AGREEMENT AND PLAN OF MERGER AND REORGANIZATION among: ENTROPIC COMMUNICATIONS, INC., a Delaware corporation; RAPTOR ACQUISITION SUB, INC., a Delaware corporation; RF MAGIC, INC., a Delaware corporation; and (solely for purposes of Section 9 and 10.1)...

Exhibit 2.1

Execution Version

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

among:

ENTROPIC COMMUNICATIONS, INC.,

a Delaware corporation;

RAPTOR ACQUISITION SUB, INC.,

a Delaware corporation;

RF MAGIC, INC.,

a Delaware corporation;

and

(solely for purposes of Section 9 and 10.1)

XXXX XXXXX

Dated as of April 9, 2007

TABLE OF CONTENTS


		PAGE
SECTION 1.	DESCRIPTION OF TRANSACTION	2

1.1	Merger of Merger Sub into the Company	2

1.2	Effect of the Merger	2

1.3	Closing; Effective Time	2

1.4	Certificate of Incorporation and Bylaws; Directors and Officers	2

1.5	Conversion of Shares	3

1.6	Employee Stock Options	4

1.7	Warrants	5

1.8	Closing of the Company’s Transfer Books	6

1.9	Exchange of Certificates	6

1.10	Company Dissenting Shares	8

1.11	Parent Dissenting Shares	9

1.12	Escrow	9

1.13	Adjustments.	10

1.14	Further Action	13

SECTION 2.	REPRESENTATIONS AND WARRANTIES OF THE COMPANY	13

2.1	Organization and Standing	13

2.2	Capitalization	13

2.3	Corporate Power; Authorization	15

2.4	Subsidiaries	15

2.5	Governmental Authorizations	15

2.6	Compliance with Laws; No Conflicts	16

2.7	Litigation	17

2.8	Financial Statements	17

2.9	Absence of Certain Changes	18

2.10	Taxes	19

2.11	Property and Assets	22

2.12	Intellectual Property	22

2.13	Insurance	24

2.14	Material Contracts and Obligations	24

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		PAGE
2.15	Employees	26

2.16	ERISA and Employee Benefits	28

2.17	Books and Records	29

2.18	Permits	29

2.19	Environmental and Safety Laws	29

2.20	Obligations to Related Parties	29

2.21	Customers and Suppliers	29

2.22	Product Liability and Recalls	30

2.23	Foreign Corrupt Practices Act	30

2.24	Brokers’ and Finders’ Fee	30

2.25	Permit Application, Information Statement	30

SECTION 3.	REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB	30

3.1	Organization and Standing	31

3.2	Capitalization	31

3.3	Corporate Power; Authorization	32

3.4	Subsidiaries	33

3.5	Governmental Authorizations	33

3.6	Compliance with Laws; No Conflicts	33

3.7	Litigation	34

3.8	Financial Statements	35

3.9	Absence of Certain Changes	35

3.10	Taxes.	37

3.11	Property and Assets	40

3.12	Intellectual Property	40

3.13	Insurance	42

3.14	Material Contracts and Obligations	42

3.15	Employees	45

3.16	ERISA and Employee Benefits	46

3.17	Books and Records	47

ii.

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(CONTINUED)


		PAGE
3.18	Permits	47

3.19	Environmental and Safety Laws	47

3.20	Obligations to Related Parties	47

3.21	Customers and Suppliers	48

3.22	Product Liability and Recalls	48

3.23	Foreign Corrupt Practices Act	48

3.24	Brokers’ and Finders’ Fee	48

3.25	Permit Application, Information Statement	48

3.26	Securities Law Exemptions	49

3.27	Merger Sub	49

SECTION 4.	CERTAIN COVENANTS OF THE COMPANY AND PARENT	49

4.1	Access and Investigation	49

4.2	Operation of the Company’s and Parent’s Businesses	49

4.3	Notification; Updates to Disclosure Schedule	52

4.4	No Negotiation	53

4.5	Intentionally Omitted	55

4.6	Payment of Expenses and Liabilities	55

4.7	Release of Liens	55

4.8	Employment Agreements	55

4.9	Resolution of Disputes	55

SECTION 5.	ADDITIONAL COVENANTS OF THE PARTIES	56

5.1	Filings and Consents	56

5.2	California Permit; Fairness Hearing	56

5.3	Written Consent; Information Statement	56

5.4	Other Regulatory Approvals; Reasonable Efforts	59

5.5	Public Announcements	59

5.6	Commercially Reasonable Best Efforts	59

5.7	Termination of Agreements	59

5.8	FIRPTA Matters	59

5.9	Indemnification of Company Officers and Directors.	59

iii.

TABLE OF CONTENTS

(CONTINUED)


		PAGE
5.10	Certain Tax Matters	60

5.11	Cooperation	61

5.12	Duration of Covenants	62

5.13	Labor Condition Applications	62

5.14	280G	62

SECTION 6.	CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB	62

6.1	Accuracy of Representations	62

6.2	Performance of Covenants	63

6.3	No Material Adverse Effect	63

6.4	Stockholder Approval	63

6.5	Consents	63

6.6	Agreements and Documents	63

6.7	FIRPTA Compliance	64

6.8	Permit; Compliance With §3(a)(10) of the Securities Act	65

6.9	No Restraints	65

6.10	No Legal Proceedings	65

6.11	280G Stockholder Approval	65

6.12	Intentionally Omitted	65

6.13	Termination of Agreements	65

6.14	Company Preferred Stockholder Agreements	65

6.15	Release of Liens	65

SECTION 7.	CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY	66

7.1	Accuracy of Representations	66

7.2	Performance of Covenants	66

7.3	No Material Adverse Effect	66

7.4	Stockholder Approval	66

7.5	Consents	66

7.6	Documents	66

7.7	Permit; Compliance With §3(a)(10) of the Securities Act	67

iv.

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(CONTINUED)


		PAGE
7.8	Intentionally Omitted	67

7.9	No Restraints	67

7.10	Company Preferred Stockholder Agreements	67

SECTION 8.	TERMINATION	68

8.1	Termination Events	68

8.2	Termination Procedures	68

8.3	Effect of Termination	68

SECTION 9.	INDEMNIFICATION, ETC	69

9.1	Survival of Representations, Etc	69

9.2	Indemnification by Company Stockholders	70

9.3	Indemnification by Parent	71

9.4	Adjustment to Aggregate Merger Consideration	71

9.5	Maximum Liability	71

9.6	Threshold/Limitations	72

9.7	No Contribution; Multiple Recovery	72

9.8	Procedure for Recovery from Escrow Fund	72

9.9	Defense of Third Party Claims	73

9.10	Indemnification Claims	76

9.11	Exercise of Remedies by Parent Indemnitees Other than Parent	78

9.12	Tax Matters	78

9.13	Transfer Taxes	79

9.14	Exclusive Remedy	79

SECTION 10.	MISCELLANEOUS PROVISIONS	79

10.1	Stockholders’ Representative	79

10.2	Further Assurances	85

10.3	Fees and Expenses	85

10.4	Attorneys’ Fees	86

10.5	Notices	86

10.6	Time of the Essence	87

10.7	Headings	87

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		PAGE
10.8	Counterparts	87

10.9	Governing Law	87

10.10	Successors and Assigns	87

10.11	Arbitration	88

10.12	Waiver	89

10.13	Amendments	89

10.14	Severability	89

10.15	Parties in Interest	89

10.16	Entire Agreement	89

10.17	Conflict of Interest	90

10.18	Intentionally Omitted	90

10.19	Construction	90

vi.

Execution Version

AGREEMENT AND PLAN

OF MERGER AND REORGANIZATION

THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (“Agreement”) is made and entered into as of April 9, 2007, by and among: ENTROPIC COMMUNICATIONS, INC. a Delaware corporation (“Parent”); RAPTOR ACQUISITION SUB, INC., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”); RF MAGIC, INC., a Delaware corporation (the “Company”); and solely for purposes of Sections 9 and 10.1 XXXX XXXXX, as the Stockholders’ Representative. Certain other capitalized terms used in this Agreement are defined in Exhibit A.

RECITALS

A. Parent, Merger Sub and the Company intend to effect a merger of Merger Sub into the Company in accordance with this Agreement and the DGCL (the “Merger”). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent.

B. This Agreement has been approved and declared advisable by the respective boards of directors of Parent, Merger Sub and the Company and such respective boards of directors have determined that the Merger is in the best interests of the stockholders of their respective companies.

C. Concurrently with the execution and delivery of this Agreement by the parties hereto, and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, the stockholders of the Company set forth on Exhibit B that are listed under the heading “Company Stockholders Signing Voting Agreements” are executing and delivering voting agreements, substantially in the form attached hereto as Exhibit C.

D. Concurrently with the execution and delivery of this Agreement by the parties hereto, and as a condition and inducement to the Company’s willingness to enter into this Agreement, the stockholders of Parent set forth on Exhibit B that are listed under the heading “Parent Stockholders Signing Voting Agreements” are executing and delivering voting agreements, substantially in the form attached hereto as Exhibit D.

E. Concurrently with the execution and delivery of this Agreement by the parties hereto, and as a condition and inducement to Parent’s and Merger Sub’s willingness to enter into this Agreement, the stockholders of the Company set forth on Exhibit E are executing and delivering a Non-Competition Agreement substantially in the form of Exhibit F.

F. Parent and the Company intend that the Merger qualify as a “reorganization” under Section 368(a) of the Code.

AGREEMENT

The parties to this Agreement agree as follows:

SECTION 1. DESCRIPTION OF TRANSACTION

1.1 Merger of Merger Sub into the Company. Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the “Surviving Corporation”).

1.2 Effect of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL.

1.3 Closing; Effective Time. The consummation of the transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Xxxxxx Godward Kronish LLP, 0000 Xxxxxxxx Xxxx, Xxx Xxxxx, Xxxxxxxxxx, at the time and on a date to be mutually agreed to by Parent and the Company, which shall be no later than the second business day after the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 6 and 7 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of such conditions). The date on which the Closing actually takes place is referred to in this Agreement as the “Closing Date.” Contemporaneously with or as promptly as practicable after the Closing, a properly executed certificate of merger satisfying the applicable requirements of the DGCL (the “Certificate of Merger”) shall be filed with the Secretary of State of the State of Delaware. The Merger shall become effective at the time the Certificate of Merger is filed with the Secretary of State of the State of Delaware, or such later time as may be agreed upon by each of the parties hereto and specified in the Certificate of Merger (the time the Merger becomes effective being the “Effective Time”).

1.4 Certificate of Incorporation and Bylaws; Directors and Officers. Unless otherwise determined by Parent and the Company prior to the Effective Time:

(a) the Certificate of Incorporation of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Certificate of Incorporation of Merger Sub as in effect immediately prior to the Effective Time, except that Article I thereof shall be amended as follows: “The name of the Corporation is RF Magic, Inc.”;

(b) the Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Bylaws of Merger Sub as in effect immediately prior to the Effective Time; and

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

1.5 Conversion of Shares.

(a) Subject to Sections 1.9, 1.10 and 1.12, 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 stockholder of the Company:

(i) each share of Company Common Stock outstanding immediately prior to the Effective Time shall be converted into the right to receive the number of shares of Parent Common Stock equal to the Exchange Ratio; provided, that, at the Closing, with respect to each Company Stockholder entitled to receive shares of Parent Common Stock pursuant to this Section 1.5(a)(i), the Escrow Percentage of the aggregate number of shares of Parent Common Stock being issued to such Company Stockholder, rounded down to the nearest whole number of shares, shall be withheld and placed in the Escrow Fund in accordance with Section 1.12 and the Escrow Agreement;

(ii) each share of Company Series A Preferred Stock (if any) outstanding immediately prior to the Effective Time shall be converted into the right to receive the number of shares of Parent Series D-1 Preferred Stock equal to the Exchange Ratio; provided, that, at the Closing, with respect to each Company Stockholder entitled to receive shares of Parent Series D-1 Preferred Stock pursuant to this Section 1.5(a)(ii), the Escrow Percentage of the aggregate number of shares of Parent Series D-1 Preferred Stock being issued to such Company Stockholder, rounded down to the nearest whole number of shares, shall be withheld and placed in the Escrow Fund in accordance with Section 1.12 and the Escrow Agreement;

(iii) each share of Company Series B Preferred Stock (if any) outstanding immediately prior to the Effective Time shall be converted into the right to receive the number of shares of Parent Series D-2 Preferred Stock equal to the Exchange Ratio; provided, that, at the Closing, with respect to each Company Stockholder entitled to receive shares of Parent Series D-2 Preferred Stock pursuant to this Section 1.5(a)(iii), the Escrow Percentage of the aggregate number of shares of Parent Series D-2 Preferred Stock being issued to such Company Stockholder, rounded down to the nearest whole number of shares, shall be withheld and placed in the Escrow Fund in accordance with Section 1.12 and the Escrow Agreement;

(iv) each share of Company Series C Preferred Stock (if any) outstanding immediately prior to the Effective Time shall be converted into the right to receive the number of shares of Parent Series D-3 Preferred Stock equal to the Exchange Ratio; provided, that, at the Closing, with respect to each Company Stockholder entitled to receive shares of Parent Series D-3 Preferred Stock pursuant to this Section 1.5(a)(iv), the Escrow Percentage of the aggregate number of shares of Parent Series D-3 Preferred Stock being issued to such Company Stockholder, rounded down to the nearest whole number of shares, shall be withheld and placed in the Escrow Fund in accordance with Section 1.12 and the Escrow Agreement; and

(v) each share of the common stock (with no par value) of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation.

(b) If any shares of Company Common Stock outstanding immediately prior to the Effective Time are unvested or are subject to a repurchase option, risk of forfeiture or other condition under any applicable restricted stock purchase agreement or other agreement with the Company, then the shares of Parent Common Stock issued in exchange for such shares of Company Common Stock will also be unvested and subject to the same repurchase option, risk of forfeiture or other condition, and the certificates representing such shares of Parent Common Stock may accordingly be marked with appropriate legends.

1.6 Employee Stock Options.

(a) At the Effective Time, each Eligible Stock Option that is then outstanding under the Company Option Plan, whether vested or unvested, shall be assumed by Parent in accordance with the terms (as in effect as of the date of this Agreement) of the Company Option Plan and the stock option agreement by which such Eligible Stock Option is evidenced. All rights with respect to Company Common Stock under outstanding Eligible Stock Options shall thereupon be converted into rights with respect to Parent Common Stock. Accordingly, from and after the Effective Time, (a) each Eligible Stock Option assumed by Parent may be exercised solely for shares of Parent Common Stock, (b) the number of shares of Parent Common Stock subject to each such assumed Eligible Stock Option shall be equal to the number of shares of Company Common Stock that were subject to such Eligible Stock Option immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock, (c) the per share exercise price for the Parent Common Stock issuable upon exercise of each such assumed Eligible Stock Option shall be determined by dividing the exercise price per share of Company Common Stock subject to such Eligible Stock Option, as in effect immediately prior to the Effective Time, by the Exchange Ratio, and rounding the resulting exercise price up to the nearest whole cent, and (d) all restrictions on the exercise of each such assumed Eligible Stock Option shall continue in full force and effect, and the term, exercisability, vesting schedule and other provisions of such Eligible Stock Option shall otherwise remain unchanged; provided, however, that each such assumed Eligible Stock Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected by Parent after the Effective Time. The Company and Parent shall take all action that may be necessary (under the Company Option Plan and otherwise) to effectuate the provisions of this Section 1.6.

(b) Subject to compliance with all applicable laws and regulations of the United States and all states, foreign countries or other governmental authorities, prior to the Closing, the Company and Parent shall offer to enter into a separate put-call agreement (“Put-Call Agreement”) with each holder of a French Stock Option, which Put-Call Agreement shall be in a form reasonably satisfactory to both Parent and the Company. From and after the Effective Time, pursuant to the Put-Call Agreement:

(i) each French Stock Option shall continue to be exercisable for shares of common stock of the Surviving Corporation;

(ii) upon the exercise of any French Stock Option, the holder thereof shall have the right to put to Parent, and Parent shall have the right to call from the holder thereof, all shares of common stock of the Surviving Corporation acquired upon such exercise in exchange for a number of shares of Parent Common Stock equal to the product of (x) the number of shares of common stock of the Surviving Corporation acquired upon such exercise, multiplied by (y) the Exchange Ratio, rounded down to the nearest whole number of shares; and

(iii) all restrictions on the exercise of each French Stock Option shall continue in full force and effect, and the term, exercisability, vesting schedule and other provisions of each French Stock Option shall otherwise remain unchanged; provided, however, that each such French Stock Option shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected by the Surviving Corporation after the Effective Time.

The Company and Parent shall take all action that may be necessary (under the French Stock Option Plan and otherwise) to effectuate the provisions of this Section 1.6(b). As to each French Stock Option for which a Put-Call Option is fully executed prior to the Effective Time, such French Stock Option shall continue to be exercisable for shares of common stock of the Surviving Corporation, and shall not be deemed an Eligible Stock Option or otherwise assumed by Parent at the Effective Time. Any French Stock Option for which a Put-Call Agreement is not in place prior to the Effective Time will be deemed an Eligible Stock Option and subject to the provisions of Section 1.6(a).

(c) Except as set forth in 1.6(b), at the Effective Time, Parent shall not be obligated to assume any Company Stock Option issued to residents of Taiwan and the United Kingdom to the extent that such assumption would result in a violation of local law. All such Company Stock Options that are outstanding immediately prior to the Effective Time and not exercised prior to the Effective Time will, pursuant to their respective terms, be cancelled and null and void as of the Effective Time.

(d) As soon as practicable after the Effective Time, Parent shall deliver to each holder of an outstanding Eligible Stock Option an appropriate notice setting forth such holder’s rights pursuant thereto. Parent shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of such assumed or replaced Company Option pursuant to the terms set forth in this Section 1.6.

1.7 Warrants. At the Effective Time, each warrant to purchase Company Common Stock that is then outstanding (a “Company Common Warrant”), shall be assumed by Parent in accordance with the terms (as in effect as of the date of this Agreement) of the Company Common Warrant and each warrant to purchase Company Preferred Stock that is then outstanding (a “Company Preferred Warrant”), shall be assumed by Parent in accordance with the terms (as in effect as of the date of this Agreement) of the Company Preferred Warrant. All rights with respect to the Company Common Warrants shall thereupon be converted into rights

with respect to Parent Common Stock, all rights with respect to the Company Preferred Warrants that are exercisable for Company Series B Preferred Stock shall thereupon be converted into rights with respect to Parent Series D-2 Preferred Stock, and all rights with respect to the Company Preferred Warrants that are exercisable for Company Series C Preferred Stock shall thereupon be converted into rights with respect to Parent Series D-3 Preferred Stock. Accordingly, from and after the Effective Time, (a) each Company Common Warrant assumed by Parent may be exercised solely for shares of Parent Common Stock and each Company Preferred Warrant assumed by Parent may be exercised solely for shares of Parent Series D-2 Preferred Stock or Parent Series D-3 Preferred Stock, as applicable, (b) the number of shares of Parent Common Stock and Parent Series D Preferred Stock subject to each such assumed Company Warrant, shall be equal to the number of shares of Company Common Stock or Parent Series D Preferred Stock, as applicable, that were subject to such Company Warrant immediately prior to the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest whole number of shares of Parent Common Stock or Parent Series D Preferred Stock, as applicable, (c) the per share exercise price for the Parent Common Stock or Parent Series D Preferred Stock issuable upon exercise of each such assumed Company Warrant shall be determined by dividing the exercise price per share of Company Common Stock or Parent Series D Preferred Stock subject to such Company Warrant as in effect immediately prior to the Effective Time, by the Exchange Ratio, and rounding the resulting exercise price up to the nearest whole cent, and (d) all restrictions on the exercise of each such assumed Company Warrant shall continue in full force and effect and the other provisions of such Company Warrant shall otherwise remain unchanged; provided, however, that each such assumed Company Warrant shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, reverse stock split, stock dividend, recapitalization or other similar transaction effected by Parent after the Effective Time. The Company and Parent shall take all action that may be necessary (under the Company Warrants and otherwise) to effectuate the provisions of this Section 1.7.

