company is aware that could reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Company taken as a whole.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     Parent and Merger Sub represent and warrant to the Company that the statements contained in
this Article IV are true and correct, except as set forth in the disclosure schedule dated and
delivered as of the date hereof by Parent and Merger Sub to the Company (the “Parent Disclosure
Schedule”), which is being concurrently delivered to the Company in connection herewith and is
designated therein as being the Parent Disclosure Schedule. The Parent Disclosure Schedule shall be
arranged in paragraphs corresponding to each representation and warranty set forth in this Article
IV. Each exception to a representation and warranty set forth in the Parent Disclosure Schedule
shall be deemed to qualify the specific representation and warranty which is referenced in the
applicable paragraph of the Parent Disclosure Schedule, and no other representation or warranty.

     4.1 Organization and Good Standing. Each of Parent and Merger Sub is a corporation
duly organized, validly existing and in good standing under the Laws of the jurisdiction of its
incorporation, has all requisite power to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which it owns or leases property or conducts any
business so as to require such qualification, except for those jurisdictions where the failure to
be so qualified and in good standing

43

 

would not reasonably be expected to be, individually or in the aggregate, material to Parent
and its Subsidiaries taken as a whole.

     4.2 Capital Structure. The authorized capital stock of Parent consists of 18,000,000
shares of Parent Common Stock, and 3,000,000 shares of Preferred Stock, $.00025 par value (“Parent
Preferred Stock”). As of the date of this Agreement, (i) 11,950,718 shares of Parent Common Stock
were issued and outstanding, all of which have been duly authorized and validly issued, and are
fully paid and nonassessable, (ii) 1,624,229 shares of Parent Common Stock were reserved for future
issuance pursuant to stock options granted and outstanding under Parent’s stock option plans, and
(iii) 277,378 shares of Parent Common Stock were reserved for future issuance pursuant to stock
options remaining available for grant under Parent’s stock option plans and other than
options/warrants/option pool, there exist no agreements or commitments to issue Parent stock. As
of the date of this Agreement, none of the shares of Parent Preferred Stock is issued and
outstanding. The shares of Parent Common Stock issuable pursuant to the Merger have been duly
authorized and reserved for issuance and, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable. The authorized capital stock of
Merger Sub consists of 1000 shares of common stock, par value $.0001 per share, none of which are
issued and outstanding, and all of which shares are validly issued, fully paid, nonassessable and
owned by Parent. Between the date of the Letter of Intent and the Closing Date, Parent has not,
directly or indirectly, repurchased or otherwise reacquired any of the Parent’s securities.
Neither Parent nor any of Parent’s Subsidiaries has taken any action that would have the effect of
causing the shares that are included in the Stock Merger Consideration to represent a decreased
proportion of the issued and outstanding shares of Parent Common Stock, nor entered into any
agreement or commitment to do so, and neither Parent nor any of Parent’s Subsidiaries has any
present plans to take any such action or undertake any such agreement or commitment.

     4.3 Authority and Enforceability. Each of Parent and Merger Sub has the requisite
power and authority to enter into this Agreement and to consummate the Merger. The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action on the part of
Parent and Merger Sub, pursuant to the BCL and those rules promulgated by Nasdaq. This Agreement
has been duly executed and delivered by Parent and Merger Sub and, assuming due authorization,
execution and delivery by the Company, constitutes the valid and binding obligation of Parent and
Merger Sub, enforceable against each of them in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar Laws affecting or relating to creditors’ rights generally, and (b) the availability of
injunctive relief and other equitable remedies.

     4.4 No Conflicts; Authorizations.

          (a) The execution and delivery of this Agreement by Parent and Merger Sub do not, and the
performance by Parent and Merger Sub of their obligations hereunder and the consummation by Parent
and Merger Sub of the transactions

44

 

contemplated hereby will not, (i) violate the provisions of any of the Charter Documents of
Parent or Merger Sub, (ii) violate any Contract to which Parent or Merger Sub is a party, (iii)
assuming compliance by Parent with the matters referred to Section 4.4(b), violate any Law
applicable to Parent or Merger Sub on the date hereof, or (iv) result in the creation of any Liens
upon any of the assets owned or used by Parent or Merger Sub, other than such violations referred
to in clauses (i), (ii) and (iii) and such Liens referred to in clause (iv) which would not
reasonably be expected, individually or in the aggregate, materially to impair or delay the ability
of Parent or Merger Sub to perform its obligations under this Agreement and consummate the Merger
or to be material to Parent and its Subsidiaries taken as a whole.

          (b) No Authorization or Order of, registration, declaration or filing with, or notice to any
Governmental Entity is required by or with respect to Parent in connection with the execution and
delivery of this Agreement and the consummation of the Merger, except for (i) such filings as may
be required under the HSR Act and the Other Antitrust Laws, (ii) the filing of the Articles of
Merger with the Department of State of the Commonwealth of Pennsylvania, (iii) such filings as may
be required under the Exchange Act and the rules of the Nasdaq Global Market, and (iv) such
Authorizations, Orders, registrations, declarations, filings and notices the failure to obtain or
make which would not reasonably be expected to materially impair the ability of Parent or Merger
Sub to perform its obligations under this Agreement and consummate the Merger or to be material to
Parent and its Subsidiaries taken as a whole.

     4.5 SEC Filings; Financial Statements.

          (a) Parent has made available to the Company all forms, reports and documents required to be
filed by it with the Securities and Exchange Commission (the “SEC”) since January 1, 2006
(collectively, the “Parent SEC Reports”), all of which were timely filed. The Parent SEC Reports
(i) at the time they were filed complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act,
as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they
were made, not misleading.

          (b) The consolidated financial statements (including, in each case, any related notes)
contained in the Parent SEC Reports complied as to form in all material respects with the
applicable rules and regulations of the SEC with respect thereto, were prepared in accordance with
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 fairly presented the consolidated financial position of Parent and its Subsidiaries as at
the respective dates and the consolidated results of its operations and cash flows for the periods
indicated (subject, in the case of the unaudited financial statements, to normal year-end recurring
adjustments).

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     4.6 Interim Operations of Sub. Merger Sub 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.

     4.7 Completeness of Disclosure. No representation or warranty by the Parent in this
Agreement, the Exhibits attached hereto or any certificate furnished or to be furnished to Company
pursuant hereto contains or will at the Closing contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary to make any statement herein or therein, in
light of the circumstances under which they were made, not misleading. Except as specifically set
forth in this Agreement, there are no facts or circumstances of which the Parent is aware that
could reasonably be expected to have, individually or in the aggregate, a material adverse effect
on the Parent and its Subsidiaries taken as a whole.