1.8 Closing of the Company’s Transfer Books. At the Effective Time, holders of certificates representing shares of the Company’s capital stock that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company, and the stock transfer books of the Company shall be closed with respect to all shares of such capital stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of the Company’s capital stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any of such shares of the Company’s capital stock (a “Company Stock Certificate”) is presented to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 1.9.

1.9 Exchange of Certificates.

(a) At or as soon as practicable after the Effective Time, Parent will send to the holders of Company Stock Certificates (i) a letter of transmittal in customary form and containing such provisions as Parent may reasonably specify, and (ii) instructions for use in effecting the surrender of Company Stock Certificates in exchange for certificates representing Parent Common Stock. Upon surrender of a Company Stock Certificate to Parent for exchange and, if applicable, the delivery by such holder of the executed signature pages to the Preferred Stock Agreements, together with a duly executed letter of transmittal and such other documents

as may be reasonably required by Parent, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor a certificate representing the number of whole shares of Parent Common Stock or Parent Series D Preferred Stock (together, the “Parent Capital Stock”) that such holder has the right to receive pursuant to the provisions of this Section 1, and the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 1.9, each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive upon such surrender a certificate representing shares of Parent Capital Stock (and cash in lieu of any fractional share of Parent Capital Stock) as contemplated by this Section 1. If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition precedent to the issuance of any certificate representing Parent Capital Stock, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit and to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against Parent or the Surviving Corporation with respect to such Company Stock Certificate.

(b) No dividends or other distributions declared or made with respect to Parent Capital Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate with respect to the shares of Parent Capital Stock represented thereby, and no cash payment in lieu of any fractional share shall be paid to any such holder, until such holder surrenders such Company Stock Certificate in accordance with this Section 1.8 (at which time such holder shall be entitled to receive all such dividends and distributions and such cash payment).

(c) No fractional shares of Parent Capital Stock shall be issued in connection with the Merger, and no certificates for any such fractional shares shall be issued. In lieu of such fractional shares, any holder of capital stock of the Company who would otherwise be entitled to receive a fraction of a share of Parent Capital Stock (after aggregating all fractional shares of Parent Capital Stock issuable to such holder) shall, upon surrender of such holder’s Company Stock Certificate(s), be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Agreement Conversion Price.

(d) Parent and the Surviving Corporation shall be entitled to deduct and withhold from any consideration payable or otherwise deliverable to any holder or former holder of capital stock of the Company pursuant to this Agreement such amounts as Parent or the Surviving Corporation may be required to deduct or withhold therefrom under the Code or under any provision of state, local or foreign Tax law. To the extent such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid.

(e) Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of capital stock of the Company for any shares of Parent Capital Stock (or dividends or distributions with respect thereto), or for any cash amounts, delivered to any public official pursuant to any applicable abandoned property, escheat or similar law. Any amounts remaining unclaimed by holders of Company Stock Certificates three years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Body) shall, to the extent permitted by applicable Legal Requirements, become the property of Parent free and clear of any Encumbrance.

1.10 Company Dissenting Shares

(a) Notwithstanding any provisions of this Agreement to the contrary, shares of Company Capital Stock held by a holder who has made a demand for appraisal of such shares in accordance with Section 262 of the DGCL and shares of Company Capital Stock that, as of the Effective Time, are or may become “dissenting shares” within the meaning of Section 1300(b) of the California Corporations Code (any such shares being referred to as “Company Dissenting Shares” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under Section 262 of the DGCL and Chapter 13 of the CGCL with respect to such shares) shall not be converted into or represent the right to receive the consideration payable in accordance with Section 1.5(a) (or cash in lieu of fractional shares in accordance with Section 1.9(c)), but shall be entitled only to such rights as are granted by the DGCL to a holder of Company Dissenting Shares and/or such rights as may be granted to a holder of Company Dissenting Shares in Chapter 13 of the CGCL. Parent shall be entitled to retain any such consideration not paid on account of such Company Dissenting Shares pending resolution of the claims of such holders, and the remaining holders of Company Capital Stock shall not be entitled to any portion thereof.

(b) Notwithstanding the provisions of Section 1.10(a), but subject to Section 1.12, if any Company Dissenting Shares shall lose their status as such (through failure to perfect or otherwise), then, as of the later of the Effective Time or the date of the loss of such status, such shares shall automatically be converted into and shall represent only the right to receive the applicable consideration in accordance with Section 1.5(a), without interest thereon, upon surrender of the certificate or certificates representing such shares of Company Capital Stock.

(c) The Company shall give Parent: (i) prompt notice of: (A) any written demand received by the Company prior to the Effective Time to require the Company to purchase shares of Company Capital Stock pursuant to Section 262 of the DGCL or Chapter 13 of the CGCL; (B) any withdrawal of any such demand; and (C) any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the DGCL or CGCL; and (ii) the opportunity to participate in all negotiations and proceedings with respect to any such demand, notice or instrument. The Company shall not, except with the prior written consent of Parent, make any payment or settlement offer prior to the Effective Time with respect to any such demand, notice or instrument other than by operation of law or pursuant to a final order of a court of competent jurisdiction.

1.11 Parent Dissenting Shares

(a) Notwithstanding any provisions of this Agreement to the contrary, shares of Parent Capital Stock that, as of the Effective Time, are or may become “dissenting shares” within the meaning of Section 1300(b) of the California Corporations Code (any such shares being referred to as “Parent Dissenting Shares” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under Chapter 13 of the CGCL with respect to such shares) shall be entitled only to such rights as may be granted to a holder of Parent Dissenting Shares in Chapter 13 of the CGCL.

(b) Parent shall give the Company: (i) prompt notice of: (A) any written demand received by Parent prior to the Effective Time to require Parent to purchase shares of Parent Capital Stock pursuant to Chapter 13 of the CGCL; (B) any withdrawal of any such demand; and (C) any other demand, notice or instrument delivered to Parent prior to the Effective Time pursuant to the CGCL; and (ii) the opportunity to participate in all negotiations and proceedings with respect to any such demand, notice or instrument. Parent shall not, except with the prior written consent of the Company, make any payment or settlement offer prior to the Effective Time with respect to any such demand, notice or instrument other than by operation of law or pursuant to a final order of a court of competent jurisdiction.

1.12 Escrow

(a) On the Closing Date, on behalf of the Company Stockholders, Parent shall deliver to the Escrow Agent, as a contribution to the Escrow Fund, certificates (issued in the name of the Escrow Agent or its nominee) representing the Preferred Stock Escrow Shares and a certificate (issued in the name of the Escrow Agent or its nominee) representing the Common Stock Escrow Shares. Subject to Section 9.10(d) and Section 10.1(g), upon the closing of a Qualified IPO, following receipt of written instructions from Parent and the Stockholders’ Representative as set forth in the Escrow Agreement, the Escrow Agent shall distribute 2/3 of the Escrow Shares and/or Escrow Cash to the Escrow Contributors in accordance with Section 8.1 of the Escrow Agreement.

(b) The Escrow Fund shall be available to hold harmless and indemnify each of the Parent Indemnitees pursuant to the provisions of Section 9 below and to reimburse and pay the Stockholders’ Representative and his Representatives pursuant to the provisions of Section 10.1. The Escrow Fund shall be held by the Escrow Agent in accordance with the terms of this Agreement and the terms of the Escrow Agreement. The Escrow Fund shall be held as a trust fund and shall not be subject to any lien, attachment, trustee process or any other judicial process of any creditor of any Person, and shall be held and disbursed solely for the purposes and in accordance with the terms of the Escrow Agreement.

1.13 Adjustments.

(a) The Company shall provide Parent with a preliminary written estimate of the Company Working Capital, three business days before the Closing Date on a schedule (the “Closing Company Schedule”), which Closing Company Schedule (i) shall set forth in reasonable detail the Company’s calculation of the Company Working Capital as of the Closing Date, and the Company Working Capital Deficit Amount (the “Estimated Company Working Capital Deficit Amount”), if any, as of the Closing Date, and (ii) shall be prepared in good faith by the Company and in accordance with GAAP.

(b) Parent shall provide Company with a preliminary written estimate of the Parent Working Capital, three business days before the Closing Date on a schedule (the “Closing Parent Schedule”), which Closing Parent Schedule (i) shall set forth in reasonable detail Parent’s calculation of the Parent Working Capital as of the Closing Date, and the Parent Working Capital Deficit Amount (the “Estimated Parent Working Capital Deficit Amount”), if any, as of the Closing Date, and (ii) shall be prepared in good faith by Parent and in accordance with GAAP.

(c) As soon as practicable after the Closing Date Parent shall prepare and deliver to the Stockholders’ Representative an unaudited consolidated balance sheet of the Company as of the Closing Date (the “Closing Date Company Balance Sheet”) and an unaudited consolidated balance sheet of Parent as of the Closing Date (the “Closing Date Parent Balance Sheet”). The Closing Date Company Balance Sheet shall be accompanied by a written statement of any Company Working Capital Deficit Adjustment as determined by Parent resulting from the information set forth in the Closing Date Company Balance Sheet (the “Parent Proposed Company Working Capital Deficit Amount”). The Closing Date Parent Balance Sheet shall be accompanied by a written statement of any Parent Working Capital Deficit Adjustment as determined by Parent resulting from the information set forth in the Closing Date Parent Balance Sheet (the “Parent Proposed Parent Working Capital Deficit Amount”). The Closing Date Company Balance Sheet shall be prepared in accordance with GAAP (and will set forth an itemized calculation of the Closing Date Company Transaction Expense Amount in the notes thereto). The Closing Date Parent Balance Sheet shall be prepared in accordance with GAAP (and will set forth an itemized calculation of the Closing Date Parent Transaction Expense Amount in the notes thereto).

(d) Following the delivery of the Closing Date Company Balance Sheet and Closing Date Parent Balance Sheet to the Stockholders’ Representative, Parent shall provide the Stockholders’ Representative and its accountants, at the reasonable request of the Stockholders’ Representative, with reasonable access during normal business hours to the books and records of the Surviving Corporation and Parent (and their subsidiaries) as may reasonably be required for the review of the Closing Date Company Balance Sheet and the calculation of the Parent Proposed Company Working Capital Deficit Amount and for the review of the Closing Date Parent Balance Sheet and the calculation of the Parent Proposed Parent Working Capital Deficit Amount. All fees, costs and expenses of the Stockholders’ Representative relating to the review of the Closing Date Company Balance Sheet and the Closing Date Parent Balance Sheet shall be borne by the Stockholders’ Representative and to the extent Parent incurs any fees, costs or expenses related thereto Parent shall bear its own such fees, costs and expenses. The Stockholders’ Representative shall make available to Parent and its accountants, at the request of

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Parent, any relevant work papers of the Stockholders’ Representative and its accountants generated in connection with the review of the Closing Date Company Balance Sheet and Closing Date Parent Balance Sheet.

(e) If the Stockholders’ Representative has any objections to the Parent Proposed Company Working Capital Deficit Amount, it shall deliver a statement describing its objections to Parent (the “Company Objection Notice”) within 30 days after the Stockholders’ Representative’s receipt of the Closing Date Company Balance Sheet. If the Stockholders’ Representative has any objections to the Parent Proposed Parent Working Capital Deficit Amount, it shall deliver a statement describing its objections to Parent (the “Parent Objection Notice”) within 30 days after the Stockholders’ Representative’s receipt of the Closing Date Parent Balance Sheet.

(f) The Stockholders’ Representative shall include in the Company Objection Notice a reasonably detailed calculation of the Company Working Capital Deficit Amount as determined by the Stockholders’ Representative (the “Stockholders’ Representative Proposed Company Working Capital Deficit Amount”), accompanied by a reasonably detailed description of the bases for any variances between the Parent Proposed Company Working Capital Deficit Amount and the Stockholders’ Representative Proposed Company Working Capital Deficit Amount (the “Description of Company Variances”). If the Stockholders’ Representative fails to deliver a Company Objection Notice and a Description of Company Variances within 30 days after the Stockholders’ Representative’s receipt of the Closing Date Company Balance Sheet, then the Parent Proposed Company Working Capital Deficit Amount shall be deemed the Final Company Working Capital Deficit Amount.

(g) The Stockholders’ Representative shall include in the Parent Objection Notice a reasonably detailed calculation of the Parent Working Capital Deficit Amount as determined by the Stockholders’ Representative (the “Stockholders’ Representative Proposed Parent Working Capital Deficit Amount”), accompanied by a reasonably detailed description of the bases for any variances between the Parent Proposed Parent Working Capital Deficit Amount and the Stockholders’ Representative Proposed Parent Working Capital Deficit Amount (the “Description of Parent Variances”). If the Stockholders’ Representative fails to deliver a Parent Objection Notice and a Description of Parent Variances within 30 days after the Stockholders’ Representative’s receipt of the Closing Date Parent Balance Sheet, then the Parent Proposed Parent Working Capital Deficit Amount shall be deemed the Final Parent Working Capital Deficit Amount.

(h) If the Stockholders’ Representative delivers the Company Objection Notice and/or Parent Objection Notice and the Description of Company Variances and/or Description of Parent Variances to Parent within such 30-day period, and Parent disagrees with the Stockholders’ Representative’s objection, then Parent and the Stockholders’ Representative will, during the 30-day period following the date of the Company Objection Notice and/or the Parent Objection Notice (the “Resolution Period”), use reasonable efforts to resolve any such objection themselves.

(i) If at the conclusion of the Resolution Period, the parties have not reached an agreement on the Stockholders’ Representative’s objections set forth in any valid Company

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Objection Notice and/or Parent Objection Notice, then all amounts and issues remaining in dispute may, within 30 days of the end of the Resolution Period and at the election of either party, be submitted by the Stockholders’ Representative or Parent to a mutually agreeable nationally recognized firm of independent auditors that has not performed work for (other than as a neutral auditor), and is otherwise independent of, each of Parent, the Company and the Stockholders’ Representative (the “Neutral Auditor”). All costs and expenses incurred by the parties in connection with resolving any dispute hereunder before the Neutral Auditor shall be borne by the party incurring such cost and expense (except the cost of the Neutral Auditor shall be borne equally by Parent and the Stockholders’ Representative). The Neutral Auditor shall act as an arbitrator to determine only those issues still in dispute at the time of the election by either party to submit the objections to the Neutral Auditor, which shall be limited to whether and to what extent (if any) there is a Company Working Capital Deficit Adjustment or a Parent Working Capital Deficit Adjustment. The Neutral Auditor’s determination shall be made within 45 days after its engagement (which engagement shall be made no later than five business days after the time of the election by either Parent or the Stockholders’ Representative to submit the objections to the Neutral Auditor), or as soon thereafter as possible, shall be set forth in a written statement delivered to Parent and the Stockholders’ Representative and shall be final, binding, conclusive and non-appealable for all purposes under this Agreement.

(j) The term “Final Company Working Capital Deficit Amount” shall mean (A) if the Stockholders’ Representative fails to deliver a Company Objection Notice and a Description of Company Variances within the 30-day period set forth in Section 1.13(e) and (f), the Parent Proposed Company Working Capital Deficit Amount and (B) if the Stockholders’ Representative delivers a Company Objection Notice within the 30-day period set forth in Section 1.13(e), the definitive Company Working Capital Deficit Amount agreed to by the Stockholders’ Representative and Parent in accordance with Section 1.13(h) or the Company Working Capital Deficit Amount resulting from the determination made by the Neutral Auditor in accordance with Section 1.13(i)) (which shall reflect those items theretofore agreed to by the Stockholders’ Representative and Parent during the Resolution Period or otherwise in accordance with Section 1.13(i)). The term “Final Parent Working Capital Deficit Amount” shall mean (A) if the Stockholders’ Representative fails to deliver a Parent Objection Notice and a Description of Parent Variances within the 30-day period set forth in Section 1.13(e) and (g), the Parent Proposed Parent Working Capital Deficit Amount and (B) if the Stockholders’ Representative delivers a Parent Objection Notice within the 30-day period set forth in Section 1.13(e), the definitive Parent Working Capital Deficit Amount agreed to by the Stockholders’ Representative and Parent in accordance with Section 1.13(h) or the Parent Working Capital Deficit Amount resulting from the determination made by the Neutral Auditor in accordance with this Section 1.13(i)) (which shall reflect those items theretofore agreed to by the Stockholders’ Representative and Parent during the Resolution Period or otherwise in accordance with Section 1.13(i)).

(k) In the event:

(i) there is a Company Working Capital Deficit Adjustment, then such amount shall constitute Damages and Parent shall be entitled to indemnification for the amount of the Company Working Capital Deficit Adjustment.

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(ii) there is a Parent Working Capital Deficit Adjustment, Parent shall, subject to Section 1.9, distribute the Parent Working Capital Adjustment Shares of the appropriate class and series to the Company Common Stockholders and Company Preferred Stockholders in accordance with their Pro Rata Share.

1.14 Further Action. If, at any time after the Effective Time, any further action is determined by Parent to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation or Parent with full right, title and possession of and to all rights and property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized (in the name of Merger Sub, in the name of the Company and otherwise) to take such action.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the Company Disclosure Schedule, which exceptions shall be deemed to be representations and warranties as if made hereunder, the Company hereby represents and warrants to Parent as follows (it being understood that each representation and warranty contained in this Section 2 is subject to: (a) the exceptions and disclosures set forth in the part or subpart of the Company Disclosure Schedule corresponding to the particular Section or subsection in this Section 2 in which such representation and warranty appears; (b) any exceptions or disclosures explicitly cross-referenced in such part or subpart of the Company Disclosure Schedule by reference to another part or subpart of the Company Disclosure Schedule; and (c) any exception or disclosure set forth in any other part or subpart of the Company Disclosure Schedule to the extent it is reasonably apparent that such exception or disclosure is intended to qualify such representation and warranty):

2.1 Organization and Standing. The Company is a corporation duly organized and validly existing under the laws of the State of Delaware and is in good standing under such laws. The Company has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and, to the Company’s Knowledge, as presently proposed to be conducted. The Company is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a Material Adverse Effect on the Company or its business. The Company has delivered, or made available for review in a data room, to Parent or its advisors true and correct copies of its Certificate of Incorporation and Bylaws or other equivalent organizational documents (collectively, the “Company Charter Documents”), as applicable, as in effect as of the date of this Agreement.

2.2 Capitalization.

(a) As of the date hereof, the authorized capital stock of the Company consists of (a) 32,750,000 shares of Company Common Stock, of which 5,190,033 shares are issued and outstanding, (b) 20,566,999 shares of Company Preferred Stock, of which (i) 750,000 shares are designated as Company Series A Preferred Stock, of which 750,000 shares are issued and outstanding, (ii) 6,316,999 shares are designated as Company Series B Preferred Stock, of which

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6,283,666 shares are issued and outstanding, and (iii) 7,500,000 shares are designated as Company Series C Preferred Stock, of which 6,924,306 shares are issued and outstanding. Each share of Company Preferred Stock is convertible into one share of Company Common Stock.