ARTICLE V

COVENANTS OF THE COMPANY

     5.1 Non-Competition by Company Stockholders. The Company Stockholders acknowledge
that each has agreed to those restrictive covenants by Company Stockholders set forth in the
Company Stockholder Letter Agreement, dated as of the date of this Agreement.

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ARTICLE VI

COVENANTS OF PARENT

     6.1 Employees and Employee Benefit Plans. At the Effective Time, the Surviving
Corporation shall continue the employment of all employees of the Company as of the Effective Time
(the “Transitioned Employees”) on substantially the same terms and at substantially the same salary
and benefits as are offered such Transitioned Employees immediately prior to the Effective Time.
Without limiting the generality of the foregoing, Parent shall maintain the Company Benefit Plans
in effect at the Effective Time. Parent shall take all reasonable actions necessary to allow the
Transitioned Employees to participate in benefit programs which are substantially comparable to
those maintained by the Company prior to the Effective Time from and after the Effective Time. All
periods of service for Transitioned Employees while employed with the Company will constitute
credited service under any Company Benefit Plan, or benefit plan of Parent or any of its
Subsidiaries in which Transitioned Employees are eligible to participate.

     6.2 Registration Rights. Parent agrees to register the Parent Shares constituting the
Stock Merger Consideration (the “Total Parent Shares”) on a registration statement on Form S-3 or
Form S-4, or such similar form as may be required, filed with the U.S. Securities and Exchange
Commission within thirty (30) days of the Closing Date, and Parent shall use its commercially
reasonable efforts to have the registration statement declared effective within ninety (90) days of
the Closing Date. Notwithstanding the foregoing, this Section 6.2 shall no longer apply upon the
later to occur of (i) when the Total Parent Shares are sold or may be sold pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended, and (ii) the expiration of the Lock-Up
Agreements.

     6.3 Technology Committee. As soon as practicable after the Effective Time, Parent
shall cause the establishment of a technology committee (the “Committee”) to advise on the
strategic and tactical development and implementation of technologies of the Surviving Corporation.
The Committee shall be chaired by the president and/or chief executive officer of the Parent (the
“Chair”) and will include Michael Crayne and other technology employees of the Parent and the
Company, as approved by the Chair in his or her sole discretion. Notwithstanding the foregoing,
the Committee shall only serve as an advisory committee and shall not have any approval, consent,
veto or other similar rights with respect to any matters related to the Parent or the Company. This
Section 6.4 shall survive for one (1) year from the Effective Time, and whether such term will be
extended will be reviewed annually by the Committee and the final decision shall be made by the
Chair.

     6.4 Receivable Collectability Claims. If: (i) there is any reduction in the Company’s
Tangible Net Worth pursuant to Section 2.2 of this Agreement by reason of any account receivable of
the Company being designated as an uncollectable account receivable in excess of applicable
reserves; or (ii) any breach in a representation or

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warranty of the Company regarding the collectability of an account receivable results in
Parent making a claim for indemnification under Article X (either such event, a “Receivable
Collectability Claim”); then, in either case, in consideration of this Agreement, Parent and the
Surviving Corporation shall use commercially reasonable efforts to collect the pertinent account
receivable and, upon receipt of cash proceeds with respect thereto, shall deliver an amount of such
proceeds up to the amount of the Receivable Collectability Claim to the Stockholders’
Representative or his designee. The obligations of Parent and the Surviving Corporation under this
Section 6.4 shall survive the Effective Date.

ARTICLE VII

COVENANTS OF THE COMPANY AND PARENT

     7.1 Regulatory Approvals. Each of Parent, Merger Sub and the Company shall promptly
apply for, and take all reasonably necessary actions to obtain or make, as applicable, all
Authorizations, Orders, declarations and filings with, and notices to, any Governmental Entity or
other Person required to be obtained or made by it for the consummation of the Merger and the
transactions contemplated hereby. Each party shall cooperate with and promptly furnish information
to the other party necessary in connection with any requirements imposed upon such other party in
connection with the consummation of the Merger. Parent and the Company shall be equally responsible
for all filing and other similar fees payable in connection with such filings, and for any local
counsel fees.

     7.2 Public Announcements. Neither Parent, Merger Sub nor the Company shall make, or
cause to be made, any press release or other public statement or any statement to any analyst or
member of the press concerning the transactions contemplated by this Agreement without the approval
of the other parties hereto; provided, however, that Parent may, without such
approval, but with prior notice to the Company, make such press releases or other public statements
as it is advised by counsel are required under the rules of NASDAQ or applicable securities Laws.

     7.3 Tax-Free Reorganization. Parent and the Company shall (and following the
Effective Time, Parent shall cause the Surviving Corporation to) take no action that would cause
the Merger to fail to qualify as a “reorganization” within the meaning of Section 368(a) of the
Code. This Agreement is intended to constitute a “plan of reorganization” within the meaning of
Section 1.368-2(g) of the income tax regulations promulgated under the Code.

     7.4 Expenses. Each of Parent and the Company shall bear its own costs and expenses in
connection with this Agreement and the transactions contemplated hereby, including all legal,
accounting, financial advisory, consulting and all other fees and expenses of third parties,
whether or not the Merger is consummated.

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     7.5 Further Assurances. Upon the terms and subject to the conditions hereof each of
the parties hereto shall execute such documents and other instruments and take such further actions
as may be reasonably required to carry out the provisions hereof and consummate the Merger and the
transactions contemplated hereby.

     7.6 Preparation and Filing of Final S Corp Tax Return.

          (a) The Surviving Corporation will cause the tax preparer who customarily prepared the
Company’s tax returns prior to the Closing Date to prepare on behalf of the Company, in accordance
with past practice unless otherwise required by law and at the expense of the Surviving
Corporation, all Tax Returns required to be filed by or on behalf of the Company with respect to
the period beginning January 1, 2008 and ending on the Effective Date (the “Final S Corp Returns”).

          (b) At least thirty (30) days prior to the due date for filing the Final S Corp Returns, the
Surviving Corporation will provide the Stockholders’ Representative with draft copies of the Final
S Corp Returns, along with supporting workpapers, and the Stockholders’ Representative will have a
period of not less than twenty (20) days to review and approve the Final S Corp Returns, which
approval shall not unreasonably be withheld. The Surviving Corporation will permit the
Stockholders’ Representative and his accountants and tax advisers to have such access to the books
and records of the Company as are necessary or desirable for the review of the Final S Corp
Returns. The failure of the Stockholders’ Representative to object to any draft Final S Corp
Return within twenty (20) days after it was provided to the Stockholders’ Representative shall be
deemed an indication of its approval thereof. If a dispute arises following the review of any
draft Final S Corp Return by the Stockholders’ Representative and such dispute is not resolved by
the Surviving Corporation and the Stockholders’ Representative within ten (10) days prior to the
due date of such tax return (taking into account any applicable extensions of time), such dispute
will be settled by an independent accounting firm mutually agreeable to the Stockholders’
Representative and the Surviving Company, which shall submit its final determination within seven
(7) days and such determination shall be final and binding on the parties. Any taxes due prior to
January 1, 2008 in excess of the tax reserved on the Closing Balance Sheet shall be claim on the
Purchase Price Escrow Fund.

          (c) After the Final S Corp Returns have been approved (or have been deemed to be approved) by
the Stockholders’ Representative the Surviving Corporation shall cause the Final S Corp Returns to
be timely filed (taking into account all extensions). The Surviving Corporation and Parent shall
not cause any amended Tax Return to be filed by or on behalf of the Company for any period ending
on or prior to the Effective Date without the prior written consent of the Stockholders’
Representative.

          (d) If the Surviving Corporation receives any notice or communications from a Governmental
Authority relating to periods prior to the Effective Date with respect to pass-through Tax items
for which the Company Stockholders, or any of them, is liable, then (i) the Surviving Corporation
will promptly deliver a copy of such notice or communication to the Stockholders’ Representative,
and (ii) the Surviving

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Corporation will take such actions in response to such notice or communication as the
Stockholders’ Representative reasonably requests, so long as the Surviving Corporation is fully
reimbursed or indemnified for all costs and expenses that it may incur in connection with such
actions.

ARTICLE VIII

CLOSING DELIVERABLES

     8.1 Closing Deliverables of Company. At the Closing, the Company will deliver to
Parent:

          (a) A certificate dated the Closing Date signed on behalf of the Company by the President of
the Company, certifying that the representations and warranties of the Company set forth in this
Agreement are true and correct at and as of such date, except to the extent that such
representations and warranties refer specifically to an earlier date, in which case the certificate
shall certify that such representations and warranties are true and correct as of such earlier
date.

          (b) A certificate dated the Closing Date signed on behalf of the Company by the President of
the Company, certifying that the Company has performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing Date;
provided that, with respect to obligations that are qualified by materiality, the
certificate shall certify that Company has performed such obligations, as so qualified, in all
respects.

          (c) A certificate of the Secretary of the Company, dated the Closing Date, certifying that:
(i) attached thereto is a true and complete copy of resolutions adopted unanimously by the Board of
Directors of the Company approving this Agreement and the Merger (such resolutions to be in form
and substance reasonably satisfactory to Parent) and all related documentation; (ii) attached
thereto is a true and complete copy of resolutions adopted by the holders of at least a majority of
the then outstanding Company Shares held by the Electing Shareholders and the other Company
Shareholder, each voting as a separate class on an as-converted to Common Stock basis adopting and
approving this Agreement and the Merger (such resolutions to be in form and substance reasonably
satisfactory to Parent); and (iii) that such resolutions have not been amended and are in full
force and effect as of the Closing Date.

          (d) All material governmental and regulatory approvals, consents and/or waivers as may be
required by the Company for compliance with all regulatory and governmental requirements applicable
to the Company;

          (e) A certificate signed on behalf of the Company by the President of the Company certifying
that: (i) all Company Stock Options that are vested and in-the-money shall have been cancelled in
consideration of the payment by the Company to the holders thereof of the Spread Value as set forth
in Section 2.1(b); (ii) all other Company Stock Options shall have been cancelled as set forth in
Section 2.1(b); (iii) all other

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Company Common Stock Equivalents have been converted into, and all Other Purchase Rights have
been converted into, or exercised or exchanged for, shares of Company Common Stock; and (iv) the
Company Stock Option Plan has been terminated.

          (f) Evidence, which may consist of a Secretary’s Certificate to such effect, that the holders
of no more than five percent (5%) of the Company Shares on an as-converted to Common Stock basis
have demanded and not lost or withdrawn, or shall be eligible to demand, appraisal rights.

          (g) Company Stockholder Letter Agreement, duly executed by each Company Stockholder.

          (h) The Purchase Price Escrow Agreement, duly executed by the Escrow Agent and the
Stockholders’ Representative.

          (i) The Indemnity Escrow Agreement, duly executed by the Escrow Agent and the Stockholders’
Representative.

          (j) Employment and Noncompetition Agreements duly executed by each of the Key Employee
Stockholders.

          (k) From each of the Company Stockholders, a duly-executed Lockup Agreement. The Lockup
Agreement related to this Section 8.1(k) shall provide that the Parent Shares held by the Company
Stockholders shall be subject to the following lock-up period: (i) 100% of the Parent Shares for
180 days after the Closing Date for all Company Stockholders; and thereafter, only for Active
Stockholders, (ii) 67% of the Parent Shares held by Active Stockholders for a period of one (1)
year from the date of Closing.

          (l) A written opinion from Saul Ewing LLP, counsel to the Company, addressed to Parent and
Merger Sub, dated as of the Closing Date, in the form attached as Exhibit H hereto.

          (m) The audited financial statements of the Company (including for the year ended December 31,
2007) (from the Company’s current auditors) suitable for filing with the Securities and Exchange
Commission in accordance with Regulation S-X. The Company’s management and independent auditors
(such auditors to be acceptable to the Parent) shall have prepared such financial statements of the
Company (including pro forma financial information if required) as may be requested by Parent to
enable Parent to comply on a timely basis with applicable securities Laws.

          (n) Duly signed resignations, effective immediately at the Effective Time, of all members of
the boards of directors of the Company of their positions as directors and of all officers of the
Company of their positions as officers.

          (o) Certificates of good standing for the Company from the Secretary of State of the
Commonwealth of Pennsylvania, each dated a reasonable date prior to the Closing Date.

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          (p) Copies of all Consents described in Schedule 8.1(p) except where the Company cannot,
through commercially reasonable efforts, obtain a particular Consent without: (i) repaying any
Indebtedness (unless otherwise required pursuant to the terms of any applicable loan Contract);
(ii) amending any Contract or waiving any right thereunder; or (iii) expending any money or other
consideration.