(b) All of the outstanding shares of Company Common Stock and Company Preferred Stock (i) have been duly authorized and validly issued, fully paid and are nonassessable and were issued in compliance with all applicable federal and state securities laws; (ii) are free of any Encumbrances created by the Company, and, to the Knowledge of the Company, free of any Encumbrances created by or imposed upon the holders thereof, other than restrictions on transfer imposed by federal or state securities laws, and (iii) were not issued in violation of any preemptive rights or rights of first refusal created by statute, the Company Charter Documents or any agreement to which the Company is a party or by which it is bound.

(c) As of the date hereof, the Company has reserved 7,088,888 shares of Company Common Stock for issuance to employees, directors and officers of, and consultants to, the Company under its Company Option Plan, of which (i) 3,085,969 shares have been issued pursuant to the exercise of outstanding options, and except for 410,936 shares which were repurchased by the Company and are no longer outstanding, are included in Section 2.2(a) above; (ii) 3,444,177 shares are subject to options that are currently outstanding; and (iii) 969,678 shares remain available for future issuance. There are outstanding warrants to purchase 346,215 shares of Company Common Stock, 33,333 shares of Company Series B Preferred Stock and 162,500 shares of Company Series C Preferred Stock. All Company Options and Company Warrants were issued in compliance with all applicable federal, state and foreign securities laws. Except as set forth in this Section 2.2, the Company has no obligation (contingent or otherwise) to (i) issue any subscription, warrant, option, convertible security or other such right (including preemptive rights and rights of first refusal) or to issue or distribute to holders any shares of its capital stock or (ii) purchase, redeem or otherwise acquire any shares of its capital stock or to pay any dividend or make any other distribution in respect thereof.

(d) No stock plan, stock purchase, stock option or other agreement or understanding between the Company and any holder of any equity securities or rights to purchase equity securities provides for acceleration or other changes in the vesting provisions or other terms of such agreement or understanding as the result of (i) termination of employment (whether actual or constructive); (ii) any merger, consolidated sale of stock or assets, change in control or any other transaction(s) by the Company; or (iii) the occurrence of any other event or combination of events.

(e) Section 2.2(e) of the Company Disclosure Schedule contains, with respect to each Company Option that is outstanding as of the date of this Agreement and each other right to acquire the Company’s capital stock (including any anti-dilution or similar rights) (each, a “Company Capital Stock Right”): (i) the name of the holder of such Company Capital Stock Right; (ii) the total number of shares of Company Capital Stock that are subject to such Company Capital Stock Right and the number of shares of Company Capital Stock with respect to which such Company Capital Stock Right is immediately exercisable; (iii) the date on which such Company Capital Stock Right was granted and the term of such Company Capital Stock Right; (iv) the vesting schedule for such Company Capital Stock Right; (v) the total number of vested shares for such Company Capital Stock Right (and any acceleration thereof as a result of

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the Merger); (vi) the exercise price per share of Company Capital Stock purchasable under such Company Capital Stock Right; (vii) any plan or other arrangement or agreement under which Company Options or Company Capital Stock Right was granted; and (viii) whether such Company Option has been designated an “incentive stock option” as defined in Section 422 of the Code.

(f) The Company has never repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of the Company.

2.3 Corporate Power; Authorization. The Company has all requisite corporate power to enter into this Agreement and to consummate the Merger.

(a) The Company has the right, power and authority to enter into and to perform its obligations under this Agreement; and the execution, delivery and performance by the Company of this Agreement has been duly authorized by all necessary action on the part of the Company and its board of directors.

(b) The affirmative vote or consent of the holders of two-thirds of the outstanding shares of Company Preferred Stock, a majority of the outstanding shares of Company Capital Stock, and a majority of the outstanding shares of Company Common Stock, are the only votes of the holders of any Company Capital Stock necessary under applicable law and the Company Charter Documents to approve this Agreement (the “Company Required Stockholder Vote”). The affirmative vote or consent of the holders of two-thirds of the outstanding shares of Company Preferred Stock and a majority of the outstanding shares of Company Capital Stock are the only vote of the holders of any Company Capital Stock necessary under applicable law and the Company Charter Documents to approve the Company Charter Amendment (the “Company Required Charter Vote”).

(c) The Board of Directors of the Company has (a) adopted this Agreement and approved its execution and delivery and the consummation of the Merger; and (b) determined that the Merger is advisable and in the best interests of the stockholders of the Company and is on terms that are fair to such stockholders.

(d) This Agreement, when executed and delivered by the Company, will constitute a valid and binding obligation of the Company enforceable in accordance with its terms, subject to (i) laws of general application relating to specific performance, injunctive relief or other equitable remedies, and (ii) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally.

2.4 Subsidiaries. The Company owns all of the outstanding equity interest in its wholly-owned subsidiaries, RF Magic SAS (France) and RF Magic Ltd. (United Kingdom) (the “Company Subsidiaries”). Except for its ownership of the Company Subsidiaries, the Company does not own or control, directly or indirectly, any equity interest in any other corporation, partnership, trust, joint venture, association or other entity. The Company is not a participant in any joint venture, partnership or similar arrangement.

2.5 Governmental Authorizations. The Company has obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant or other

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authorization of a Governmental Body that is required, as of the date hereof, for the operation by the Company of its business as currently being conducted, and all of such consents, licenses, permits, grants and authorizations are in full force and effect.

2.6 Compliance with Laws; No Conflicts.

(a) The Company is not in violation or default of (i) any provisions of the Company Charter Documents, as amended to date or (ii) to its Knowledge, any applicable laws, regulations, judgments, decrees or orders of the United States of America and all states, foreign countries or other governmental bodies and agencies having jurisdiction over the Company’s business or properties, other than violations of laws, regulations, judgments, decrees or orders that would not individually or in the aggregate result in Material Adverse Effect on the Company.

(b) Except as set forth in Section 2.6(b) of the Company Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, nor (2) the consummation of the Merger or any of the other transactions contemplated by this Agreement, will directly or indirectly (with or without notice or lapse of time):

(i) contravene, conflict with or result in a violation of (i) any of the provisions of the Company Charter Documents, or (ii) any resolution adopted by the Company’s stockholders, the Company’s board of directors or any committee of the Company’s board of directors;

(ii) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which the Company, or any of the assets owned or used by the Company, is subject;

(iii) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the Company’s business or to any of the assets owned or used by the Company;

(iv) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Company Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any such Company Material Contract, (ii) accelerate the maturity or performance of any such Company Material Contract, or (iii) cancel, terminate or modify any such Company Material Contract; or

(v) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by the Company (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of the Company).

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(c) Except as set forth in Section 2.6(c) of the Company Disclosure Schedule, the Company is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, or (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement.

2.7 Litigation. There is no Legal Proceeding pending, or, to the Company’s Knowledge, threatened against the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. No Legal Proceeding has ever been commenced by or has ever been pending against the Company. There is no order, writ, injunction, judgment or decree to which the Company, or any of the assets owned or used by the Company, is subject.

2.8 Financial Statements.

(a) The Company’s audited consolidated balance sheet and statements of operations and cash flows as of and for the periods ended December 31, 2004 and December 31, 2005, unaudited balance sheet and statements of operations and cash flows as of and for the year ended December 31, 2006 and the unaudited balance sheet for the period ended February 28, 2007 (the “Company Balance Sheet”) and statements of operations and cash flows as of and for the period ended February 28, 2007 made available to Parent (together, the “Company Financial Statements”) (i) are substantially in accordance with the books and records of the Company and (ii) have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the relevant period, except that the unaudited Financial Statements do not contain the footnotes required by GAAP. The Company Financial Statements fairly present the financial condition and operating results of the Company (including the Company Subsidiaries) as of the dates, and for the periods indicated therein, subject, in the case of the unaudited Company Financial Statements, to normal year-end audit adjustments. Except for liabilities reserved or reflected in the Company Financial Statements, the Company (including the Company Subsidiaries) has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the Ordinary Course of Business subsequent to the Company Financial Statements and (ii) obligations under contracts and commitments incurred in the Ordinary Course of Business and not required under GAAP to be reflected in the Company Financial Statements, which, in the case of (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of the Company (including the Company Subsidiaries). To the extent a liability or obligation is not disclosed in Section 2.8(a) of the Company Disclosure Schedule but would otherwise be required to be disclosed in the Company Disclosure Schedule pursuant to the requirements of a representation or warranty included in this Section 2 other than this Section 2.8, the failure to disclose such liability or obligation will not be deemed to violate this Section 2.8 as long as the nature and scope of such liability or obligation are disclosed elsewhere in the Company Disclosure Schedule.

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(b) Part 2.8(b) of the Company Disclosure Schedule provides an accurate and complete breakdown and aging of all accounts receivable, notes receivable and other receivables of the Company and Company Subsidiaries as of March 31, 2007.

2.9 Absence of Certain Changes. Since February 28, 2007 until the date hereof, there has not been:

(a) any material change in the assets, liabilities, financial condition or operating results of the Company (including the Company Subsidiaries) from the Company Financial Statements, except (i) changes in the Ordinary Course of Business and (ii) as disclosed elsewhere in the Company Disclosure Schedule;

(b) any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the assets, financial condition, properties, operating results or business of the Company (including the Company Subsidiaries);

(c) any change or amendment to the Company Charter Documents;

(d) any sale, assignment or transfer of all or substantially all of the Company’s (including the Company Subsidiaries’) rights in any patents, trademarks, copyrights, trade secrets or other intangible assets or other material assets, except a sale, assignment or transfer made in the Ordinary Course of Business that is not material to the assets, properties, financial condition, operating results or business of the Company (including the Company Subsidiaries);

(e) any satisfaction or discharge of any Encumbrance, except a satisfaction or discharge of an Encumbrance made in the Ordinary Course of Business that it is not material to the assets, properties, financial condition, operating results or business of the Company (including the Company Subsidiaries);

(f) any resignation or termination of any officer, key employee or group of employees of the Company; and the Company, to its Knowledge, does not know of the impending resignation or termination of employment of any such officer, key employee or group of employees;

(g) any waiver by the Company (including the Company Subsidiaries) of a material debt owed to it;

(h) any capital expenditure which, when added to all other capital expenditures made on behalf of the Company (including the Company Subsidiaries) since February 28, 2007, exceeds $50,000;

(i) any loans or advances by the Company (including the Company Subsidiaries) to or any investments by the Company (including the Company Subsidiaries) in, any Person (other than pursuant to routine advances made to employees in the Ordinary Course of Business), or incurrence or guarantee of any indebtedness by the Company (including the Company Subsidiaries) for borrowed money;

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(j) any material change in any compensation arrangement or agreement with any officer, director or stockholder of the Company (including the Company Subsidiaries);

(k) any declaration or payment of any dividend or other distribution of the assets of the Company (including the Company Subsidiaries);

(l) any event that has had or would reasonably be expected to have a Material Adverse Effect on the Company (including the Company Subsidiaries);

(m) any pledge of any of the Company’s (including the Company Subsidiaries’) assets or otherwise permitted any of its assets to become subject to any Encumbrance, except for pledges of immaterial assets made in the Ordinary Course of Business and consistent with the Company’s past practices;

(n) any change in the Company’s methods of accounting or accounting practices in any respect;

(o) any material Tax election outside the Ordinary Course of Business or inconsistent with the Company’s past practices;

(p) any commencement or settlement of any Legal Proceeding involving the Company or any Company Affiliates;

(q) entry into any material transaction or taking of any other material action outside the Ordinary Course of Business or inconsistent with the Company’s past practices;

(r) receipt of any notice that there has been or will be a loss of, or material order cancellation by, any major customer of the Company (including the Company Subsidiaries); or

(s) any agreement or commitment by the Company (including the Company Subsidiaries) to do any of the acts described in subsections (a) through (q) above.

2.10 Taxes.

(a) Each of the Company and Company Subsidiaries has timely filed or has obtained presently effective extensions with respect to all federal, state, county, local and foreign Tax Returns which are required to be filed by it. All such filed returns are true and correct in all material respects and all Taxes shown thereon to be due have been timely paid with exceptions not material to the Company or the Company Subsidiaries.

(b) Each of the Company and Company Subsidiaries has (i) properly and timely withheld all Taxes required to be withheld, and (ii) properly remitted to the proper taxing authority all Taxes required to be remitted for which the remittance deadline has passed, with respect to amounts paid or owed to any employee, independent contractor, stockholder or other third party.

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(c) No claim or Legal Proceeding is pending or, to the Knowledge of the Company or the Company Subsidiaries, has been threatened against or with respect to the Company or the Company Subsidiaries in respect of any material Tax. There are no unsatisfied liabilities for material Taxes with respect to any notice of deficiency or similar document received by the Company or the Company Subsidiaries with respect to any material Tax. There are no liens or other Encumbrances for material Taxes upon any of the assets of the Company or the Company Subsidiaries except liens for current Taxes not yet due and payable. Neither the Company nor any of the Company Subsidiaries has been or will be, required to include any adjustment in taxable income for any Tax period (or portion thereof) ending after the Closing Date pursuant to Section 481 or 263A of the Code (or any comparable provision of state or foreign Tax laws) as a result of transactions or events occurring, or accounting methods employed, prior to the Closing.

(d) No claim has ever been delivered by any Governmental Body to the Company or any of the Company Subsidiaries in a jurisdiction where the Company or the Company Subsidiaries does not file a Tax Return that it is subject to taxation by that jurisdiction which has resulted or would reasonably be expected to result in an obligation to pay material Taxes.

(e) None of the Company or any Company Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) None of the Company or any Company Subsidiary is a party to any Tax-sharing agreement or similar arrangement with any other party, and none of the Company or any Company Subsidiary has assumed any obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or agreed to indemnify any other person with respect to any Tax.

(g) As of the date of this Agreement, none of the Company or any Company Subsidiary has ever been audited by a government or taxing authority, nor is any such audit in process or pending, and none of the Company or any Company Subsidiary has been notified in writing of any request for such an audit or other examination.

(h) None of the Company or any Company Subsidiary has ever been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

(i) None of the Company or any Company Subsidiary has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for Tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a “plan” or “series of related transactions” (within the meaning of Section 355(e) of the Code) in conjunction with the Closing.

(j) Each of the Company and Company Subsidiaries has delivered to Parent accurate and complete copies of all income Tax Returns of the Company and Company Subsidiaries for all Tax years that remain open or are otherwise subject to audit, and all other material Tax Returns of the Company filed since December 31, 2001.

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(k) The unpaid Taxes of the Company (A) did not, as of the date of the Company Balance Sheet, exceed the reserve for Tax Liability (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Company Balance Sheet (rather than the notes thereto), and (B) 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 the Company in filing its Tax Returns. Since the date of the Company Balance Sheet, the Company has not incurred any liability for Taxes arising from extraordinary gains or losses, determined in accordance with GAAP, outside the Ordinary Course of Business.

(l) Each of the Company and Company Subsidiaries has disclosed on its income Tax Returns all positions that could give rise to a material understatement penalty within the meaning of Section 6662 of the Code or any similar Legal Requirement.

(m) None of the Company or any Company Subsidiary has agreed to make, nor is required to make, any adjustment under Section 481 of the Code or corresponding provision of state, local or foreign law by reason of any change in accounting method.

(n) Except for any instances where 280G Waivers are obtained in connection with the Merger, there are no other agreements, plans, arrangements or other Contracts covering any director or officer or other employee of the Company or any Company Subsidiary, and no payments have been made or will be made to any director or officer or other employee of the Company or any Company Subsidiary, that, considered individually or considered collectively with any other such Contracts or payments, will, or could result in a payment that would be considered an “excess parachute payment)” and treated as nondeductible under Section 280G of the Code.

(o) None of the Company or any Company Subsidiary has either granted, or is a party to any Contract that grants any compensation, equity award, or bonus, that fails to comply in good faith with the provisions of Section 409A of the Code.

(p) None of the Tax attributes (including net operating loss carryforwards and general business Tax credits) of the Company and Company Subsidiaries is limited by Section 382, 383 or 1502 of the Code (or any corresponding or similar Legal Requirement) for any period ending on or prior to the Closing Date.

(q) There is no intercorporate indebtedness existing between Parent and the Company that was issued, acquired, settled, or that will be settled at a discount.

(r) The Company is not an “investment company” within the meaning of Section 368(a)(2)(F)(iii) of the Code or under the jurisdiction of a court in a title 11 or similar case as defined in Section 368(a)(3)(A) of the Code.

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(s) Other than holders of Company Dissenting Shares, no stockholder of the Company will receive cash from Parent in the Merger in an amount equal to or greater than the value of one full share of stock of Parent.

2.11 Property and Assets. The Company has good title to all of its material properties, assets and leasehold estates, in each case subject to no mortgage, pledge, security interest, lease, charge or Encumbrance, other than liens resulting from Taxes which have not yet become delinquent and Encumbrances which have arisen in the Ordinary Course of Business and do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company. All material items of equipment and other tangible assets owned by or leased to the Company are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of the Company’s business in the manner in which such business is currently being conducted.

2.12 Intellectual Property.

(a) The Company owns, or possesses sufficient legal rights to all Company IP necessary for its business as now conducted. Section 2.12(a) of the Company Disclosure Schedule accurately identifies: (a) each item of Registered IP in which the Company has an ownership interest (whether exclusively, jointly with another Person, or otherwise); (b) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (c) any other Person that has an ownership interest in such item of Registered IP. The Company has provided or made available to Parent complete and accurate copies of all applications, material correspondence with any Governmental Body, and other material documents related to each such item of Registered IP.

(b) No current or former officer, manager, director or employee of the Company or any Company Subsidiary and to the Knowledge of the Company, no stockholder, consultant or independent contractor of the Company or any Company Subsidiary, has any ownership interest in, to or under any Company IP that has not been assigned, transferred or exclusively licensed to the Company. Except as set forth in Section 2.12(b) of the Company Disclosure Schedule, no third party has provided a written communication to the Company or any Company Subsidiary challenging the right, title or interest of the Company or any Company Subsidiary in the Company IP, or the validity, enforceability or claim construction of any patent rights included in the Company IP.

(c) Except as set forth in Section 2.12(c)(i) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary has granted to any Person any option, license or agreement of any kind with respect to the Company IP. Except as set forth in Section 2.12(c)(ii) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary has received from any Person any option, license or agreement of any kind with respect to the Company IP, other than licenses or agreements relating to the Company’s or any Company Subsidiary’ use rights regarding “off the shelf” or standard products.

(d) Except as set forth in Section 2.12(d)(i) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary is a party to or bound by any agreements that include exclusivity, non-competition, sub-licensing or most-favored-nation

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obligations or licenses or other arrangements relating to any Intellectual Property Rights (or any tangible embodiment thereof) to be developed in the future by the Company or any Company Subsidiary from any of the Company IP as of the date of this Agreement. To the Knowledge of the Company, the conduct of the Company’s or any Company Subsidiary’ business as it is currently being conducted does not infringe, constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of Intellectual Property Rights of any other person, and, except as set forth in Section 2.12(d)(ii) of the Company Disclosure Schedule, neither the Company nor any Company Subsidiary has received any written notice that it is infringing upon, violating or otherwise misappropriating, or that by conducting its business as proposed it would infringe upon, violate or otherwise misappropriate, the right or claimed right of any person or entity under or with respect to any Intellectual Property Rights or licenses of third parties. To the Company’s Knowledge, no third party is infringing upon, violating or misappropriating any of the Company IP. Each item of Company IP that is Registered IP is and at all times has been in compliance with all legal requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Company IP in full force and effect have been made by the applicable deadline.