          (q) A certificate signed by the Treasurer and Vice President, Finance of the Company and by
the Secretary of the Company in a form reasonably acceptable to Parent as to the capitalization of
the Company immediately prior to the Effective Time and the allocation of the Total Parent Shares
and any Cash Merger Consideration among the holders of shares of Company Common Stock, including
shares of Company Common Stock issued upon conversion, exercise and/or exchange of Other Purchase
Rights (collectively, the “Company Equity Holders”) pursuant to the Merger (the “Allocation
Certificate”). The Allocation Certificate shall set forth (a) a true and complete list of the
Company Equity Holders immediately prior to the Effective Time and the number of shares of Company
Common Stock and/or Company Stock Options owned by each such Company Equity Holder, (b) the
allocation of the Merger Consideration payable upon the Effective Time (exclusive of cash and
property held in the Purchase Price Escrow Fund and in the Indemnity Escrow Fund) to the Company
Equity Holders pursuant to the Merger, (c) the allocation of cash and property held in the Purchase
Price Escrow Fund upon the distribution thereof to the Company Equity Holders (net of any
distributions to Parent pursuant to Section 2.2 hereof), and (d) the allocation of cash and
property held in the Indemnity Escrow Fund upon the distribution thereof to the Company Equity
Holders (net of any distributions to Parent pursuant to Section 10.3 hereof).

          (r) Evidence that, subject to the following sentence, the Company has obtained stockholder
approval of the payment of any amounts or provision of any benefits by the Company or any of its
Affiliates to any Person in connection with the Merger that, in the absence of such approval, would
be characterized as an “excess parachute payment” within the meaning of Section 280G of the Code.
If such stockholder approval is not obtained, the Company will not pay or provide such payments or
benefits pursuant to waivers of such payments and benefits executed by the affected Persons in form
and substance reasonably satisfactory to Parent.

          (s) Evidence of Termination of Shareholders Agreement, the Company 2001 Stock Option Plan, the
Amended and Restated 2001 Restricted Stock Plan, and any other related agreements.

     8.2 Closing Deliverables of Parent and Merger Sub. At the Closing, the Parent and/or
the Merger Sub will deliver to the Stockholders’ Representative:

          (a) Certificates dated the Closing Date signed on behalf of each of the Parent and the Merger
Sub by the President of each, certifying that the representations and warranties of Parent and
Merger Sub, as applicable, set forth in this Agreement are true and correct at and as of such date,
except to the extent that such representations and

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warranties refer specifically to an earlier date, in which case the certificates shall certify
that such representations and warranties are true and correct as of such earlier date.

          (b) Certificates dated the Closing Date signed on behalf of each of the Parent and Merger Sub
by the Presidents of each, certifying that Parent or Merger Sub, as applicable, has performed in
all material respects all obligations required to be performed by it under this Agreement at or
prior to the Closing Date; provided that, with respect to obligations that are
qualified by materiality, the certificate shall certify that Parent and Merger Sub, as applicable,
has performed such obligations, as so qualified, in all respects.

          (c) A certificate of the Secretary of Parent, dated the Closing Date, certifying that: (i)
attached thereto is a true and complete copy of resolutions adopted unanimously by the Board of
Directors of Parent approving this Agreement and the Merger (such resolutions to be in form and
substance reasonably satisfactory to the Company) and all related documentation; and (ii) that such
resolutions have not been amended and are in full force and effect as of the Closing Date.

          (d) A certificate of the Secretary of Merger Sub, dated the Closing Date, certifying that: (i)
attached thereto is a true and complete copy of resolutions adopted unanimously by the Board of
Directors of Merger Sub approving this Agreement and the Merger (such resolutions to be in form and
substance reasonably satisfactory to the Company) and all related documentation; (ii) attached
thereto is a true and complete copy of resolutions adopted by Parent as the sole stockholder of
Merger Sub adopting and approving this Agreement and the Merger (such resolutions to be in form and
substance reasonably satisfactory to the Company); and (iii) that such resolutions have not been
amended and are in full force and effect as of the Closing Date.

          (e) The Purchase Price Escrow Agreement, duly executed by the Escrow Agent and Parent.

          (f) The Indemnity Escrow Agreement, duly executed by the Escrow Agent and Parent.

          (g) A written assumption by the Parent of the Crayne Consulting Agreement and a written
extension of the term thereof for a period of not less than one year after the Effective Time.

          (h) Agreements between the Surviving Corporation and each employee of the Company with access
to confidential and proprietary information of the Company and/or who are involved in the creation
of the Company’s proprietary technology (the “Key Employees”), which Key Employees are listed on
Schedule 8.3(e) hereof, which agreements shall contain an assignment of inventions,
non-solicitation (both employee and third-party) and non-competition provisions.

          (i) Employment and Noncompetition Agreements between Surviving Corporation and each of the Key
Employee Stockholders, duly executed by Surviving Corporation.

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          (j) Evidence that the Parent has assumed and agreed to sponsor and maintain the Company’s
401(k) plan.

          (k) A written opinion from Morgan, Lewis & Bockius LLP, counsel to Parent, addressed to the
Company and the Stockholders’ Representative, dated as of the Closing Date, in the form attached as
Exhibit J hereto.

          (l) Parent’s audited financial statements as of and for year ending December 31, 2007.

          (m) Evidence that Parent and/or Merger Sub has received all material governmental and
regulatory approvals, consents and/or waivers as may be required by Parent and/or Merger Sub for
compliance with all regulatory and governmental requirements applicable to them.

ARTICLE IX

[INTENTIONALLY DELETED]

ARTICLE X

INDEMNIFICATION

     10.1 Survival.

          (a) Except as set forth in Sections 6.5 and 10.1(b), all representations and warranties,
covenants and agreements of the Company and Parent contained in this Agreement, or in any
certificate or other document delivered pursuant hereto, shall survive the Closing until the later
of (i) the first anniversary of the Closing Date or (ii) March 31, 2009.

          (b) The representations and warranties of the Company contained in Sections 3.10 (Taxes), 3.20
(Employee Benefits) and 3.22 (Environmental) shall survive the Closing until the expiration of the
applicable statute of limitations period (after giving effect to any waivers and extensions
thereof).

          (c) The period for which a representation or warranty, covenant or agreement survives the
Closing is referred to herein as the “Applicable Survival Period.” In the event a Notice of Claim
for indemnification under Section 10.2 is given within the Applicable Survival Period, the
representation or warranty, covenant or agreement that is the subject of such indemnification claim
(whether or not formal legal action shall have been commenced based upon such claim) shall survive
with respect to such claim until such claim is finally resolved.

     10.2 Indemnification by Company Stockholders.

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          (a) Subject to the limitations set forth in this Article X, each Company Stockholder
(collectively, the “Company Indemnitors”) shall severally and not jointly indemnify and defend
Parent and the Surviving Corporation (collectively, the “Parent Indemnitees”) against, and shall
hold them harmless from, any and all losses, damages, claims (including third party claims),
settlements, charges, interest, penalties, taxes, costs and expenses (including reasonable legal,
consultant, accounting and other professional fees and costs incurred in enforcing rights under
this Section 10.2) (collectively, “Losses”) resulting from, arising out of, or incurred by any
Parent Indemnitee in connection with, or otherwise with respect to:

               (i) the failure of any representation and warranty or other statement by the Company contained
in this Agreement or any certificate or other document furnished or to be furnished to Parent in
connection with the transactions contemplated hereby to be true and correct in all respects;

               (ii) any breach of any covenant or agreement of the Company contained in this Agreement;

               (iii) Dissenting Share Payments; and

               (iv) the Company Broker Fee.