(e) Except as disclosed in Section 2.12(e) of the Company Disclosure Schedule, to its Knowledge, neither the Company nor the Company Subsidiaries is obligated or under any liability to make payments by way of royalties, fees or otherwise to any owner, licensor of, other claimant to, or party to any option, license or agreement of any kind with respect to, any Intellectual Property Rights except for commercially available software which the Company or any Company Subsidiary licenses on standard terms.

(f) Neither the Company nor any Company Subsidiary is subject to any “open source” or “copyleft” obligations with respect to software used or developed by the Company or any Company Subsidiary.

(g) To the Company’s Knowledge, none of the software (including firmware and other software embedded in hardware devices) owned, developed (or currently being developed), used, marketed, distributed, licensed, or sold by the Company or the Company Subsidiaries (including any software that is part of, is distributed with, or is used in the design, development, manufacturing, production, distribution, testing, maintenance, or support of any Company Product, but excluding any third-party software that is generally available on standard commercial terms and is licensed to the Company or the Company Subsidiaries solely for internal use on a non-exclusive basis) (collectively, “Company Software”) contains any bug, defect, or error (including any bug, defect, or error relating to or resulting from the display, manipulation, processing, storage, transmission, or use of date data) that materially and adversely affects the use, functionality, or performance of such Company Software or any product or system containing or used in conjunction with such Company Software. To the Company’s Knowledge, no Company Software contains any “back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm” (as such terms are commonly understood in the software industry) or any other code designed or intended to have, or capable of performing, any of the following functions: (a) disrupting, disabling, harming, or otherwise impeding in any manner the operation of, or providing unauthorized access to, a computer system or network or other device on which such code is stored or installed; or (b) damaging or destroying any data or file without the user’s consent.

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(h) No source code for any Company Software has been delivered, licensed, or made available to any escrow agent. Neither the Company nor any Company Subsidiary has any duty or obligation (whether present, contingent, or otherwise) to deliver, license, or make available the source code for the Company Software to any escrow agent or other Person. To the Company’s Knowledge, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, result in the delivery, license, or disclosure of the source code for any Company Software to any other Person.

(i) The Company and the Company Subsidiaries have put in place policies and procedures to protect and maintain the confidentiality of the proprietary know how included in the Company IP that, to its Knowledge, are commercially reasonable and customary. Except as set forth in Section 2.12(i) of the Company Disclosure Schedule, to the Knowledge of the Company, neither the Company nor any Company Subsidiary has transferred or disclosed any Company IP (or any tangible embodiment thereof) to a third party without having the recipient thereof execute a written non-disclosure agreement.

2.13 Insurance. Section 2.13 of the Company Disclosure Schedule sets forth the insurance the Company maintains with respect to its properties and business. There is no material claim pending under any of the Company’s insurance policies or fidelity bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. The Company is in compliance in all material respects with the terms of such policies and bonds. The Company has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies or bonds.

2.14 Material Contracts and Obligations.

(a) Section 2.14 of the Company Disclosure Schedule lists the following Company Contracts in effect as of the date hereof (each of the Company Contracts required to be listed in clauses (i) through (xvii) that follows, a “Company Material Contract”):

(i) each Company Contract relating to the employment of, or the performance of services by, any employee, consultant or independent contractor or involving any loans or advances by the Company to any officer, director or employee which are outstanding as of the date hereof;

(ii) each Company Contract relating to the acquisition, transfer, use, development, sharing or license of any (A) technology, (B) Intellectual Property or (C) Intellectual Property Right other than pursuant to the Company’s standard customer agreements;

(iii) each Company Contract imposing any restriction on the Company’s right or ability (A) to compete with any other Person, (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person, or (C) develop or distribute any technology;

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(iv) each Company Contract creating or involving any agency relationship, distribution arrangement or franchise relationship;

(v) each Company Contract relating to the creation of any Encumbrance with respect to any material asset of Company;

(vi) each real property lease agreement;

(vii) each Company Contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement;

(viii) each Company Contract resulting in the Company incurring or guarantying any indebtedness for money borrowed or any other liabilities (other than with respect to dividend obligations, distributions, indebtedness and other obligations in the Ordinary Course of Business) individually in excess of $100,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate

(ix) each Company Contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities;

(x) each Company Contract constituting or relating to a Government Contract;

(xi) each Company Contract that contains “most favored nation” or preferred pricing provisions;

(xii) each Company Contract providing for indemnification by the Company with respect to infringements of proprietary rights other than pursuant to the Company’s standard customer agreement;

(xiii) each Contract between the Company and any officer, director or 10%-or-greater stockholder or any affiliate thereof other than agreements entered into in the Ordinary Course of Business;

(xiv) any sales representative, original equipment manufacturer, manufacturing, value added, remarketer, reseller, or independent software vendor, or other agreement for distribution of the Company Products;

(xv) each Company Contract that has a term of more than 60 days and that may not be terminated by the Company (without penalty) within 60 days after the delivery of a termination notice by the Company;

(xvi) each other Company Contract that was entered into outside the Ordinary Course of Business or was inconsistent with the Company’s past practices; and

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(xvii) each Company Contract that contemplates or involves (A) the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 in the aggregate, or (B) the performance of services having a value in excess of $100,000 in the aggregate.

(b) The Company has delivered or made available to Parent accurate and complete copies of all written Company Material Contracts, including all amendments thereto. Section 2.14 of the Company Disclosure Schedule provides an accurate description of the terms of each Company Material Contract that is not in written form. Each Company Material Contract is valid and in full force and effect, and, to the Knowledge of the Company, is enforceable by the Company in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

(c) Except as set forth in Section 2.14 of the Company Disclosure Schedule:

(i) the Company has not violated or breached, or committed any default under, any Company Material Contract, and, to the Knowledge of the Company, no other Person has violated or breached, or committed any default under, any Company Material Contract;

(ii) to the Knowledge of the Company, no event has occurred and is continuing, and no circumstance or condition currently exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (A) result in a material violation or material breach of any of the provisions of any Company Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any Company Material Contract, (C) give any Person the right to accelerate the maturity or performance of any Company Material Contract, or (D) give any Person the right to cancel, terminate or modify any Company Material Contract;

(iii) the Company has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Company Material Contract; and

(iv) the Company has not waived any of its material rights under any Company Material Contract.

2.15 Employees.

(a) Section 2.15 of the Company Disclosure Schedule lists, as of the date of this Agreement, (i) the names of all individuals classified as current employees (including part-time employees and temporary employees), current leased employees, current independent contractors and current consultants of the Company and the Company Subsidiaries, and (ii) their current respective salaries or wages, other compensation, dates of employment, positions and all written agreements between the Company and such individuals or entities.

(b) To the Knowledge of the Company, none of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other

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agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or that would conflict with the Company’s business as presently proposed to be conducted.

(c) Each current and former employee, officer and consultant of the Company has executed and delivered a Proprietary Information and Inventions Agreement substantially in the form attached hereto as Exhibit G, and all of such agreements are in full force and effect. To the Company’s Knowledge, no such employee, officer or consultant of the Company is in violation of such Proprietary Information and Inventions Agreement. No former or current employee, officer or consultant of the Company has excluded works or inventions made prior to his or her employment with the Company from his or her assignment of inventions pursuant to such employee, officer or consultant’s proprietary information and inventions agreement. The Company is not a party to or bound by any currently effective written employment contract with any of its employees, other than those that are terminable at will. No employee of the Company has been granted the right to any material compensation following termination of employment with the Company.

(d) To the Knowledge of the Company: (i) no officer or other employee intends to, or has communicated any intention to, terminate his or her employment with the Company; and (ii) no employee of the Company is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may have a material effect on the business or operations of any of the Company.

(e) The Company is not engaged, and the Company has never been engaged, in any unfair labor practice of any nature. As of the date of this Agreement, the Company is not a party to, or has a duty to bargain for, any collective bargaining agreement, collective labor agreement or other Contract with a labor organization, works council, trade union or other organization or body representing any of its employees or involving any of its employees, and there are no labor organizations, works councils, trade union or other organization or body representing, purporting to represent or, to the Knowledge of the Company, seeking to represent any employees of any of the Company. There has not been any strike, slowdown, work stoppage, lockout, job action, picketing, labor dispute, question concerning representation, union organizing activity, or any threat thereof, or any similar activity or dispute, affecting the Company or any of its employees. There has been no dispute between the Company and any group of its employees and there has been no effort on the part of any labor union to organize any employees of the Company. There is not now pending, no event has occurred and no circumstance or condition exists, and, to the Knowledge of the Company, no Person has threatened to commence, any such strike, slowdown, work stoppage, lockout, job action, picketing, labor dispute, question regarding representation or union organizing activity or any similar activity or dispute. There is no claim or grievance pending or, to the Knowledge of the Company, threatened relating to any employment Contract, wages and hours, plant closing notification, employment statute or regulation, privacy right, labor dispute, workers’ compensation policy or long-term disability policy, safety, retaliation, immigration or discrimination matters involving any Company Associate, including charges of unfair labor practices or harassment complaints.

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(f) The Company has in good faith classified each of its employees and independent contractors for Tax and other employment-related purposes.

2.16 ERISA and Employee Benefits.

(a) Section 2.16(a) of the Company Disclosure Schedule contains an accurate and complete list as of the date hereof of each Company Employee Plan and each Company Employee Agreement. The Company does not intend nor have they committed to establish or enter into any new Company Employee Plan or Company Employee Agreement, or to modify any Company Employee Plan or Company Employee Agreement (except to conform any such Company Employee Plan or Company Employee Agreement to the requirements of any applicable Legal Requirements, in each case as previously disclosed to Parent in writing or as required by this Agreement).

(b) The Company has performed in all material respects all obligations required to be performed by it under each Company Employee Plan. Each Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in accordance with any and all applicable Legal Requirements. There are no pending or, to the Knowledge of the Company, anticipated material claims against or otherwise involving any of the Company Employee Plans and no suit, action or other litigation (excluding claims for benefits incurred in the Ordinary Course of Business of Company Employee Plans activities) has been brought against or with respect to any Company Employee Plan, and no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Company Employee Plans, any fiduciaries thereof with respect to their duties to the Company Employee Plans or the assets of any of the trusts under any of the Company Employee Plans that could reasonably be expected to result in any material Liability of the Company to the Department of Treasury, the DOL, any Company Employee Plan, any participant in a Company Employee Plan, or any other party. All material contributions, reserves or premium payments, required to be made as of the date hereof to the Company Employee Plan have been made or accrued for in the Ordinary Course of Business and consistent with the Company’s past practices. Any Company Employee Plan intended to be qualified under Section 401(a) of the Code has obtained a favorable determination letter (or opinion letter, if applicable) as to its qualified status under the Code, and, to the Knowledge of the Company, no event has occurred and no circumstance or condition exists that could reasonably be expected to result in the disqualification of any such Company Employee Plan. Each Company Employee Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without Liability to Parent, the Company or any Company Affiliate (other than any Liability for ordinary administration expenses). There are no audits or inquiries pending or, to the Knowledge of the Company, threatened by the IRS, the DOL or any other Governmental Body with respect to any Company Employee Plan.

(c) No Company Employee Plan promises or provides retiree medical or other retiree welfare benefits to any Person other than as required under Section 4980B of the Code and Sections 601-608 of ERISA. No Company Employee Plan is subject to, and the Company has not incurred nor expects to incur any direct or indirect Liability under, Title IV of ERISA or Section 412 of the Code.

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2.17 Books and Records. The minute books of the Company made available to the legal counsel for Parent contain complete and accurate records of all meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof. The stock ledger of the Company is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company.

2.18 Permits. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Material Adverse Effect on the Company, and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

2.19 Environmental and Safety Laws. To its Knowledge, the Company has not been and is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

2.20 Obligations to Related Parties. There are no obligations of the Company to any officer, director or stockholder holding 1% or more of the Company’s outstanding capital stock (collectively, the “Company Related Parties”) other than (a) obligations under existing employment arrangements with the Company, (b) reimbursement for reasonable expenses incurred on behalf of the Company, (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company) and (d) obligations under existing Contracts set forth in Section 2.14 of the Company Disclosure Schedule. None of the officers, directors or stockholders of the Company, or any members of their immediate families, are indebted to the Company. None of the officers, directors or, to the Company’s Knowledge, key employees or stockholders of the Company or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, other than passive investments in publicly traded companies (representing less than 1% of such company) which may compete with the Company. No Company Related Party, and to the Company’s Knowledge, other stockholder of the Company, or any member of their immediate families, is, directly or indirectly, interested in any material Contract with the Company (other than such Contracts as relate to any such person’s ownership of capital stock or other securities of the Company).

2.21 Customers and Suppliers. Section 2.21 of the Company Disclosure Schedule sets forth a true and complete list of the top 20 customers of the Company, based upon revenue generated in fiscal year 2006. No material current customer and no material current supplier of the Company has canceled or otherwise terminated, or made any written threat to the Company to cancel or otherwise terminate, its relationship with the Company or has at any time on or after the date of the Company Balance Sheet, decreased materially its services or supplies to the Company in the case of any such supplier, or its usage of the services or products of the Company in the case of such customer. No such material supplier or customer has indicated in a

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writing delivered to the Company, or to the Company’s Knowledge, orally to the Company, that such supplier or customer intends to cancel or otherwise terminate its relationship with the Company or to decrease materially its delivery of services or supplies to the Company or its usage of the services or products of the Company. The Company has not engaged in any fraudulent conduct with respect to any customer or supplier of the Company.

2.22 Product Liability and Recalls. There is no pending or, to the Knowledge of the Company, threatened recall or investigation of any Company Product.

2.23 Foreign Corrupt Practices Act. Neither the Company nor, to the Knowledge of the Company, the Company Subsidiaries or any other Persons acting on their behalf has, in connection with the operation of their respective businesses, (i) used any corporate or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or organizations, or established or maintained any unlawful or unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices Act of 1977, as amended, or any other similar applicable foreign, federal or state law, (ii) paid, accepted or received any unlawful contributions, payments, expenditures or gifts, or (iii) violated or operated in noncompliance in any material respect with any export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or foreign laws and regulations, except as would not, individually or in the aggregate, result in a Material Adverse Effect on the Company.

2.24 Brokers’ and Finders’ Fee. No broker, finder or investment banker is entitled to brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges from the Company in connection with the Merger, this Agreement or any transaction contemplated hereby.

2.25 Permit Application, Information Statement. The information supplied by the Company for inclusion in, the Permit Application and the Company Information Statement, will not, on the date the Fairness Hearing is held, on the date the Company Information Statement is first mailed to the Company Stockholders, or at the Effective Time, contain any statement that at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state any material fact necessary, in order to make the statements made therein not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Permit Application or the consent solicitation that has become false or misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information supplied by Parent that is contained in any of the foregoing documents.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

Except as set forth in the Parent Disclosure Schedule, which exceptions shall be deemed to be representations and warranties as if made hereunder, Parent and Merger Sub hereby represent and warrant to the Company as follows (it being understood that each representation and warranty contained in this Section 3 is subject to: (a) the exceptions and disclosures set forth in the part or subpart of the Parent Disclosure Schedule corresponding to the particular Section or subsection in this Section 3 in which such representation and warranty appears; (b) any

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exceptions or disclosures explicitly cross-referenced in such part or subpart of the Parent Disclosure Schedule by reference to another part or subpart of the Parent Disclosure Schedule; and (c) any exception or disclosure set forth in any other part or subpart of the Parent Disclosure Schedule to the extent it is reasonably apparent that such exception or disclosure is intended to qualify such representation and warranty):

3.1 Organization and Standing. Each of Parent and Merger Sub is a corporation duly organized and validly existing under the laws of the State of Delaware and is in good standing under such laws. Parent has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and, to Parent’s Knowledge, as presently proposed to be conducted. Parent is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except for those jurisdictions in which failure to do so would not have a material adverse effect on Parent or its business. Each of Parent and Merger Sub has delivered, or made available for review, to the Company or its advisors true and correct copies of its Certificate of Incorporation and Bylaws (collectively, the “Parent Charter Documents”) as in effect as of the date of this Agreement.

3.2 Capitalization.

(a) As of the date hereof, the authorized capital stock of Parent consists of (a) 160,000,000 shares of Parent Common Stock, of which 24,974,082 shares are issued and outstanding, (b) 101,748,663 shares of Parent Preferred Stock, of which (i) 16,508,543 shares are designated as Parent Series A Preferred Stock, of which 16,343,543 shares are issued and outstanding, (ii) 49,744,320 shares are designated as Parent Series B Preferred Stock, of which 48,936,892 shares are issued and outstanding, and (iii) 35,495,800 shares are designated as Parent Series C Preferred Stock, of which 34,925,784 shares are issued and outstanding. Each share of Parent Series A Preferred Stock is convertible into 1.21 shares of Parent Common Stock and each share of Parent Series B Preferred Stock and Series C Preferred Stock is convertible into one share of Parent Common Stock.

(b) All of the outstanding shares of Parent Common Stock and Parent Preferred Stock (i) have been duly authorized and validly issued, fully paid and are nonassessable and were issued in compliance with all applicable federal and state securities laws; (ii) are free of any Encumbrances created by the Parent, and, to the Knowledge of the Parent, free of any Encumbrances created by or imposed upon the holders thereof, other than restrictions on transfer imposed by federal or state securities laws, and (iii) were not issued in violation of any preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation or Bylaws of the Parent or any agreement to which the Parent is a party or by which it is bound.

(c) As of the date hereof, Parent has reserved 28,900,000 shares of Parent Common Stock for issuance to employees, directors and officers of, and consultants to, Parent under its Parent Option Plan, of which (i) 16,973,333, shares have been issued pursuant to the exercise of outstanding options and are included in Section 3.2(a) above; (ii) 4,991,292 shares are subject to options that are currently outstanding; and (iii) 6,935,375 shares remain available for future issuance. There are outstanding warrants to purchase 165,000 shares of the Parent

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Series A Preferred Stock and outstanding warrants to purchase 578,657 shares of the Parent Series B Preferred Stock (all of such warrants for Parent Preferred Stock being referred to herein as “Parent Warrants”). All Parent Options and, to the extent issued, Parent Warrants were issued in compliance with all applicable federal, state and foreign securities laws. Except as set forth in this Section 3.2, Parent has no obligation (contingent or otherwise) to (i) issue any subscription, warrant, option, convertible security or other such right (including preemptive rights and rights of first refusal) or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness of Parent or (ii) purchase, redeem or otherwise acquire any shares of its capital stock or to pay any dividend or make any other distribution in respect thereof.

(d) No stock plan, stock purchase, stock option or other agreement or understanding between Parent and any holder of any equity securities or rights to purchase equity securities provides for acceleration or other changes in the vesting provisions or other terms of such agreement or understanding as the result of (i) termination of employment (whether actual or constructive); (ii) any merger, consolidated sale of stock or assets, change in control or any other transaction(s) by Parent; or (iii) the occurrence of any other event or combination of events.