          (b) Notwithstanding the provisions of subsection (a) above, the Company Indemnitors shall not
be liable for any Losses: (i) unless and until the aggregate amount of all Losses incurred by the
Parent Indemnitees exceeds $260,000 (the “Deductible”) and then only to the extent that such Losses
exceed the Deductible; (ii) in excess of $7,200,000, subject to the provisions of Sections 10.3(c)
and 10.8; or (iii) for which there has been an adjustment to the Merger Consideration pursuant to
Section 2.2.

          (c) Indemnification under this Section 10.2 shall not be available to the extent of tax
savings realized or insurance proceeds received or with respect to consequential, punitive,
indirect or similar damages. 

     10.3 Indemnity Escrow Fund.

          (a) Subject to and in accordance with the Indemnity Escrow Agreement and Section 10.2(b) and
(c) hereof, once the Deductible has been reached, the full amount of all Losses (aggregating all of
the claims against the Company Indemnitors) in excess of the Deductible shall be subject to
indemnification and Parent may make a claim pursuant to the terms of the Indemnity Escrow Agreement
to have a number of Indemnity Escrow Shares and/or amount of Indemnity Escrow Cash released to
Parent from the Indemnity Escrow Fund that have an aggregate value equal to the amount of all such
Losses, in the manner provided in the Indemnity Escrow Agreement. To the extent that the Parent
Indemnitees are entitled to receive any amount from the Indemnity Escrow Fund pursuant to this
Article X above and any portion of such amount is to be received in the form of Parent Common Stock
held in the Indemnity Escrow Fund, then for the purposes of determining the number of shares of
Parent Common Stock to be included in such amount, the shares of Parent Common Stock shall be
valued

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at a price per share equal to the volume weighted average of the closing price per share of
Parent Common Stock over the last thirty (30) trading days ending one business day prior to date
that the Parent Indemnitees receive such amount, as adjusted for stock splits, stock dividends, and
similar events.

          (b) The release of Indemnity Escrow Shares and/or Indemnity Escrow Cash from the Indemnity
Escrow Fund shall be the exclusive post-Closing remedy for Losses pursuant to Section 10.2(a)(i)
(“Warranty Losses”).

          (c) The indemnity provided for in this Article X shall be Parents’ and the Surviving
Corporation’s sole remedy, and the Company Stockholders’ sole liability, with respect to a breach
of any representation, warranty or covenant of the Company or of any Company Stockholder contained
in this Agreement or any other document, instrument or agreement required or contemplated to be
executed and/or delivered by the Company or the Company Stockholders hereunder; provided,
however, that nothing contained in this Article X shall be deemed to limit or restrict in
any manner any rights or remedies which the Parent Indemnitees have, or might have, at Law, in
equity or otherwise, based on (i) fraud or willful misrepresentation or willful breach of any
representation, warranty, covenant or agreement contained in this Agreement or certificate or other
document furnished or to be furnished to Parent in connection with the transactions contemplated
hereby, or (ii) any breach by a Company Stockholder of any covenant or agreement contained in any
other agreement entered into by such Company Stockholder with or for the benefit of Parent in
connection with the Merger; provided, further, that nothing contained in this
Article X shall be deemed to limit or restrict in any manner any rights or remedies which the
Company Indemnitees have, or might have, at Law, in equity or otherwise, based on fraud or willful
misrepresentation.

          (d) The adoption of this Agreement by the Company Stockholders constitute approval of the
indemnification obligations of the Company Stockholders set forth in this Article X.

     10.4 Indemnification by Parent.

          (a) Subject to the limitations set forth in this Article X, the Parent and the Surviving
Corporation (collectively, the “Parent Indemnitor”) shall severally indemnify and defend the
Company Stockholders (collectively, the “Company Indemnitees”) against, and shall hold them
harmless from, any and all Losses resulting from, arising out of, or incurred by any Company
Indemnitee in connection with, or otherwise with respect to:

               (i) the failure of any representation and warranty or other statement by the Parent contained
in this Agreement or any certificate or other document furnished or to be furnished to the Company
or to any Company Stockholder in connection with the transactions contemplated hereby to be true
and correct in all respects as of the Closing Date; or

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               (ii) any breach of any covenant or agreement of the Parent or the Surviving Corporation
contained in this Agreement.

          (b) Notwithstanding the provisions of subsection (a) above, the Parent Indemnitors shall not
be liable for any Losses: (i) unless and until the aggregate amount of all Losses incurred by the
Company Indemnitees exceeds $260,000 (the “Deductible”) and then only to the extent that such
Losses exceed the Deductible; or (ii) in excess of $7,200,000, subject to the provisions of Section
10.8.

          (c) Indemnification under this Section 10.4 shall not be available to the extent of tax
savings realized or insurance proceeds received or with respect to consequential, punitive,
indirect or similar damages. Nothing contained in this Article X shall be deemed to limit or
restrict in any manner any rights or remedies which the Company Indemnitees have, or might have, at
Law, in equity or otherwise, based on fraud or willful misrepresentation.

     10.5 Third Party Claims.

          (a) For the purposes of this Article X:

               (i) With respect to indemnification by one or more Company Indemnitors to one or more Parent
Indemnitees, the term “Indemnitee” means a Parent Indemnitee, the term “Indemnitor” means the
applicable Company Indemnitor, and the term “Indemnitor’s Agent” means the Stockholder
Representative.

               (ii) With respect to indemnification by one or more Parent Indemnitors to one or more Company
Indemnitees, the term “Indemnitee” means a Company Indemnitee, the term “Indemnitor” means the
Parent, and the term “Indemnitor’s Agent” means the Parent.

          (b) In the event that an Indemnitee receives notice of the assertion of any claim or the
commencement of any Action by a third party in respect of which indemnity may be sought under the
provisions of this Article X (“Third Party Claim”), Indemnitee shall notify the Indemnitor’s Agent
in writing of such Third Party Claim (“Notice of Claim”) and, if the Indemnitee is a Parent
Indemnitee, concurrently therewith shall send a duplicate copy of such Notice of Claim to the
Escrow Agent. The Notice of Claim shall set forth in reasonable detail: (i) that an Indemnitee has
incurred Losses or anticipates that it will incur Losses for which such Indemnitee is entitled to
indemnification pursuant to this Agreement; (ii) the amount of such Losses, if known, or, if not
known, an estimate of the foreseeable maximum amount of such Losses (which estimate shall not be
conclusive of the final amount of such Losses); and (iii) a description of the basis for such Third
Party Claim. Failure or delay in notifying the Indemnitor’s Agent will not relieve the Indemnitors
of any liability they may have to the Indemnitee, so long as the notice is given within the
Applicable Survival Period, except and only to the extent that such failure or delay causes actual
harm to the Indemnitors with respect to such Third Party Claim.