(e) Section 3.2(e) of the Parent Disclosure Schedule contains, with respect to each Parent Option that is outstanding as of the date of this Agreement and each other right to acquire the Parent’s capital stock (including any anti-dilution or similar rights) (each, a “Parent Capital Stock Right”): (i) the name of the holder of such Parent Capital Stock Right; (ii) the total number of shares of Parent Capital Stock that are subject to such Parent Capital Stock Right and the number of shares of Parent Capital Stock with respect to which such Parent Capital Stock Right is immediately exercisable; (iii) the date on which such Parent Capital Stock Right was granted and the term of such Parent Capital Stock Right; (iv) the vesting schedule for such Parent Capital Stock Right; (v) the total number of vested shares for such Parent Capital Stock Right (and any acceleration thereof as a result of the Merger); (vi) the exercise price per share of Parent Capital Stock purchasable under such Parent Capital Stock Right; (vii) any plan or other arrangement or agreement under which Parent Options or Parent Capital Stock Right was granted; and (viii) whether such Parent Option has been designated an “incentive stock option” as defined in Section 422 of the Code.

(f) Parent has never repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of Parent.

3.3 Corporate Power; Authorization. Each of Parent and Merger Sub has all requisite corporate power to enter into this Agreement and to consummate the Merger.

(a) Parent has the right, power and authority to enter into and to perform its obligations under this Agreement; and the execution, delivery and performance by Parent of this Agreement has been duly authorized by all necessary action on the part of Parent and its board of directors.

(b) The affirmative vote or consent of the holders of a majority of the outstanding shares of Parent Capital Stock and a majority of the outstanding shares of Parent Common Stock, are the only votes of the holders of any Parent Capital Stock necessary under applicable law and the Parent Charter Documents to approve this Agreement (the “Parent

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Required Stockholder Vote”). Under applicable law and the Parent Charter Documents, the only vote of any Parent Capital Stock necessary to approve the Parent Charter Amendment is the affirmative vote or consent of (the “Parent Required Charter Vote”) the holders of (i) a majority of the outstanding shares of Parent Capital Stock, (ii) a majority of the outstanding shares of Parent Common Stock, (iii) 75% of the outstanding shares of Parent Preferred Stock, (iv) a majority of the outstanding shares of Parent Series A Preferred Stock, (v) 66-2/3% of the outstanding shares of Parent Series B Preferred Stock, and (vi) a majority of the outstanding shares of Parent Series C Preferred Stock.

(c) Each of the Board of Directors of Parent and Merger Sub has (a) adopted this Agreement and approved its execution and delivery and the consummation of the Merger; and (b) determined that the Merger is advisable to and in the best interests of their respective stockholders and is on terms that are fair to such stockholders.

(d) This Agreement, when executed and delivered by Parent and Merger Sub, will constitute a valid and binding obligation of Parent and Merger Sub enforceable in accordance with its terms, subject to (i) laws of general application relating to specific performance, injunctive relief or other equitable remedies, and (ii) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally.

3.4 Subsidiaries. Except for Merger Sub and Entropic Communications (Hong Kong) Limited (the “Parent Subsidiary”), Parent’s wholly-owned subsidiaries as of the date hereof, Parent does not presently own or control, directly or indirectly, any equity interest in any other corporation, partnership, trust, joint venture, association or other entity. Parent is not a participant in any joint venture, partnership or similar arrangement. 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.

3.5 Governmental Authorizations. Parent has obtained each material federal, state, county, local or foreign governmental consent, license, permit, grant or other authorization of a Governmental Body that is required, as of the date hereof, for the operation by Parent of its business as currently being conducted, and all of such consents, licenses, permits, grants and authorizations are in full force and effect.

3.6 Compliance with Laws; No Conflicts.

(a) Parent is not in violation or default of (i) any provisions of the Parent Charter Documents, as amended to date, (ii) to its Knowledge, any applicable laws, regulations, judgments, decrees or orders of the United States of America and all states, foreign countries or other governmental bodies and agencies having jurisdiction over Parent’s business or properties, other than violations of laws, regulations, judgments, decrees or orders that would not individually or in the aggregate result in Material Adverse Effect on Parent.

(b) Except as set forth in Section 3.6(b) of the Parent Disclosure Schedule, neither (1) the execution, delivery or performance of this Agreement or any of the other

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agreements referred to in this Agreement, nor (2) the consummation of the Merger or any of the other transactions contemplated by this Agreement, will directly or indirectly (with or without notice or lapse of time):

(i) contravene, conflict with or result in a violation of (i) any of the provisions of the Parent Charter Documents, or (ii) any resolution adopted by Parent’s stockholders, Parent’s board of directors or any committee of Parent’s board of directors;

(ii) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge any of the transactions contemplated by this Agreement or to exercise any remedy or obtain any relief under, any Legal Requirement or any order, writ, injunction, judgment or decree to which Parent, or any of the assets owned or used by Parent, is subject;

(iii) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Parent or that otherwise relates to Parent’s business or to any of the assets owned or used by Parent;

(iv) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Parent Material Contract, or give any Person the right to (i) declare a default or exercise any remedy under any such Parent Material Contract, (ii) accelerate the maturity or performance of any such Parent Material Contract, or (iii) cancel, terminate or modify any such Parent Material Contract; or

(v) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by Parent (except for minor liens that will not, in any case or in the aggregate, materially detract from the value of the assets subject thereto or materially impair the operations of Parent).

(c) Except as set forth in Section 3.6(c) of the Parent Disclosure Schedule, Parent is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement or any of the other agreements referred to in this Agreement, or (y) the consummation of the Merger or any of the other transactions contemplated by this Agreement.

3.7 Litigation. There is no Legal Proceeding pending, or, to the Knowledge of Parent and Merger Sub, threatened against Parent or Merger Sub. Neither Parent nor Merger Sub is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by Parent or Merger Sub currently pending or which Parent or Merger Sub intends to initiate. No Legal Proceeding has ever been commenced by or has ever been pending against Parent. There is no order, writ, injunction, judgment or decree to which Parent, or any of the assets owned or used by Parent, is subject.

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3.8 Financial Statements.

(a) Parent’s audited consolidated balance sheet and statements of operations and cash flows as of and for the periods ended December 31, 2004 and December 31, 2005, unaudited balance sheet and statements of operations and cash flows as of and for the year ended December 31, 2006 and the unaudited balance sheet for the period ended February 28, 2007 (the “Parent Balance Sheet”) and statements of operations and cash flows as of and for the period ended February 28, 2007 made available to the Company (the “Parent Financial Statements”) (i) are substantially in accordance with the books and records of Parent and (ii) have been prepared in accordance with GAAP applied on a consistent basis throughout the relevant period, except that the unaudited Parent Financial Statements do not contain the footnotes required by GAAP. The Parent Financial Statements fairly present the financial condition and operating results of Parent (including the Parent Subsidiary) as of the dates, and for the periods indicated therein, subject, in the case of the unaudited Parent Financial Statements, to normal year-end audit adjustments. Except as set forth in the Parent Financial Statements, Parent (including the Parent Subsidiary) has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the Ordinary Course of Business subsequent to the Parent Financial Statements and (ii) obligations under contracts and commitments incurred in the Ordinary Course of Business and not required under GAAP to be reflected in the Parent Financial Statements, which, in the case of (i) and (ii), individually or in the aggregate, are not material to the financial condition or operating results of Parent (including the Parent Subsidiary). To the extent a liability or obligation is not disclosed in Section 3.8(a) of the Parent Disclosure Schedule but would otherwise be required to be disclosed in the Parent Disclosure Schedule pursuant to the requirements of a representation or warranty included in this Section 3 other than this Section 3.8, the failure to disclose such liability or obligation will not be deemed to violate this Section 3.8 as long as the nature and scope of such liability or obligation are disclosed elsewhere in the Parent Disclosure Schedule.

(b) Section 3.8(b) of the Parent Disclosure Schedule provides an accurate and complete breakdown and aging of all accounts receivable, notes receivable and other receivables of Parent as of March 31, 2007.

3.9 Absence of Certain Changes. Since February 28, 2007 until the date hereof, there has not been:

(a) any material change in the assets, liabilities, financial condition or operating results of Parent (including the Parent Subsidiary) from the Parent Financial Statements, except changes in the Ordinary Course of Business;

(c) any change or amendment to (i) the Parent Charter Documents or (ii) a material contract or arrangement by which Parent (including the Parent Subsidiary) or any of its assets or properties is bound or subject;

(d) any sale, assignment or transfer of all or substantially all of Parent’s (including the Parent Subsidiary’s) rights in any patents, trademarks, copyrights, trade secrets or other intangible assets or other material assets, except a sale, assignment or transfer made in the Ordinary Course of Business that is not material to the assets, properties, financial condition, operating results or business of Parent (including the Parent Subsidiary);

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(f) any resignation or termination of any officer, key employee or group of employees of Parent; and Parent, to its Knowledge, does not know of the impending resignation or termination of employment of any such officer, key employee or group of employees;

(g) any waiver by Parent (including the Parent Subsidiary) of a material debt owed to it;

(h) any capital expenditure which, when added to all other capital expenditures made on behalf of Parent (including the Parent Subsidiary) since February 28, 2007, exceeds $50,000;

(i) any loans or advances by Parent (including the Parent Subsidiary) to or any investments by Parent (including the Parent Subsidiary) in, any Person (other than pursuant to routine advances made to employees in the Ordinary Course of Business), or incurrence or guarantee of any indebtedness by Parent (including the Parent Subsidiary) for borrowed money;

(j) any material change in any compensation arrangement or agreement with any officer, director or stockholder of Parent (including the Parent Subsidiary);

(k) any declaration or payment of any dividend or other distribution of the assets of Parent (including the Parent Subsidiary);

(l) any event that has had or would reasonably be expected to have a Material Adverse Effect on Parent (including the Parent Subsidiary);

(m) any pledge of any of Parent’s (including the Parent Subsidiary’s) assets or otherwise permitted any of its assets to become subject to any Encumbrance, except for pledges of immaterial assets made in the Ordinary Course of Business and consistent with Parent’s past practices;

(n) any change in Parent’s methods of accounting or accounting practices in any respect;

(o) any material Tax election outside the Ordinary Course of Business or inconsistent with Parent’s past practices;

(p) any commencement or settlement of any Legal Proceeding involving Parent or the Parent Subsidiary;

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(q) entry into any material transaction or taking of any other material action outside the Ordinary Course of Business or inconsistent with Parent’s past practices;

(r) receipt of any notice that there has been or will be a loss of, or material order cancellation by, any major customer of Parent (including Parent Subsidiary); or

(s) any agreement or commitment by Parent (including Parent Subsidiary) to do any of the acts described in subsections (a) through (q) above.

3.10 Taxes.

(a) Each of Parent, Parent Subsidiary and Merger Sub has timely filed or has obtained presently effective extensions with respect to all federal, state, county, local and foreign Tax Returns which are required to be filed by it. All such filed returns are true and correct in all material respects and all Taxes shown thereon to be due have been timely paid with exceptions not material to Parent, Parent Subsidiary or Merger Sub.

(b) Each of Parent, Parent Subsidiary and Merger Sub has (i) properly and timely withheld all Taxes required to be withheld, and (ii) properly remitted to the proper taxing authority all Taxes required to be remitted for which the remittance deadline has passed, with respect to amounts paid or owed to any employee, independent contractor, stockholder or other third party.

(c) No claim or Legal Proceeding is pending or, to the Knowledge of Parent, Parent Subsidiary or Merger Sub, has been threatened against or with respect to Parent, Parent Subsidiary or Merger Sub in respect of any material Tax. There are no unsatisfied liabilities for material Taxes with respect to any notice of deficiency or similar document received by Parent, Parent Subsidiary or Merger Sub with respect to any material Tax. There are no liens or other Encumbrances for material Taxes upon any of the assets of Parent, Parent Subsidiary or Merger Sub except liens for current Taxes not yet due and payable. None of Parent, Parent Subsidiary or Merger Sub has been or will be, required to include any adjustment in taxable income for any Tax period (or portion thereof) ending after the Closing Date pursuant to Section 481 or 263A of the Code (or any comparable provision of state or foreign Tax laws) as a result of transactions or events occurring, or accounting methods employed, prior to the Closing.

(d) No claim has ever been delivered by any Governmental Body to Parent, Parent Subsidiary or Merger Sub in a jurisdiction where Parent, Parent Subsidiary or Merger Sub does not file a Tax Return that it is subject to taxation by that jurisdiction which has resulted or would reasonably be expected to result in an obligation to pay material Taxes.

(e) None of Parent, Parent Subsidiary or Merger Sub has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

(f) None of Parent, Parent Subsidiary or Merger Sub is a party to any Tax-sharing agreement or similar arrangement with any other party, and none of Parent, Parent Subsidiary or Merger Sub has assumed any obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or agreed to indemnify any other person with respect to any Tax.

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(g) As of the date of this Agreement, none of Parent, Parent Subsidiary or Merger Sub has ever been audited by a government or taxing authority, nor is any such audit in process or pending, and none of Parent, Parent Subsidiary or Merger Sub has been notified in writing of any request for such an audit or other examination.

(h) None of Parent, Parent Subsidiary, or Merger Sub has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code.

(i) None of Parent, Parent Subsidiary, or Merger Sub has constituted either a “distributing corporation” or a “controlled corporation” in a distribution of stock qualifying for Tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement.

(j) Each of Parent, Parent Subsidiary, and Merger Sub has delivered to the Company accurate and complete copies of all income Tax Returns of Parent, Parent Subsidiary and Merger Sub for all Tax years that remain open or are otherwise subject to audit, and all other material Tax Returns of Parent, Parent Subsidiary and Merger Sub filed since 2005.

(k) The unpaid Taxes of Parent (A) did not, as of the date of Parent Balance Sheet, exceed the reserve for Tax Liability (other than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of Parent Balance Sheet (rather than the notes thereto), and (B) 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 Parent in filing its Tax Returns. Since the date of Parent Balance Sheet, Parent has not incurred any liability for Taxes arising from extraordinary gains or losses, determined in accordance with GAAP, outside the Ordinary Course of Business.

(l) Each of Parent, Parent Subsidiary and Merger Sub has disclosed on its income Tax Returns all positions that could give rise to a material understatement penalty within the meaning of Section 6662 of the Code or any similar Legal Requirement.

(m) None of Parent, Parent Subsidiary or Merger Sub has agreed to make, or is required to make, any adjustment under Section 481 of the Code or corresponding provision of state, local or foreign law by reason of any change in accounting method.

(n) There is no agreement, plan, arrangement or other Contract covering any director or officer or other employee of Parent, Parent Subsidiary or Merger Sub, and no payments have been made or will be made to any director or officer or other employee of Parent, Parent Subsidiary or Merger Sub, that, considered individually or considered collectively with any other such Contracts or payments, will, or could reasonably be expected to, be characterized as a “parachute payment” within the meaning of Section 280G(b)(2) of the Code.

(o) None of Parent, Parent Subsidiary or Merger Sub has granted or is a party to any Contract that grants any compensation, equity award, or bonus, that fails to comply in good faith with the provisions of Section 409A of the Code.

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(p) None of the Tax attributes (including net operating loss carryforwards and general business Tax credits) of Parent, Parent Subsidiary or Merger Sub is limited by Section 382, 383 or 1502 of the Code (or any corresponding or similar Legal Requirement) for any period ending on or prior to the Closing Date.

(q) Prior to and as of the time of the Merger, Parent will be in control of Merger Sub within the meaning of Section 368(c) of the Code. Parent has no plan or intention to cause the Company to issue additional stock or securities that would result in Parent losing such control of the Company after the Merger.

(r) There is no plan, intention, agreement or understanding on the part of Parent to redeem or purchase from the stockholders of the Company or to cause or permit any corporation related to Parent (as determined in accordance with Treasury Regulations § 1.368-1(e)(3)) (a “Related Corporation”) to redeem or purchase from the stockholders of the Company (or be treated as having done so pursuant to Treasury Regulations § 1.368-1(e)(4) or (5)), a number of shares of stock of Parent received in the Merger that would reduce the ownership of the stockholders of the Company of stock of Parent to a number of shares having a value, as of the Effective Time, of less than 50 percent of the value of all of the formerly outstanding stock of the Company as of the Effective Time. For purposes of the immediately preceding sentence, shares of stock of the Company exchanged for cash or other property, surrendered by dissenters or exchanged for cash in lieu of fractional shares of stock of Parent in the Merger, as well as shares of stock of the Company and shares of stock of Parent held by the stockholders of the Company and otherwise purchased by Parent, the Company or a Related Corporation prior or subsequent to the Merger will be treated as outstanding stock of the Company as of the Effective Time.

(s) Parent has no plan or intention to liquidate the Company; to merge the Company with or into another corporation; to sell or otherwise dispose of any of the stock of the Company except for transfers of stock to corporations controlled by Parent within the meaning of Section 368(c) of the Code; or to cause the Company to sell or otherwise dispose of any of its assets or of any of the assets acquired from Merger Sub in the Merger, except for (i) dispositions made in the ordinary course of business and (ii) transfers of assets to a corporation controlled by the Company within the meaning of Section 368(c) of the Code or successive transfers to one or more corporations controlled in each transfer by the transferor corporation as permitted in Treasury Regulations § 1.368-2(i)(2). Following the Merger, Parent will cause the Company (or a corporation to which a transfer has been made that is permitted under clause (ii) of the immediately preceding sentence) to continue the Company’s historic business or use a significant portion of the Company’s historic business assets in a business.

(t) There is no intercorporate indebtedness existing between Parent and the Company or between Merger Sub and the Company, that was issued, acquired, settled, or that will be settled at a discount.

(u) Neither Parent nor Merger Sub is an “investment company” within the meaning of Section 368(a)(2)(F)(iii) of the Code or under the jurisdiction of a court in a title 11 or similar case as defined in Section 368(a)(3)(A) of the Code.

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(v) Any payment of cash in lieu of fractional shares of stock of Parent is solely for the purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares and does not represent separately bargained-for consideration. Other than holders of Company Dissenting Shares, no stockholder of the Company will receive cash in an amount equal to or greater than the value of one full share of stock of Parent.

(w) The stock of Parent issued to the stockholders of the Company in the Merger will appear as issued and outstanding on the balance sheets of Parent prepared for financial reporting purposes and will be legally outstanding under applicable state law. There are not outstanding any “poison pill” or similar rights with respect to stock of Parent (or, if any such “poison pill” or similar rights are so outstanding, as of the Effective Time such rights will not be treated as property other than voting stock of Parent within the meaning of Section 368(a)(2)(E) of the Code).

3.11 Property and Assets. Parent has good title to all of its material properties, assets and leasehold estates, in each case subject to no mortgage, pledge, security interest, lease, charge or Encumbrance, other than liens resulting from Taxes which have not yet become delinquent and Encumbrances which have arisen in the Ordinary Course of Business and do not in any case materially detract from the value of the property subject thereto or materially impair the operations of Parent. All material items of equipment and other tangible assets owned by or leased to Parent are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of Parent’s business in the manner in which such business is currently being conducted.

3.12 Intellectual Property.

(a) Parent owns, or possesses sufficient legal rights to all Parent IP necessary for its business as now conducted. Section 3.12(a) of Parent Disclosure Schedule accurately identifies: (a) each item of Registered IP in which Parent has an ownership interest (whether exclusively, jointly with another Person, or otherwise); (b) the jurisdiction in which such item of Registered IP has been registered or filed and the applicable registration or serial number; and (c) any other Person that has an ownership interest in such item of Registered IP. Parent has provided or made available to the Company complete and accurate copies of all applications, material correspondence with any Governmental Body, and other material documents related to each such item of Registered IP.