57

 

          (c) Subject to the further provisions of this Section 10.5, the Indemnitor’s Agent will have
thirty (30) days (or less if the nature of the Third Party Claim reasonably requires) from the date
on which the Indemnitor’s Agent received the Notice of Claim to notify the Indemnitee that the
Indemnitor’s Agent will assume the defense or prosecution of such Third Party Claim and any
litigation resulting therefrom with counsel of its choice (reasonably satisfactory to the
Indemnitee) and at its sole cost and expense (a “Third Party Defense”), without prejudice to its
right to dispute that the Third Party Claim is within the scope of their indemnity obligation
hereunder. Any Indemnitee shall have the right to employ separate counsel in any such Action and to
participate in the defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the Indemnitors unless (A) the Indemnitor’s Agent shall have failed, within the time
after having been notified by the Indemnitee of the existence of the Third Party Claim as provided
in the first sentence of this paragraph (b), to assume the defense of such Third Party Claim, or
(ii) the employment of such counsel has been specifically authorized in writing by the Indemnitor’s
Agent.

          (d) The Indemnitor’s Agent will not be entitled to assume the Third Party Defense if:

               (i) a Third Party Claim seeks, in addition to or in lieu of monetary damages, any injunctive
or other equitable relief (except where non-monetary relief is merely incidental to a primary claim
or claims for monetary damages);

               (ii) the claim for indemnification relates to or arises in connection with any criminal
proceeding, action, indictment, allegation or investigation;

               (iii) under applicable standards of professional conduct, a conflict on any significant issue
exists between the Indemnitee and the Indemnitor’s Agent in respect of such Third Party Claim;

               (iv) upon petition by the Indemnitee, the appropriate court rules that the Indemnitor’s Agent
failed or is failing to vigorously prosecute or defend such Third Party Claim; or

               (v) if the Indemnitee is a Parent Indemnitee, the amount of claimed Losses subject to all
outstanding Notices of Claim exceeds the value of the cash and shares remaining in the Indemnity
Escrow Fund.

          (e) If by reason of the Third Party Claim a lien, attachment, garnishment or execution is
placed upon any of the property or assets of such Indemnitee, the Indemnitor’s Agent, if it desires
to exercise its right to assume such Third Party Defense, must furnish a satisfactory indemnity
bond to obtain the prompt release of such lien, attachment, garnishment or execution.

          (f) If the Indemnitor’s Agent assumes a Third Party Defense, it will take all steps necessary
in the defense, prosecution, or settlement of such claim or litigation. The Indemnitor’s Agent
will not consent to the entry of any judgment or enter into any settlement except with the written
consent of the Indemnitee (which consent

58

 

shall not be unreasonably withheld or delayed); provided, however, the consent
of the Indemnitee shall not be required if all of the following conditions are met: (i) the terms
of the judgment or proposed settlement include as an unconditional term thereof the giving to the
Indemnitee by the third party of a release of the Indemnitee from all liability in respect of such
Third Party Claim; (ii) there is no finding or admission of (A) any violation of Law by the
Indemnitee (or any Affiliate thereof), (B) any violation of the rights of any Person and (C) no
effect on any other Action or claims of a similar nature that may be made against the Indemnitee
(or any Affiliate thereof); and (iii) the sole form of relief is monetary damages which are paid in
full by the Indemnitor’s Agent. The Indemnitor’s Agent shall conduct the defense of the Third Party
Claim actively and diligently, and the Indemnitee will provide reasonable cooperation in the
defense of the Third Party Claim. Notwithstanding the foregoing, the Indemnitee shall have the
right to pay or settle any Third Party Claim, provided that in such event, subject
to the following sentence, it shall waive any right to indemnity therefor by the Indemnitors for
such claim unless the Indemnitor’s Agent shall have consented to such payment or settlement. If the
Indemnitor’s Agent is not reasonably conducting the Third Party Defense in good faith, the
Indemnitee shall have the right to consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written consent of the
Indemnitor’s Agent and the Indemnitors shall reimburse the Indemnitee promptly for all Losses
incurred in connection with such judgment or settlement.

          (g) In the event that (i) an Indemnitee gives Notice of Claim to the Indemnitor’s Agent and
the Indemnitor’s Agent fails or elects not to assume a Third Party Defense which the Indemnitor’s
Agent had the right to assume under this Section 10.5 or (ii) the Indemnitor’s Agent is not
entitled to assume the Third Party Defense pursuant to this Section 10.5, the Indemnitee shall have
the right, with counsel of its choice, to defend, conduct and control the Third Party Defense. In
each case, the Indemnitee shall conduct the Third Party Defense actively and diligently, and the
Indemnitor’s Agent will provide reasonable cooperation in the Third Party Defense and, if Parent is
the indemnified party, the Stockholders’ Representative will use his commercially reasonable
efforts to cause the former Company Stockholders to cooperate in the Third Party Defense. The
Indemnitee shall have the right to consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim on such terms as it may deem appropriate;
provided, however, that the amount of any settlement made or entry of any
judgment consented to by the Indemnitee without the consent of the Indemnitor’s Agent (which
consent shall not be unreasonably withheld or delayed) shall not be determinative of the validity
of the claim against the Indemnity Escrow Fund. If the Indemnitor’s Agent does not elect to assume
a Third Party Defense which it has the right to assume hereunder, the Indemnitee shall have no
obligation to do so.

     10.6 Non-Third Party Claims. Indemnitee will send a Notice of Claim to the
Indemnitor’s Agent promptly following discovery by any Indemnitee of any matter that gives rise to
a claim of indemnity pursuant hereto and that does not involve a Third Party Claim being asserted
against it, together with a detailed breakdown of the asserted Losses with appropriate supporting
documentation. If the Indemnitee is a Parent Indemnitee, concurrently therewith Indemnitee shall
send a duplicate copy of such Notice of Claim to the Escrow Agent. Failure or delay in notifying
the Indemnitor’s Agent will not relieve

59

 

the Indemnitors of any liability they may have to the Indemnitee so long as the notice is
given within the Applicable Survival Period, except and only to the extent that such failure or
delay causes actual harm to the Indemnitors with respect to such claim. The Indemnitor’s Agent will
reasonably cooperate and assist the Indemnitee in determining the validity of the claim for
indemnity. Indemnitor’s Agent will have thirty (30) days from receipt of such a Notice of Claim to
notify the Indemnitee that it disputes any portion of the claim to which the Notice of Claim
relates.