(b) No current or former officer, manager, director or employee of Parent or the Parent Subsidiary, and to the Knowledge of Parent, no stockholder, consultant or independent contractor of Parent or the Parent Subsidiary, has any ownership interest in, to or under any Parent IP that has not been assigned, transferred or exclusively licensed to Parent. Except as set forth in Schedule 3.12(b) of the Parent Disclosure Schedule, no third party has provided a written communication to Parent or the Parent Subsidiary challenging the right, title or interest of Parent or the Parent Subsidiary in the Parent IP, or the validity, enforceability or claim construction of any patent rights included in the Parent IP.

(c) Except as set forth in Section 3.12(c)(i) of Parent Disclosure Schedule, neither Parent nor the Parent Subsidiary has granted to any Person any option, license or

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agreement of any kind with respect to Parent IP. Except as set forth in Section 3.12(c)(ii) of Parent Disclosure Schedule, neither Parent nor the Parent Subsidiary has received from any Person any option, license or agreement of any kind with respect to Parent IP, other than licenses or agreements relating to Parent’s or the Parent Subsidiary’s use rights regarding “off the shelf” or standard products.

(d) Except as set forth in Section 3.12(d)(i) of Parent Disclosure Schedule, neither Parent nor the Parent Subsidiary is a party to or bound by any agreements that include exclusivity, non-competition, sub-licensing or most-favored-nation obligations or licenses or other arrangements relating to any Intellectual Property Rights (or any tangible embodiment thereof) to be developed in the future by the Parent or the Parent Subsidiary from any of the Parent IP as of the date of this Agreement. To the Knowledge of Parent, the conduct of Parent’s or the Parent Subsidiary’s business as it is currently being conducted does not infringe, constitute contributory infringement, inducement to infringe, misappropriation or unlawful use of Intellectual Property Rights of any other person, and, except as set forth in Section 3.12(d)(ii) of Parent Disclosure Schedule, neither Parent nor the Parent Subsidiary has received any written notice that it is infringing upon, violating or otherwise misappropriating, or that by conducting its business as proposed it would infringe upon, violate or otherwise misappropriate, the right or claimed right of any person or entity under or with respect to any Intellectual Property Rights or licenses of third parties. To Parent’s Knowledge, no third party is infringing upon, violating or misappropriating any of Parent IP. Each item of Parent IP that is Registered IP is and at all times has been in compliance with all legal requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Parent IP in full force and effect have been made by the applicable deadline.

(e) Except as disclosed in Section 3.12(e) of the Parent Disclosure Schedule, to its Knowledge, neither Parent nor the Parent Subsidiary is obligated or under any liability to make payments by way of royalties, fees or otherwise to any owner, licensor of, other claimant to, or party to any option, license or agreement of any kind with respect to, any Intellectual Property Rights except for commercially available software which Parent or the Parent Subsidiary licenses on standard terms.

(f) Neither Parent nor the Parent Subsidiary is subject to any “open source” or “copyleft” obligations with respect to software used or developed by Parent or the Parent Subsidiary.

(g) To Parent’s Knowledge, none of the software (including firmware and other software embedded in hardware devices) owned, developed (or currently being developed), used, marketed, distributed, licensed, or sold by Parent or the Parent Subsidiary (including any software that is part of, is distributed with, or is used in the design, development, manufacturing, production, distribution, testing, maintenance, or support of any Parent Product, but excluding any third-party software that is generally available on standard commercial terms and is licensed to Parent or the Parent Subsidiary solely for internal use on a non-exclusive basis) (collectively, “Parent Software”) contains any bug, defect, or error (including any bug, defect, or error relating to or resulting from the display, manipulation, processing, storage, transmission, or use of date data) that materially and adversely affects the use, functionality, or performance of such Parent Software or any product or system containing or used in conjunction with such Parent Software.

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To Parent’s Knowledge, no Parent Software contains any “back door,” “drop dead device,” “time bomb,” “Trojan horse,” “virus,” or “worm” (as such terms are commonly understood in the software industry) or any other code designed or intended to have, or capable of performing, any of the following functions: (a) disrupting, disabling, harming, or otherwise impeding in any manner the operation of, or providing unauthorized access to, a computer system or network or other device on which such code is stored or installed; or (b) damaging or destroying any data or file without the user’s consent.

(h) No source code for any Parent Software has been delivered, licensed, or made available to any escrow agent. Neither Parent nor the Parent Subsidiary has any duty or obligation (whether present, contingent, or otherwise) to deliver, license, or make available the source code for any Parent Software to any escrow agent or other Person. To Parent’s Knowledge, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) will, or could reasonably be expected to, result in the delivery, license, or disclosure of the source code for any Parent Software to any other Person.

(i) Parent and the Parent Subsidiary have put in place policies and procedures to protect and maintain the confidentiality of the proprietary know how included in the Parent IP that are, to its Knowledge, commercially reasonable and customary. Except as set forth in Section 3.12(i) of the Parent Disclosure Schedule, to the Knowledge of Parent, neither Parent nor the Parent Subsidiary have transferred or disclosed any Parent IP (or any tangible embodiment thereof) to a third party without having the recipient thereof execute a written non-disclosure agreement.

3.13 Insurance. Section 3.13 of the Parent Disclosure Schedule sets forth the insurance Parent maintains with respect to its properties and business. There is no material claim pending under any of Parent’s insurance policies or fidelity bonds as to which coverage has been questioned, denied or disputed by the underwriters of such policies or bonds. Parent is in compliance in all material respects with the terms of such policies and bonds. Parent has no Knowledge of any threatened termination of, or material premium increase with respect to, any of such policies or bonds.

3.14 Material Contracts and Obligations.

(a) Section 3.14 of Parent Disclosure Schedule lists the following Parent Contracts in effect as of the date hereof (each of Parent Contracts required to be listed in clauses (i) through (xvii) that follows, a “Parent Material Contract”):

(i) each Parent Contract relating to the employment of, or the performance of services by, any employee, consultant or independent contractor or involving any loans or advances by Parent to any officer, director or employee which are outstanding as of the date hereof;

(ii) each Parent Contract relating to the acquisition, transfer, use, development, sharing or license of any (A) technology, (B) Intellectual Property or (C) Intellectual Property Right other than pursuant to Parent’s standard customer agreements;

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(iii) each Parent Contract imposing any restriction on Parent’s right or ability (A) to compete with any other Person, (B) to acquire any product or other asset or any services from any other Person, to sell any product or other asset to or perform any services for any other Person or to transact business or deal in any other manner with any other Person, or (C) develop or distribute any technology;

(iv) each Parent Contract creating or involving any agency relationship, distribution arrangement or franchise relationship;

(v) each Parent Contract relating to the creation of any Encumbrance with respect to any material asset of Parent;

(vi) each real property lease agreement;

(vii) each Parent Contract involving or incorporating any guaranty, any pledge, any performance or completion bond, any indemnity or any surety arrangement;

(viii) each Parent Contract resulting in Parent incurring or guarantying any indebtedness for money borrowed or any other liabilities (other than with respect to dividend obligations, distributions, indebtedness and other obligations in the Ordinary Course of Business) individually in excess of $100,000 or, in the case of indebtedness and/or liabilities individually less than $50,000, in excess of $100,000 in the aggregate

(ix) each Parent Contract creating or relating to any partnership or joint venture or any sharing of revenues, profits, losses, costs or liabilities;

(x) each Parent Contract constituting or relating to a Government Contract;

(xi) each Parent Contract that contains “most favored nation” or preferred pricing provisions;

(xii) each Parent Contract providing for indemnification by Parent with respect to infringements of proprietary rights other than pursuant to Parent’s standard customer agreement;

(xiii) each Contract between Parent and any officer, director or 10%-or-greater stockholder or any affiliate thereof other than agreements entered into in the Ordinary Course of Business;

(xv) each Parent Contract that has a term of more than 60 days and that may not be terminated by Parent (without penalty) within 60 days after the delivery of a termination notice by Parent;

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(xvi) each other Parent Contract that was entered into outside the Ordinary Course of Business or was inconsistent with Parent’s past practices; and

(xvii) each Parent Contract that contemplates or involves (A) the payment or delivery of cash or other consideration in an amount or having a value in excess of $100,000 in the aggregate, or (B) the performance of services having a value in excess of $100,000 in the aggregate.

(b) Parent has delivered or made available to the Company accurate and complete copies of all written Parent Material Contracts, including all amendments thereto. Section 3.14 of Parent Disclosure Schedule provides an accurate description of the terms of each Parent Material Contract that is not in written form. Each Parent Material Contract is valid and in full force and effect, and, to the Knowledge of Parent, is enforceable by Parent in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.

(c) Except as set forth in Section 3.14 of Parent Disclosure Schedule:

(i) Parent has not violated or breached, or committed any default under, any Parent Material Contract, and, to the Knowledge of Parent, no other Person has violated or breached, or committed any default under, any Parent Material Contract;

(ii) to the Knowledge of Parent, no event has occurred and is continuing, and no circumstance or condition currently exists, that (with or without notice or lapse of time) will, or would reasonably be expected to, (A) result in a material violation or material breach of any of the provisions of any Parent Material Contract, (B) give any Person the right to declare a default or exercise any remedy under any Parent Material Contract, (C) give any Person the right to accelerate the maturity or performance of any Parent Material Contract, or (D) give any Person the right to cancel, terminate or modify any Parent Material Contract;

(iii) Parent has not received any notice or other communication regarding any actual or possible violation or breach of, or default under, any Parent Material Contract; and

(iv) Parent has not waived any of its material rights under any Parent Material Contract.

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3.15 Employees.

(a) Section 3.15 of Parent Disclosure Schedule lists, as of the date of this Agreement, (i) the names of all individuals classified as current employees (including part-time employees and temporary employees), current leased employees, current independent contractors and current consultants of Parent and the Parent Subsidiary, and (ii) their current respective salaries or wages, other compensation, dates of employment, positions and all written agreements between Parent and such individuals or entities.

(b) To the Knowledge of Parent, none of its employees are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to Parent or that would conflict with Parent’s business as presently proposed to be conducted.

(c) Each current and former employee, officer and consultant of Parent has executed and delivered a Proprietary Information and Inventions Agreement substantially in the form attached hereto as Exhibit H, and all of such agreements are in full force and effect. To Parent’s Knowledge, no such employee, officer or consultant of Parent is in violation of such Proprietary Information and Inventions Agreement. No former or current employee, officer or consultant of Parent has excluded works or inventions made prior to his or her employment with Parent from his or her assignment of inventions pursuant to such employee, officer or consultant’s proprietary information and inventions agreement. Parent is not a party to or bound by any currently effective written employment contract with any of its employees, other than those that are terminable at will. No employee of Parent has been granted the right to any material compensation following termination of employment with Parent.

(d) To the Knowledge of Parent: (i) no officer or other employee intends to, or has communicated any intention to, terminate his or her employment with Parent; and (ii) no employee of Parent is a party to or is bound by any confidentiality agreement, noncompetition agreement or other Contract (with any Person) that may have a material effect on the business or operations of any of Parent.

(e) Parent is not engaged, and Parent has never been engaged, in any unfair labor practice of any nature. As of the date of this Agreement, Parent is not a party to, or has a duty to bargain for, any collective bargaining agreement, collective labor agreement or other Contract with a labor organization, works council, trade union or other organization or body representing any of its employees or involving any of its employees, and there are no labor organizations, works councils, trade union or other organization or body representing, purporting to represent or, to the Knowledge of Parent, seeking to represent any employees of any of Parent. There has not been any strike, slowdown, work stoppage, lockout, job action, picketing, labor dispute, question concerning representation, union organizing activity, or any threat thereof, or any similar activity or dispute, affecting Parent or any of its employees. There has been no dispute between Parent and any group of its employees and there has been no effort on the part of any labor union to organize any employees of Parent. There is not now pending, no event has occurred and no circumstance or condition exists, and, to the Knowledge of Parent, no Person has threatened to commence, any such strike, slowdown, work stoppage, lockout, job action,

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picketing, labor dispute, question regarding representation or union organizing activity or any similar activity or dispute. There is no claim or grievance pending or, to the Knowledge of Parent, threatened relating to any employment Contract, wages and hours, plant closing notification, employment statute or regulation, privacy right, labor dispute, workers’ compensation policy or long-term disability policy, safety, retaliation, immigration or discrimination matters involving any Parent Associate, including charges of unfair labor practices or harassment complaints.

(f) Parent has in good faith classified each of its employees and independent contractors for Tax and other employment-related purposes.

(g) Except as permitted during the Pre-Closing Period by the initial paragraph of Section 4.2, Parent will not forgive debt owed to Parent by its employees, or pay bonuses outside the Ordinary Course of Business for the purpose of enabling such employees to repay such debt.

3.16 ERISA and Employee Benefits.

(a) Section 3.16(a) of Parent Disclosure Schedule contains an accurate and complete list as of the date hereof of each Parent Employee Plan and each Parent Employee Agreement. Parent does not intend nor have they committed to establish or enter into any new Parent Employee Plan or Parent Employee Agreement, or to modify any Parent Employee Plan or Parent Employee Agreement (except to conform any such Parent Employee Plan or Parent Employee Agreement to the requirements of any applicable Legal Requirements, in each case as previously disclosed to the Company in writing or as required by this Agreement).

(b) Parent has performed in all material respects all obligations required to be performed by it under each Parent Employee Plan. Each Parent Employee Plan has been established and maintained in all material respects in accordance with its terms and in accordance with any and all applicable Legal Requirements. There are no pending or, to the Knowledge of Parent, anticipated material claims against or otherwise involving any of Parent Employee Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Parent Employee Plans activities) has been brought against or with respect to any Parent Employee Plan, and no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against Parent Employee Plans, any fiduciaries thereof with respect to their duties to Parent Employee Plans or the assets of any of the trusts under any of Parent Employee Plans that could reasonably be expected to result in any material Liability of Parent to the Department of Treasury, the DOL, any Parent Employee Plan, any participant in a Parent Employee Plan, or any other party. All material contributions, reserves or premium payments, required to be made as of the date hereof to Parent Employee Plan have been made or accrued for in the Ordinary Course of Business and consistent with Parent’s past practices. Any Parent Employee Plan intended to be qualified under Section 401(a) of the Code has obtained a favorable determination letter (or opinion letter, if applicable) as to its qualified status under the Code, and, to the Knowledge of Parent, no event has occurred and no circumstance or condition exists that could reasonably be expected to result in the disqualification of any such Parent Employee Plan. Each Parent Employee Plan can be amended, terminated or otherwise discontinued after the Closing in accordance with its terms, without Liability to the Company,

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Parent or the Parent Subsidiary (other than any Liability for ordinary administration expenses). There are no audits or inquiries pending or, to the Knowledge of Parent, threatened by the IRS, the DOL or any other Governmental Body with respect to any Parent Employee Plan.

(c) No Parent Employee Plan promises or provides retiree medical or other retiree welfare benefits to any Person other than as required under Section 4980B of the Code and Sections 601-608 of ERISA. No Parent Employee Plan is subject to, and Parent has not incurred nor expects to incur any direct or indirect Liability under, Title IV of ERISA or Section 412 of the Code.

3.17 Books and Records. The minute books of Parent made available to the legal counsel for the Company contain complete and accurate records of all meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof. The stock ledger of Parent is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of Parent.

3.18 Permits. Parent has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which would have a Material Adverse Effect on Parent, and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. Parent is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

3.19 Environmental and Safety Laws. To its Knowledge, Parent has not been and is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its Knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

3.20 Obligations to Related Parties. There are no obligations of Parent to any officer, director or stockholder holding 1% or more of Parent’s outstanding capital stock (collectively, the “Parent Related Parties”) other than (a) obligations under existing employment arrangements with Parent, (b) reimbursement for reasonable expenses incurred on behalf of Parent, (c) for other standard employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option plan approved by the Board of Directors of Parent) and (d) obligations under existing Contracts set forth in Section 3.14 of Parent Disclosure Schedule. None of the officers, directors or stockholders of Parent, or any members of their immediate families, are indebted to Parent. None of the officers, directors or, to Parent’s Knowledge, key employees or stockholders of Parent or any members of their immediate families, are indebted to Parent or have any direct or indirect ownership interest in any firm or corporation with which Parent is affiliated or with which Parent has a business relationship, or any firm or corporation which competes with Parent, other than passive investments in publicly traded companies (representing less than 1% of such Parent) which may compete with Parent. No Parent Related Party, and to Parent’s Knowledge, other stockholder of Parent, or any member of their immediate families, is, directly or indirectly, interested in any material Contract with Parent (other than such Contracts as relate to any such person’s ownership of capital stock or other securities of Parent).

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3.21 Customers and Suppliers. Section 3.21 of Parent Disclosure Schedule sets forth a true and complete list of the top 20 customers of Parent, based upon revenue generated in fiscal year 2006. No material current customer and no material current supplier of Parent has canceled or otherwise terminated, or made any written threat to Parent to cancel or otherwise terminate, its relationship with Parent or has at any time on or after the date of Parent Balance Sheet, decreased materially its services or supplies to Parent in the case of any such supplier, or its usage of the services or products of Parent in the case of such customer. No such material supplier or customer has indicated in a writing delivered to Parent, or to Parent’s Knowledge, orally to Parent, that such supplier or customer intends to cancel or otherwise terminate its relationship with Parent or to decrease materially its delivery of services or supplies to Parent or its usage of the services or products of Parent. Parent has not engaged in any fraudulent conduct with respect to any customer or supplier of Parent.

3.22 Product Liability and Recalls. There is no pending or, to the Knowledge of Parent, threatened recall or investigation of any Parent Product.

3.23 Foreign Corrupt Practices Act. Neither Parent nor, to the Knowledge of Parent, the Parent Subsidiary or any other Persons acting on their behalf has, in connection with the operation of their respective businesses, (i) used any corporate or other funds for unlawful contributions, payments, gifts or entertainment, or made any unlawful expenditures relating to political activity to government officials, candidates or members of political parties or organizations, or established or maintained any unlawful or unrecorded funds in violation of Section 104 of the Foreign Corrupt Practices Act of 1977, as amended, or any other similar applicable foreign, federal or state law, (ii) paid, accepted or received any unlawful contributions, payments, expenditures or gifts, or (iii) violated or operated in noncompliance in any material respect with any export restrictions, anti-boycott regulations, embargo regulations or other applicable domestic or foreign laws and regulations, except as would not, individually or in the aggregate, result in a Material Adverse Effect on Parent.

3.24 Brokers’ and Finders’ Fee. No broker, finder or investment banker is entitled to brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges from Parent in connection with the Merger, this Agreement or any transaction contemplated hereby.

3.25 Permit Application, Information Statement. The information supplied by Parent for inclusion in, the Permit Application and the Parent Information Statement, will not, on the date the Fairness Hearing is held, on the date the Parent Information Statement is first mailed to the Parent Stockholders, or at the Effective Time, contain any statement that at such time and in light of the circumstances under which it shall be made, is false or misleading with respect to any material fact, or shall omit to state any material fact necessary, in order to make the statements made therein not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication with respect to the Permit Application or the consent solicitation that has become false or misleading. Notwithstanding the foregoing, Parent makes no representation or warranty with respect to any information supplied by the Company that is contained in any of the foregoing documents.

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3.26 Securities Law Exemptions. Assuming the receipt of the Fairness Approval, the offer, sale and issuance of the Parent Common Stock and Series D Preferred Stock issuable pursuant to Sections 1.5, 1.6 and 1.7 (the “Merger Securities”) will be exempt from the registration requirements of the Securities Act. When issued, sold and delivered in accordance with the terms of this Agreement for the consideration provided for herein, the Merger Securities shall be duly authorized, validly issued, fully paid and non-assessable.

3.27 Merger Sub. Merger Sub is a special purpose entity formed for the sole purpose of participating in the Merger and has (and, as of the Effective Time, will have) no assets and has conducted (and, as of the Effective Time, will have conducted) no activities unrelated to the Merger.

SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND PARENT

4.1 Access and Investigation. During the period from the date of this Agreement through the Effective Time (the “Pre-Closing Period”), the Company and Parent shall, and shall cause their respective Representatives to: (a) provide the other party and its Representatives with reasonable access during normal business hours to its officers, directors, agents, attorneys, accountants and advisors assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to it and upon prior written consent (which shall not be unreasonably withheld or delayed), to the Company’s employees; and (b) provide the other party with copies of such existing books, records, Tax Returns, work papers and other documents and information, and with such additional financial, operating and other data and information regarding itself, as the Company or Parent, as applicable, may reasonably request; provided, however, that no information discovered through the access afforded by this 4.1 shall be deemed to amend or supplement the Company Disclosure Schedule or Parent Disclosure Schedule except as specified in Section 4.3.

4.2 Operation of the Company’s and Parent’s Businesses. Except as set forth in Section 4.2 of the Parent Disclosure Schedule and except for any activities relating to Parent’s initial public offering of Parent Common Stock (including, without limitation, the incurrence of reasonable expenses related thereto and the forgiveness of debt owed to Parent by certain of its employees, to the extent related to Parent’s preparation for such initial public offering), during the Pre-Closing Period:

(a) each of the Company and Parent shall conduct its business and operations in the Ordinary Course and in substantially the same manner as such business and operations have been conducted prior to the date of this Agreement;

(b) each of the Company and Parent shall use reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and maintain its relations and good will with all suppliers, customers, landlords, creditors, employees and other Persons having business relationships with the Company or Parent, as applicable;

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(c) each of the Company and Parent shall use its commercially reasonable efforts to keep in full force all insurance policies, or to obtain substitute policies with reasonably equivalent coverages;

(d) each of the Company and Parent shall cause its officers to report regularly, promptly upon request, to the other party concerning the status of its business;

(e) neither the Company nor Parent shall declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, and shall not repurchase, redeem or otherwise reacquire any shares of capital stock or other securities, except repurchases from its employees upon their departure from the Company or Parent, as applicable;

(f) except as set forth herein, neither the Company nor Parent shall sell, issue or authorize the issuance of (i) any capital stock or other security, (ii) any option or right to acquire any capital stock or other security, or (iii) any instrument convertible into or exchangeable for any capital stock or other security (except that each of the Company and Parent shall be permitted (x) to issue Company Capital Stock or Parent Capital Stock, as applicable, upon the exercise of outstanding Company Options and Company Warrants or Parent Options and Parent Warrants, as applicable, (y) to issue shares of Company Common Stock or Parent Common Stock upon the conversion of shares of Company Preferred Stock or Parent Preferred Stock, as applicable, and (z) to issue Company Options under the Company Option Plan or Parent Options under the Parent Option Plan in amounts and on terms consistent with past practice);

(g) except as set forth herein, neither the Company nor Parent shall amend or waive any of its rights under, or permit the acceleration of vesting under, (i) any provision of the Company Option Plan or Parent Option Plan, (ii) any provision of any agreement evidencing any outstanding Company Option or Parent Option, or (iii) any provision of any restricted stock purchase agreement;

(h) except as set forth herein, neither the Company nor Parent shall amend or permit the adoption of any amendment to the Company Charter Documents or Parent Charter Documents, as applicable, or effect or, with respect to the Company, permit the Company to become a party to any Acquisition Transaction, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction (except that the Company may issue shares of Company Common Stock upon the conversion of shares of Company Preferred Stock);

(i) neither the Company nor Parent shall form any subsidiary or acquire any equity interest or other interest in any other Entity;

(j) neither the Company nor Parent shall make any capital expenditure, except for capital expenditures that, when added to all other capital expenditures made on behalf of the Company or Parent, as applicable, during the Pre-Closing Period, do not exceed the quarterly amounts set forth on Schedule 4.2(j) to the Parent Disclosure Schedule or Company Disclosure Schedule, as applicable;

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(k) except in the Ordinary Course of Business, neither the Company nor Parent shall (i) enter into, or permit any of the assets owned or used by it to become bound by, any Contract that is or would constitute a Company Material Contract or Parent Material Contract, as applicable, or (ii) amend or prematurely terminate, or waive any material right or remedy under, any such Contract;

(l) neither the Company nor Parent shall (i) acquire, lease or license any right or other asset from any other Person except in the Ordinary Course of Business, (ii) sell or otherwise dispose of, or lease or license, any right or other asset to any other Person except in the Ordinary Course of Business and pursuant to the Company’s or Parent’s standard forms of agreements relating to such sale, disposal, lease or license, which forms have been provided or made available to the other party, or immaterial modifications thereto, or (iii) waive or relinquish any right, except for assets acquired, leased, licensed or disposed of by it pursuant to Contracts that are not Company Material Contracts or Parent Material Contracts, as applicable;

(m) neither the Company nor Parent shall (i) lend money to any Person (except loans to employees for business expenses consistent with past practice), or (ii) incur or guarantee any indebtedness for borrowed money;

(n) Except as set forth in Schedule 4.2(n) to the Parent Disclosure Schedule and except as set forth herein, neither the Company nor Parent shall (i) establish, adopt or amend any Company Employee Plan or Parent Employee Plan, as applicable, (ii) pay any bonus or make any profit-sharing payment, cash incentive payment or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, officers or employees, or (iii) hire any new employee whose aggregate annual compensation is expected to exceed $175,000;

(o) neither the Company nor Parent shall change any of its methods of accounting or accounting practices in any material respect;

(p) neither the Company nor Parent shall make any material Tax election outside the Ordinary Course of Business or inconsistent with the Company’s or Parent’s past practices, as applicable;

(q) neither the Company nor Parent shall commence or settle any material Legal Proceeding;

(r) the Company shall not accelerate any accounts receivable, grant any early payment discount or take any other action the primary goal of which is to increase the Company’s cash on hand or decrease or defer any outstanding debt or account payable; and

(s) neither the Company nor Parent shall enter into a binding agreement to take any of the actions described in clauses “(e)” through “(r)” above.

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Notwithstanding the foregoing, (x) each of the Company and Parent may take any action described in clauses “(e)” through “(s)” above if the other party gives its prior written consent to the taking of such action, which consent will not be unreasonably withheld (it being understood that a party’s withholding of consent to any action will not be deemed unreasonable if such party determines in good faith that the taking of such action would not be in the best interests of the Surviving Corporation) and (y) the Board of Directors of Parent approve any action described in clauses “(e)” through “(s) during the Pre-Closing Period to the extent such action would take effect subsequent to the Closing Date.

4.3 Notification; Updates to Disclosure Schedule.

(a) During the Pre-Closing Period, the Company shall promptly notify Parent in writing of:

(i) the discovery by the Company of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes an inaccuracy in or breach of any representation or warranty made by the Company in this Agreement;

(ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute an inaccuracy in or breach of any representation or warranty made by the Company in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement;

(iii) any breach of any covenant or obligation of the Company; and

(iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 6 or Section 7 impossible or unlikely.

(b) If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 4.3(a) requires any change in the Company Disclosure Schedule, or if any such event, condition, fact or circumstance would require such a change assuming the Company Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then the Company shall promptly deliver to Parent an update to the Company Disclosure Schedule specifying such change. No such update pursuant to Section 4.3(a)(i) shall be deemed to supplement or amend the Company Disclosure Schedule for the purpose of (i) determining the accuracy of any of the representations and warranties made by the Company in this Agreement for the purposes of Section 9, or (ii) determining whether any of the conditions set forth in Section 6 has been satisfied. Each such update pursuant to Section 4.3(a)(ii) shall be deemed to supplement or amend the Company Disclosure Schedule for the purpose of determining the accuracy of any of the representations and warranties made by the Company in this Agreement for the purposes of Section 9, but not for the purpose of determining whether any of the conditions set forth in Section 6 has been satisfied.

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(c) During the Pre-Closing Period, Parent shall promptly notify Company in writing of:

(i) the discovery by Parent of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes an inaccuracy in or breach of any representation or warranty made by Parent or Merger Sub in this Agreement;

(ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute an inaccuracy in or breach of any representation or warranty made by Parent in this Agreement if (A) such representation or warranty had been made as of the time of the occurrence, existence or discovery of such event, condition, fact or circumstance, or (B) such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement;

(iii) any breach of any covenant or obligation of Parent; and

(iv) any event, condition, fact or circumstance that would make the timely satisfaction of any of the conditions set forth in Section 6 or Section 7 impossible or unlikely.

(d) If any event, condition, fact or circumstance that is required to be disclosed pursuant to Section 4.3(c) requires any change in the Parent Disclosure Schedule, or if any such event, condition, fact or circumstance would require such a change assuming the Parent Disclosure Schedule were dated as of the date of the occurrence, existence or discovery of such event, condition, fact or circumstance, then Parent shall promptly deliver to the Company an update to the Parent Disclosure Schedule specifying such change. No such update pursuant to Section 4.3(c)(i) shall be deemed to supplement or amend the Parent Disclosure Schedule for the purpose of (i) determining the accuracy of any of the representations and warranties made by Parent and Merger Sub in this Agreement for the purposes of Section 9, or (ii) determining whether any of the conditions set forth in Section 6 has been satisfied. Each such update pursuant to Section 4.3(c)(ii) shall be deemed to supplement or amend the Parent Disclosure Schedule for the purpose of determining the accuracy of any of the representations and warranties made by Parent in this Agreement for the purposes of Section 9, but not for the purpose of determining whether any of the conditions set forth in Section 6 has been satisfied.

4.4 No Negotiation. During the Pre-Closing Period, neither (i) the Company nor the Company Subsidiaries shall, nor (ii) Parent nor the Parent Subsidiary shall, directly or indirectly:

(a) solicit or encourage the initiation of any inquiry, proposal or offer from any Person (other than Parent or the Company, as applicable) relating to a possible Acquisition Transaction;

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(b) participate in any discussions or negotiations or enter into any agreement with, or provide any non-public information to, any Person (other than Parent or the Company, as applicable) relating to or in connection with a possible Acquisition Transaction; or

(c) consider, entertain or accept any proposal or offer from any Person (other than Parent and the Company, as applicable) relating to a possible Acquisition Transaction;

provided, however, that prior to the adoption of this Agreement by the Company Required Stockholder Vote, this Section 4.4 shall not prohibit the Company from furnishing nonpublic information regarding the Company to, or entering into discussions with, any Person in response to a Superior Offer that is submitted to the Company by such Person (and not withdrawn) if (1) neither the Company nor any Representative of any of the Company or its subsidiaries shall have violated any of the provisions set forth in this Section 4.4, (2) the board of directors of the Company concludes in good faith, after having taken into account the advice of its outside legal counsel, that failure to take any such action would violate the fiduciary obligations of the board of directors of the Company to the Company’s stockholders under applicable law, (3) at least two business days prior to furnishing any such information to, or entering into discussions with, such Person, the Company gives Parent written notice of the identity of such Person and of the Company’s intention to furnish information to, or enter into discussions with, such Person, and the Company receives from such Person an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and “standstill” provisions) at least as favorable to the Company as the provisions of the Letter of Intent, and (4) at least two business days prior to furnishing any such information to such Person, the Company furnishes such nonpublic information to Parent (to the extent such nonpublic information has not been previously furnished by the Company to Parent). Without limiting the generality of the foregoing, the Company acknowledges and agrees that any violation of any of the provisions set forth in the preceding sentence by any Representative of any of the Company and its subsidiaries, shall be deemed to constitute a breach of this Section 4.4 by the Company.

(d) The Company shall promptly (and in no event later than 24 hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Parent orally and in writing of any Acquisition Proposal or any inquiry or indication of interest that would reasonably be expected to result in an Acquisition Proposal (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, and the terms thereof) that is made or submitted by any Person during the Pre-Closing Period. The Company shall keep Parent fully informed with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

(e) Subject to Section 5.3, the obligation of the Company to solicit the Written Consents shall not be limited or otherwise affected by the commencement, disclosure, announcement or submission to it of any Acquisition Proposal with respect to it. The Company shall not submit to the vote of its stockholders any Acquisition Proposal or publicly propose to do so.

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(f) The Company shall immediately cease and cause to be terminated any discussions existing as of the date of this Agreement with any Person that relate to any Acquisition Proposal.

(g) The Company agrees not to release or permit the release of any Person from, or to waive or permit the waiver of any provision of, any confidentiality, “standstill” or similar agreement to which the Company is a party or under which the Company has any rights, and will use its commercially reasonable efforts to enforce or cause to be enforced each such agreement at the request of Parent.

4.5 Intentionally Omitted.

4.6 Payment of Expenses and Liabilities. The Company shall pay, at or prior to the Closing, the Closing Date Company Transaction Expense Amount and the Closing Date Stockholder Liability Amount. Each of the Persons set forth on Schedule 4.6(a) shall execute a written acknowledgment, in a form reasonably acceptable to Parent, (the “Company Acknowledgements of Payment and Release”): (i) of the total amount of fees, costs and expenses of any nature that is payable or was paid to such Person (and, if payable or paid in connection with this Agreement and any of the transactions contemplated by this Agreement, such amount shall include a reasonable amount for the fees and expenses that such Person expects to incur following the Closing); and (ii) that, other than the amounts described in clause “(i)” above, it is not (and will not be) owed any other amount by the Company in excess of $15,000. Each of the Persons set forth on Schedule 4.6(b) shall execute a written acknowledgment, in a form reasonably acceptable to the Company, (the “Parent Acknowledgements of Payment and Release”): (i) of the total amount of fees, costs and expenses of any nature that is payable or was paid to such Person (and, if payable or paid in connection with this Agreement and any of the transactions contemplated by this Agreement, such amount shall include a reasonable amount for the fees and expenses that such Person expects to incur following the Closing); and (ii) that, other than the amounts described in clause “(i)” above, it is not (and will not be) owed any other Closing Date Parent Transaction Expense Amount by Parent in excess of $15,000.

4.7 Release of Liens. The Company shall file, or shall have filed, all agreements, instruments, certificates and other documents, in form and substance reasonably satisfactory to Parent, that are necessary or appropriate to effect the release of all liens set forth in Schedule 4.7 hereto.

4.8 Employment Agreements. The Company shall cooperate with Parent to cause each of its employees subject to employment or similar agreements providing severance benefits, nonstandard perquisites or the acceleration of Company Options to terminate such agreements and enter into a standard form of employment agreement, in the form of Parent’s standard form of employment agreement, which agreement shall be effective on the Closing Date.

4.9 Resolution of Disputes. The Company shall use commercially reasonable efforts to finally resolve and settle the matters set forth in Annex 2.7 to the Company Disclosure Schedule.

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SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES

5.1 Filings and Consents. As promptly as practicable after the execution of this Agreement, each party to this Agreement (a) shall make all filings (if any) and give all notices (if any) required to be made and given by such party in connection with the Merger and the other transactions contemplated by this Agreement, and (b) shall use all commercially reasonable efforts to obtain all Consents (if any) required to be obtained (pursuant to any applicable Legal Requirement or Contract, or otherwise) by such party in connection with the Merger and the other transactions contemplated by this Agreement. Each party shall (upon request) promptly deliver to the other party a copy of each such filing made, each such notice given and each such Consent obtained during the Pre-Closing Period.

5.2 California Permit; Fairness Hearing. Promptly after the execution of this Agreement, the Company and Parent shall prepare and cause to be filed with the California Commissioner of Corporations (the “California Commissioner”) a permit application under Section 25121 of the California Corporations Code, and a related information statement or other disclosure document (the “Permit Application”), and shall request a hearing (the “Fairness Hearing”) on the fairness of the terms and conditions of the Merger pursuant to Section 25142 of the California Corporations Code. The parties to this Agreement shall use all commercially reasonable efforts to cause the California Commissioner to approve the fairness of the terms and conditions of the Merger at such a Fairness Hearing (the “Fairness Approval”); provided, however, that neither party shall be required to modify any of the terms of the Merger in order to cause the California Commissioner to approve the fairness of such terms and conditions. The Company shall provide and include in the Permit Application such information relating to the Company as may be required pursuant to the rules of the California Commissioner. Each of Parent and the Company shall (i) notify the other promptly of the receipt of any comments from the California Commissioner and of any request by the California Commissioner for amendments or supplements to the Permit Application or for additional information, and (ii) shall supply the other with copies of all correspondence with the California Commissioner with respect to the Permit Application. Neither Parent nor the Company shall file any amendment or supplement to the Permit Application to which the other shall have reasonably objected. Whenever any event occurs that should be set forth in an amendment or supplement to the Permit Application, Parent or the Company, as the case may be, shall promptly inform the other of such occurrence and shall cooperate in filing with the California Commissioner or its staff, and, if appropriate, mailing to the stockholders of the Company entitled to vote on the transactions contemplated by this Agreement, such amendment or supplement.

5.3 Written Consent; Information Statement.

(a) Promptly after the execution of this Agreement, Parent and the Company shall prepare an Information Statement for the Company Stockholders to approve this Agreement and the transactions contemplated hereby (the “Company Information Statement”). The Company Information Statement shall include a disclosure document for the offer and issuance of the shares of Parent Capital Stock to be received by the holders of Company Capital Stock, Company Options and Company Warrants in the Merger. Parent and the Company shall each use reasonable commercial efforts to cause the Information Statement to comply with applicable federal and state securities laws requirements. Each of Parent and the Company agrees to

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provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party, or its counsel, may be required or appropriate for inclusion in the Company Information Statement, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the other’s counsel and auditors in the preparation of the Company Information Statement. The Company will promptly advise Parent, and Parent will promptly advise the Company, in writing if at any time prior to the Effective Time either the Company or Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Company Information Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. The Company Information Statement shall contain the recommendation of the board of directors of the Company that the Company Stockholders approve the Merger and this Agreement and the conclusion of the board of directors that the terms and conditions of the Merger are advisable, fair and reasonable to the Company Stockholders.

(b) The Company shall, in accordance with its Certificate of Incorporation and Bylaws and the applicable requirements of the DGCL (including Sections 228 and 262 of the DGCL) and the CGCL, (i) solicit the written consents of stockholders of the Company (the “Written Consents”) for the adoption of this Agreement and approval of the Merger, and (ii) cause a copy of the Company Information Statement to be delivered to the address on record for each stockholder of the Company who is entitled to vote upon adoption of this Agreement. The Company shall use commercially reasonable efforts to cause each stockholder to vote all shares of Company Capital Stock that are owned, beneficially or of record, by such stockholder on the record date for the written consent, to be voted in favor of the adoption of this Agreement. Notwithstanding anything to the contrary contained in this Section 5.3, at any time prior to the adoption of this Agreement by the Company Required Stockholder Vote, the board of directors of the Company may withhold, amend, withdraw or modify its recommendation to adopt the Agreement and approve the Merger in a manner adverse to Parent if, but only if, the board of directors of the Company determined in good faith, based on such matters as it deems relevant following consultation with its outside legal counsel, that the failure to withdraw, withhold, amend, or modify such recommendation is reasonably likely to result in a breach of its fiduciary duties under applicable Legal Requirements. Anything to the contrary contained herein notwithstanding, the Company shall not include in the Company Information Statement any information with respect to Parent or its affiliates or associates, the form and content of which information shall not have been approved by Parent prior to such inclusion, in its reasonable judgment.