     10.7 Claims Upon Indemnity Escrow Fund. Notwithstanding any other provision of this
Article X, if the Indemnitor’s Agent does not timely give notice to Indemnitee and, if applicable,
the Escrow Agent in accordance with the terms of the Escrow Agreement, that it disputes the claim
for indemnity that is subject to the Notice of Claim, the Losses specified in such Notice of Claim
will be conclusively deemed Losses subject to indemnification hereunder and the Escrow Agreement.
In the event that the Indemnitor’s Agent timely gives notice to Indemnitee and, if applicable, the
Escrow Agent pursuant to the Escrow Agreement, that he disputes such claim, the dispute shall be
resolved in accordance with the terms of the Escrow Agreement.

     10.8 Third Party ***. ***

ARTICLE XI

MISCELLANEOUS

     11.1 Notices. Any notice, request, demand, waiver, consent, approval or other
communication which is required or permitted hereunder shall be in writing and shall be deemed
given: (a) on the date delivered personally; (b) on the date delivered by a private courier as
established by evidence obtained from the courier; (c) on the date sent by facsimile, with
confirmation of transmission, if sent during normal business hours of the recipient, if not, then
on the next business day; or (d) on the fifth day after the date mailed, by certified or registered
mail, return receipt requested, postage prepaid. Such communications, to be valid, must be
addressed as follows:

     If to Parent or Sub, to:

Bio-Imaging Technologies, Inc.

826 Newtown-Yardley Road

Newtown, PA 18940

Attn: Ted Kaminer, Chief Financial Officer

Facsimile: 267-757-3385

     With a required copy to:

Morgan Lewis & Bockius LLP

502 Carnegie Center

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Princeton, New Jersey 08540

Attn: Emilio Ragosa, Esq.

Facsimile: 609-919-6701

     If to the Company, to:

Phoenix Data Systems, Inc.

901 East 8th Avenue

Suite 201

King of Prussia, PA 19406

Attn: William Claypool

Facsimile:

     With a required copy to:

Saul Ewing LLP

1200 Liberty Ridge Drive, Suite 200

Wayne, PA 19087

Attn: Deborah L. Spranger, Esq.

Facsimile: (610) 408-4418

     If to the Stockholders’ Representative, to:

***

     With a required copy to:

Saul Ewing LLP

1200 Liberty Ridge Drive, Suite 200

Wayne, PA 19087

Attn: Deborah L. Spranger, Esq.

Facsimile: (610) 408-4418

or to such other address or to the attention of such Person or Persons as the recipient party has
specified by prior written notice to the sending party (or in the case of counsel, to such other
readily ascertainable business address as such counsel may hereafter maintain). If more than one
method for sending notice as set forth above is used, the earliest notice date established as set
forth above shall control.

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     11.2 Amendments and Waivers.

          (a) Any provision of this Agreement may be amended or waived if, and only if, such amendment
or waiver is in writing and is signed, in the case of an amendment, by each party to this
Agreement, or in the case of a waiver, by the party against whom the waiver is to be effective;
provided that, after adoption of this Agreement by the Company Stockholders, no
amendment or waiver shall be made which by Law requires further approval by the Company
Stockholders without such further approval. Notwithstanding the foregoing, any amendment to Article
X that adversely affects the rights of the Stockholders’ Representative in his capacity as such
shall require the prior written consent of the Stockholders’ Representative.

          (b) No failure or delay by any party in exercising any right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.

          (c) To the maximum extent permitted by Law, (i) no waiver that may be given by a party shall
be applicable except in the specific instance for which it was given and (ii) no notice to or
demand on one party shall be deemed to be a waiver of any obligation of such party or the right of
the party giving such notice or demand to take further action without notice or demand.

     11.3 Successors and Assigns. This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties. Subject to the foregoing, all of the terms
and provisions of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective executors, heirs, personal representatives, successors and assigns.

     11.4 Governing Law. This Agreement and the Exhibits and Schedules hereto shall be
governed by and interpreted and enforced in accordance with the Laws of the Commonwealth of
Pennsylvania, without giving effect to any choice of Law or conflict of Laws rules or provisions
(whether of the Commonwealth of Pennsylvania or any other jurisdiction) that would cause the
application of the Laws of any jurisdiction other than the Commonwealth of Pennsylvania.

     11.5 Consent to Jurisdiction. Each party irrevocably submits to the exclusive
jurisdiction of (a) the courts of the Commonwealth of Pennsylvania, and (b) the United States
District Court for Eastern District of Pennsylvania, for the purposes of any Action arising out of
this Agreement or any transaction contemplated hereby. Each party agrees that service of any
process, summons, notice or document by U.S. registered mail to such party’s respective address set
forth above shall be effective service of process for any Action in the Commonwealth of
Pennsylvania with respect to any matters to which it has submitted to jurisdiction in this Section
11.5. Each party irrevocably and unconditionally waives any objection to the laying of venue of any
Action arising out of this Agreement
or the transactions contemplated hereby in (i) the Commonwealth of Pennsylvania, or (ii) the
United States District Court for Eastern District of Pennsylvania, and hereby further

62

 

irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action
brought in any such court has been brought in an inconvenient forum. EACH PARTY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE ACTIONS OF SUCH PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

     11.6 Counterparts. This Agreement may be executed in any number of counterparts, and
any party hereto may execute any such counterpart, each of which when executed and delivered shall
be deemed to be an original and all of which counterparts taken together shall constitute but one
and the same instrument. This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other parties hereto. The parties agree that the
delivery of this Agreement may be effected by means of an exchange of facsimile signatures with
original copies to follow by mail or courier service.

     11.7 Third Party Beneficiaries. No provision of this Agreement is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder; except that in the
case of Article X hereof, the Parent Indemnitees and their respective heirs, executors,
administrators, legal representatives, successors and assigns, are intended third party
beneficiaries of such sections and shall have the right to enforce such sections in their own
names.

     11.8 Entire Agreement. This Agreement and the documents, instruments and other
agreements specifically referred to herein or delivered pursuant hereto set forth the entire
understanding of the parties hereto with respect to the Acquisition. All Exhibits and Schedules
referred to herein are intended to be and hereby are specifically made a part of this Agreement.
Any and all previous agreements and understandings between or among the parties regarding the
subject matter hereof, whether written or oral, are superseded by this Agreement, other than the
Confidentiality Agreement which shall continue in full force and effect in accordance with its
terms.

     11.9 Captions. All captions contained in this Agreement are for convenience of
reference only, do not form a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement.

     11.10 Severability. Any provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining provisions hereof, and any such
invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.

     11.11 Specific Performance. Parent and the Company each agree that irreparable damage
would occur in the event that any of the provisions of this Agreement
were not performed by them in accordance with the terms hereof and that each party shall

63

 

be entitled to specific performance of the terms hereof, in addition to any other remedy at Law or
equity.

ARTICLE XII

GENERAL DEFINITIONS

     12.1 Definitions. When used in this Agreement, the following terms shall have the
meanings assigned to them in this Section 12.1, or in the applicable Section of this Agreement to
which reference is made in this Section 12.1.

     “Affiliate” means, with respect to any specified Person, any other Person directly or
indirectly controlling, controlled by or under common control with such specified Person.

     “Authorization” means any authorization, approval, consent, certificate, license, permit or
franchise of or from any Governmental Entity or pursuant to any Law.

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

     “Contract” means any agreement, contract, license, lease, commitment, arrangement or
understanding, written or oral, including any sales order and purchase order.

     “Escrow Agreements” means the Purchase Price Escrow Agreement and the Indemnity Escrow
Agreement.

     “Escrow Cash” means the Purchase Price Escrow Cash and the Indemnity Escrow Cash.

     “Escrow Fund” means the Purchase Price Escrow Fund and the Indemnity Escrow Fund.

     “Escrow Shares” means the Purchase Price Escrow Shares and the Indemnity Escrow Shares.

     “Governmental Entity” means any entity or body exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to United States federal, state, local, or
municipal government, foreign, international, multinational or other government, including any
department, commission, board, agency, bureau, subdivision, instrumentality, official or other
regulatory, administrative or judicial authority thereof, and any non-governmental regulatory body
to the extent that the rules and regulations or orders of such body have the force of Law.

64

 

     “Indebtedness” means any of the following: (a) any indebtedness for borrowed money, (b) any
obligations evidenced by bonds, debentures, notes or other similar instruments, (c) any obligations
to pay the deferred purchase price of property or services, except trade accounts payable and other
current Liabilities arising in the ordinary course of business, (d) any obligations as lessee under
capitalized leases, (e) any indebtedness created or arising under any conditional sale or other
title retention agreement with respect to acquired property, (f) any obligations, contingent or
otherwise, under acceptance credit, letters of credit or similar facilities, and (g) any guaranty
of any of the foregoing.

     “Knowledge” of the Company or any similar phrase means, with respect to any fact or matter,
the actual knowledge of Dr. William Claypool, Ivan Joseph, Douglas Cory, Michael Crayne, Kim Jessen
or Thomas Mahler together with such knowledge that the foregoing could reasonably be expected to
discover after such investigation that is reasonable under the circumstances concerning the
existence of the fact or matter in question.

     “Law” means any statute, law (including common law), constitution, treaty, ordinance, code,
order, decree, judgment, rule, regulation and any other binding requirement or determination of any
Governmental Entity.

     “Lien” means, with respect to property, any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in title, covenant or
other restriction of any kind, including, any restrictions on the use, voting, transfer or other
attribute of ownership.

     “Order” means any award, injunction, judgment, decree, order, ruling, subpoena or verdict or
other decision entered, issued or rendered by any Governmental Entity.

     “Permitted Lien” means (i) any statutory lien for Taxes not yet due; (ii) any statutory lien
of a landlord, carrier, warehouseman, mechanic or materialman incurred for sums not yet due; (iii)
purchase money claims and claims securing retail payments under capital lease arrangements; and
(iv) liens that are immaterial in character, amount and extent and which do not materially detract
from the value or interfere with the present use of the properties they affect.

     “Person” means an individual, a corporation, a partnership, a limited liability company, a
trust, an unincorporated association, a Governmental Entity or any agency, instrumentality or
political subdivision of a Governmental Entity, or any other entity or body.

     “Subsidiary” or “Subsidiaries” means, with respect to any party, any Person, of which (i) such
party or any Subsidiary of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such party do not have a
majority of the voting interest in such partnership) or (ii) at least a majority of the securities
or other interests having by their terms ordinary

65

 

voting power to elect a majority of the Board of Directors or others performing similar functions
with respect to such Person is directly or indirectly owned or controlled by such party and/or by
any one or more of its Subsidiaries.

     “$” means United States dollars.

     The phrase “made available” means (i) posting the information in the data room; (ii)
delivering the information to Parent or to any of Parent’s legal, financial or accounting advisors;
or (iii) having the information available for inspection by Parent or any of Parent’s legal,
financial or accounting advisors if so requested.

     12.2 Interpretation.

          (a) The meaning assigned to each term defined herein shall be equally applicable to both the
singular and the plural forms of such term and vice versa, and words denoting either gender shall
include both genders as the context requires. Where a word or phrase is defined herein, each of its
other grammatical forms shall have a corresponding meaning.

          (b) The terms “hereof”, “herein” and “herewith” and words of similar import shall, unless
otherwise stated, be construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement.

          (c) When a reference is made in this Agreement to an Article, Section, paragraph, Exhibit or
Schedule, such reference is to an Article, Section, paragraph, Exhibit or Schedule to this
Agreement unless otherwise specified.

          (d) The word “include”, “includes”, and “including” when used in this Agreement shall be
deemed to be followed by the words “without limitation”, unless otherwise specified.

          (e) A reference to any party to this Agreement or any other agreement or document shall
include such party’s predecessors, successors and permitted assigns.

          (f) Reference to any Law means such Law as amended, modified, codified, replaced or reenacted,
and all rules and regulations promulgated thereunder.

          (g) The parties have participated jointly in the negotiation and drafting of this Agreement.
Any rule of construction or interpretation otherwise requiring this Agreement to be construed or
interpreted against any party by virtue of the authorship of this Agreement shall not apply to the
construction and interpretation hereof.

          (h) All accounting terms used and not defined herein shall have the respective meanings given
to them under GAAP.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

	 	 	 	 	 
	 	Bio-Imaging Technologies, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	Bio-Imaging Acquisition Corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 	Phoenix Data Systems, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 

	 	 	 	 	 
	 

	 	STOCKHOLDERS’ REPRESENTATIVE	 	 
	 
	 	 	 	 
	 
	 

	 	 

***
	 	 

i

 

ANNEX A

Key Employee Stockholders

1. Dr. William Claypool

2. Douglas Cory

3. Kim Jessen

4. Thomas Mahler

 

 

ANNEX B

Active Stockholders

1. Dr. William Claypool

2. Douglas Cory

3. Kim Jessen

4. Thomas Mahler

5. Michael Crayne

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