(c) If applicable, the Company shall promptly submit for approval by the Company Stockholders by the requisite vote (and in a manner satisfactory to Parent) any payments or benefits that Parent determines may constitute a “parachute payment” pursuant to Section 280G of the Code, such that all such payments and benefits shall not be deemed to be “parachute payments” pursuant to Section 280G of the Code or shall be exempt from such treatment under such Section 280G, and deliver to Parent evidence satisfactory to Parent that a vote of the Company’s stockholders was received in conformance with Section 280G and the regulations thereunder, or that such requisite stockholder approval has not been obtained with respect to any payment or benefit that may be deemed to constitute a “parachute payment” within the meaning of Section 280G of the Code and as a consequence, that such “parachute payment” shall not be made or provided.

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(d) (i) the Company shall submit for approval by the Company Charter Vote Requirement an amendment to the Amended and Restated Certificate of Incorporation of the Company (the “Company Charter Amendment”) to provide for the distribution of the Aggregate Merger Consideration in the manner set forth in Section 1 hereto, and (ii) the Company shall submit for approval by holders of a majority of the outstanding shares of Company Capital Stock an amendment to the Company Option Plan (the “Company Option Pool Amendment”) whereby the number of shares of Company Common Stock reserved for issuance pursuant to the Company Option Plan shall be increased by 450,000, and promptly after the receipt of the Fairness Approval, following receipt of the requisite approvals shall file such Company Charter Amendment with the Secretary of State of the State of Delaware. Any stockholder consent solicitation relating to such Company Charter Amendment and Company Option Pool Amendment shall be submitted in advance to Parent for Parent’s review and comment.

(e) Promptly after the execution of this Agreement, Parent shall prepare an Information Statement for the Parent Stockholders to approve this Agreement, and the Merger (the “Parent Information Statement”). The Company agrees to provide promptly to Parent such information concerning its business and financial statements and affairs as, in the reasonable judgment of Parent, or its counsel, may be required or appropriate for inclusion in the Parent Information Statement, or in amendments or supplements thereto, and to cause its counsel and auditors to cooperate with Parent’s counsel and auditors in the preparation of the Parent Information Statement. Parent will promptly advise the Company, in writing if at any time prior to the Effective Time Parent shall obtain knowledge of any facts that might make it necessary or appropriate to amend or supplement the Parent Information Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. The Parent Information Statement shall contain the recommendation of the board of directors of Parent that the Parent Stockholders approve the Merger and this Agreement and the conclusion of the board of directors that the terms and conditions of the Merger are advisable, fair and reasonable to the Parent Stockholders.

(f) Parent shall, in accordance with its Certificate of Incorporation and Bylaws and the applicable requirements of the DGCL and the CGCL, solicit the written consents of stockholders of Parent for the adoption of this Agreement and approval of the Merger. Notwithstanding anything to the contrary contained in this Section 5.3, at any time prior to the adoption of this Agreement by the Parent Required Stockholder Vote, the board of directors of Parent may withhold, amend, withdraw or modify its recommendation to adopt the Agreement and approve the Merger in a manner adverse to the Company if, but only if, the board of directors of Parent determined in good faith, based on such matters as it deems relevant following consultation with its outside legal counsel, that the failure to withdraw, withhold, amend, or modify such recommendation is reasonably likely to result in a breach of its fiduciary duties under applicable Legal Requirements. Anything to the contrary contained herein notwithstanding, Parent shall not include in the Parent Information Statement any information with respect to Company or its affiliates or associates, the form and content of which information shall not have been approved by the Company prior to such inclusion, in its reasonable judgment.

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(g) (i) Parent shall submit for approval by Parent Required Charter Vote (i) an amendment to the Amended and Restated Certificate of Incorporation of Parent (the “Parent Charter Amendment”) in the form set forth on Exhibit I and (ii) Parent shall submit for approval by the holders of a majority of the outstanding shares of Parent Capital Stock of an amendment to the Parent Option Plan (the “Parent Option Pool Amendment”) whereby the number of shares of Parent Common Stock reserved for issuance pursuant to the Parent Option Plan shall be increased by 1,800,000, and shall, immediately prior to the Closing, file such Parent Charter Amendment with the Secretary of State of the State of Delaware. Any stockholder consent solicitation relating to such Parent Charter Amendment and Parent Option Pool Amendment shall be submitted in advance to the Company for the Company’s review and comment.

5.4 Other Regulatory Approvals; Reasonable Efforts.

(a) Each party to this Agreement shall use commercially reasonable efforts to file, as promptly as reasonably practicable after the date of this Agreement, all notices, reports and other documents required to be filed by such party with any Governmental Body with respect to the Merger, and to submit promptly any additional information requested by any such Governmental Body.

5.5 Public Announcements. During the Pre-Closing Period, (a) neither the Company nor Parent shall (and the Company and Parent shall not permit any of their Representatives to) issue any press release or make any public statement regarding this Agreement or the Merger, or regarding any of the other transactions contemplated by this Agreement, without the other party’s prior written consent.

5.6 Commercially Reasonable Best Efforts. During the Pre-Closing Period, (a) the Company shall use commercially reasonable efforts to cause the conditions set forth in Section 6 to be satisfied on a timely basis, and (b) Parent and Merger Sub shall use commercially reasonable efforts to cause the conditions set forth in Section 7 to be satisfied on a timely basis.

5.7 Termination of Agreements. To the extent requested by Parent, the Company shall use commercially reasonable efforts to cause the agreements referred to in Schedule 5.7 to be terminated immediately prior to the Effective Time.

5.8 FIRPTA Matters. At the Closing, (a) the Company shall deliver to Parent a statement (in such form as may be reasonably requested by counsel to Parent) conforming to the requirements of Section 1.897 - 2(h)(1)(i) of the United States Treasury Regulations, and (b) the Company shall deliver to the IRS the notification required under Xxxxxxx 0.000 - 0(x)(0) xx xxx Xxxxxx Xxxxxx Treasury Regulations.

5.9 Indemnification of Company Officers and Directors.

(a) All rights to indemnification and exculpation existing in favor of those persons who on or prior to the Effective Time were directors or officers of the Company for acts and omissions occurring prior to the Effective Time, as provided in the Company’s charter documents (as in effect as of the date of this Agreement) shall survive the Merger and shall be observed by the Surviving Corporation to the fullest extent available under Delaware law for a period of six (6) years from the Effective Time.

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(b) Prior to the Closing Date, the Company shall purchase a tail insurance policy to the Company’s existing directors’ and officers’ liability insurance for a period of not less than six (6) years after the Effective Time.

5.10 Certain Tax Matters. Parent agrees that:

(a) Parent shall not take any action, nor permit any Parent Affiliate or, after the Effective Time, the Company, to take any action, that would cause the Merger not to qualify as a reorganization pursuant to Section 368(a)(1) of the Code.

(b) Parent shall not take any action or make any election (or, after the Effective Time, cause or permit the Company to take any action or make any election) that would give rise to any item of income, gain, loss, deduction, expense or credit to the Company for income Tax purposes on the Closing Date to the extent any stockholder of the Company would have an obligation hereunder to indemnify the Parent, the Company or any other person for Taxes as a result thereof, other than the conduct of the historic business of the Company in the Ordinary Course thereof consistent with past practice.

(c) The federal and state income Tax Returns of the Company for its taxable years ending on or before the Closing Date shall be prepared under the direction and control of the Stockholders’ Representative at the expense of the Company, consistent with applicable law and regulations and historic practices of the Company and based on a closing-of-the-books of the Company as of the Closing Date. The Stockholders’ Representative shall afford Parent a reasonable opportunity to review the proposed form of such Tax Returns and shall not file any such Tax Return without Parent’s prior written consent, which consent shall not be unreasonably withheld or delayed. Parent shall be deemed to have granted such consent unless Parent delivers to the Stockholders’ Representative a written notice of objection and the reasons for the objection within 20 business days after delivery to Parent of the proposed form of any such Tax Return. Parent shall cause the Company to execute and file such income Tax Returns as so prepared and consented and pay the Tax reflected thereon as required to be paid. No election to make a ratable allocation based on the pre-Closing taxable year of the Company shall be made under Treasury Regulations § 1.1502-76(b)(2)(ii). However, with the written consent of the Stockholders’ Representative, an election to make a ratable allocation of items for the month during which the Closing occurs may be made in accordance with Treasury Regulations § 1.1502-76(b)(2)(iii).

(d) The Parent shall afford the Stockholders’ Representative a reasonable opportunity to review the proposed form of any state income Tax Return of the Company for any period that begins before and ends after the Closing Date and shall not file any such Tax Return without the prior written consent of the Stockholders’ Representative, which consent shall not be unreasonably withheld or delayed. The Stockholders’ Representative shall be deemed to have granted such consent unless the Stockholders’ Representative delivers to the Parent a written notice of objection and the reasons for objection within 20 business days after delivery to the Stockholders’ Representative of the proposed form of state income Tax Return.

(e) After the Effective Time, Parent shall not cause or permit the Company to file or join in filing any income Tax Return, any amendment of any income or other Tax Return,

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or any waiver or extension of the applicable statute of limitations for the assessment or imposition of income or other Taxes, for any period ending on or before the Closing Date or which includes the Effective Time, or which relates to a taxable year or period with respect to any portion of which any stockholder of the Company may have an obligation hereunder to indemnify the Parent, the Company or any other person for any Taxes (or in respect of which the Aggregate Merger Consideration may be reduced pursuant to this Agreement), without the prior written consent of the Stockholders’ Representative, which consent shall not be unreasonably withheld or delayed.

(f) The Stockholders’ Representative shall have control over audit of any Tax Return filed by the Company on or before the Closing Date or over the preparation of which the Stockholders’ Representative has control pursuant to this Agreement, and over any other audit to the extent it relates to any Taxes for which the stockholders of the Company may have an obligation to indemnify Parent, the Company or any other person hereunder or in respect of which the Aggregate Merger Consideration may be reduced pursuant to this Agreement (provided, however, in exercising such control the Stockholders’ Representative shall not take any action which may materially adversely affect Parent or the Company with respect to Taxes for any period beginning after Closing, or attributable to the portion of a period after Closing where the period begins before and ends after the Closing Date, without the prior written consent of Parent, which consent shall not be unreasonably withheld or delayed), and Parent shall not take or cause or permit the Company or any affiliate of either of them to take any material action in respect of any such audit without the prior written consent of the Stockholders’ Representative (which consent shall not be unreasonably withheld or delayed). For purposes hereof, “audit” shall mean any audit, examination or investigation of a Tax Return or with respect to Taxes, including any administrative appeal therefrom and any litigation before any tribunal relating thereto.

(g) Parent shall pay or cause to be paid to the Stockholders’ Representative any refunds of Taxes received by Parent, the Company or any of their Affiliates after the Closing in respect of Taxes for any period ending on or before the Closing, or attributable to the portion of any period which precedes the Closing Date where the period begins before and ends after the Closing Date (other than a refund of Taxes attributable solely to a carryback of net operating losses or credits to a period ending on or before the Closing Date from a period beginning after the Closing Date).

(h) Parent acknowledges and agrees that no part of the Aggregate Merger Consideration is allocable to any covenant not to compete, non-solicitation agreement, employment agreement, or similar covenant or agreement of any of the stockholders of the Company for financial reporting or Tax purposes.

5.11 Cooperation. After the Closing Date, the Stockholders’ Representative shall, and Parent shall (and shall cause its affiliates to):

(a) timely sign and deliver such certificates or forms as may be necessary or appropriate to establish an exemption from (or otherwise reduce), or file Tax Returns or other reports with respect to Taxes imposed on the transactions contemplated by this Agreement;

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(b) assist the other party to the extent commercially reasonably necessary in preparing any Tax Returns which such other party is responsible for preparing and filing;

(c) cooperate to the extent commercially reasonably necessary in preparing for any audits of, or disputes with taxing authorities regarding, any Tax Returns of the Company;

(d) make available to the other and to any taxing authority as reasonably requested all information, records, and documents within its possession or control relating to Taxes of the Company; and

(e) furnish the other with copies of all correspondence received from any taxing authority in connection with any Tax audit or information request with respect to any taxable period that ends on or before the Closing Date or which includes the Closing Date.

5.12 Duration of Covenants. Notwithstanding anything to the contrary in this Agreement, the obligations in the immediately preceding two sections regarding Taxes shall remain in effect without limitation as to time.

5.13 Labor Condition Applications. Parent and the Surviving Corporation hereby accept all obligations, liabilities and undertakings arising from or under the attestations made in the Labor Condition Applications and similar filings with the DOL on behalf of the Company employees identified on Schedule 5.13, except for any such applications or similar filings that were fraudulent or improperly filed.

5.14 280G. Each Person who might receive any payments and/or benefits in connection with the Merger that constitute “parachute payments” pursuant to Section 280G of the Code shall execute a 280G Waiver, each in the form attached hereto as Exhibit J (the “280G Waiver”), pursuant to which each such Person will waive any right or entitlement to such payments and/or benefits unless the requisite stockholder approval of those payments and/or benefits is obtained pursuant to Section 280G of the Code so that such payment and benefits do not constitute “parachute payments” thereunder.

SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB

The obligations of Parent and Merger Sub to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Closing, of each of the following conditions:

6.1 Accuracy of Representations. Each of the representations and warranties made by the Company in this Agreement and in each of the other agreements and instruments delivered to Parent in connection with the transactions contemplated by this Agreement shall have been accurate in all material respects as of the date of this Agreement (without giving effect to any “Material Adverse Effect” or other materiality qualifications contained or incorporated directly or indirectly in such representations and warranties), and shall be accurate in all material respects as of the Closing Date as if made at the Closing Date (without giving effect to any update to the Company Disclosure Schedule, and without giving effect to any “Material Adverse Effect” or other materiality qualifications contained or incorporated directly or indirectly in such representations and warranties), except that those representations and warranties which address matters only as of a particular date shall have been true and correct only on such date.

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6.2 Performance of Covenants. All of the covenants and obligations that the Company is required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects.

6.3 No Material Adverse Effect. Between the date of this Agreement and the Closing Date, there shall not have been any Material Adverse Effect on the Company, and no event shall have occurred or circumstance shall exist that could reasonably be expected to have or result in a Material Adverse Effect on the Company.

6.4 Stockholder Approval. The Merger shall have been duly approved and this Agreement shall have been duly adopted and approved by the Company Required Stockholder Vote. The Merger shall have been duly approved and this Agreement shall have been duly adopted and approved by the Parent Required Stockholder Vote. The sum of the number of Company Dissenting Shares and the number of shares of Company Capital Stock that may in the future become Company Dissenting Shares shall not exceed 10% of the number of shares of Company Capital Stock outstanding immediately prior to the Closing. The Company Charter Amendment shall have been duly adopted and approved by the Company Stockholders and filed with and accepted by the Secretary of State of the State of Delaware. The Company Option Pool Amendment shall have been duly adopted and approved by the requisite vote of the Company Stockholders.

6.5 Consents. All Consents required to be obtained by the Company set forth on Schedule 6.5 shall have been obtained and shall be in full force and effect.

6.6 Agreements and Documents. Parent and the Company shall have received the following agreements and documents, each of which shall be in full force and effect:

(a) Affiliate Agreements in the form of Exhibit K, executed by the Persons identified on Exhibit L and by any other Person who could reasonably be deemed to be an “affiliate” of the Company for purposes of the Securities Act;

(b) the Escrow Agreement in a the form of Exhibit M;

(c) the employment offer letters in substantially the form attached hereto as Exhibit N, executed by the individuals identified on Exhibit E;

(d) Noncompetition Agreements in the form of Exhibit F, executed by the individuals identified on Exhibit E;

(e) a Release in the form of Exhibit O, executed by the Persons identified on Exhibit P;

(f) confidential invention and assignment agreements, attached hereto as Exhibit H, executed by all employees of the Company and by all consultants and independent contractors to the Company who have not already signed such agreements, including Xxxxxxx Xxxxx;

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(g) the statement referred to in Section 5.8(a), executed by the Company;

(h) a legal opinion of Sheppard, Mullin, Xxxxxxx & Hampton LLP dated as of the Closing Date, in the form of Exhibit Q, which legal opinion shall be subject to customary qualifications;

(i) a certificate executed by the Company and containing the representation and warranty of the Company that each of the conditions set forth in Sections 6.1, 6.2, 6.4 and 6.10 have been duly satisfied (the “Company Closing Certificate”); and

(j) a certificate executed by the Secretary of the Company attaching and certifying the Company’s current Certificate of Incorporation, Bylaws and the resolutions of the Company’s board of directors and stockholders approving and adopting this Agreement, the Merger and the other transactions contemplated by this Agreement;

(k) the Certificate of Merger, executed by the Company;

(l) the Company Acknowledgments of Payment and Release;

(m) a long-form certificate of good standing from the Secretary of State of the State of Delaware which is dated within two Business Days prior to Closing with respect to the Company;

(n) a Certificate of Status of Foreign Corporation of the Company from the applicable Governmental Authority in each jurisdiction where it is required to be qualified to do business, all of which are dated within five (5) Business Days prior to the Closing; and

(o) a spreadsheet (the “Closing Payment Schedule”), duly certified by an officer of the Company setting forth: (i) the Closing Date Stockholder Liability Amount; (ii) the name and address of each of the holders of the Company Capital Stock, Company Warrants and Company Options as of immediately prior to the Effective Time and the number of shares of Company Capital Stock, Company Warrants and Company Options of each class and series held by each such stockholder immediately prior to the Effective Time; (iii) the consideration that each such stockholder is entitled to receive pursuant to Sections 1.5(a), 1.6 and 1.7; and (iv) the amount to be contributed to the Escrow Fund by Parent on behalf of each Escrow Contributor pursuant to Section 1.10.

(p) written resignations of all officers and directors of the Company, effective as of the Effective Time.

6.7 FIRPTA Compliance. The Company shall have filed with the IRS a statement conforming to the requirements of Section 1.897 – 2(h)(1)(i) of the United States Treasury Regulations, required under Section 1.897 – 2(h)(2) of the United States Treasury Regulations.

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6.8 Permit; Compliance With §3(a)(10) of the Securities Act. The California Commissioner shall have issued a permit under Section 25121 of the California Corporations Code (following a hearing upon the fairness of the terms and conditions of the Merger, conducted pursuant to Section 25142 of the California Corporations Code) for the issuance of the Parent Common Stock to be issued in the Merger, and all applicable requirements of Section 3(a)(10) of the Securities Act shall have been satisfied.

6.9 No Restraints. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger that makes consummation of the Merger illegal.

6.10 No Legal Proceedings. No Person shall have commenced or threatened to commence any Legal Proceeding challenging or seeking the recovery of a material amount of damages in connection with the Merger or seeking to prohibit or limit the exercise by Parent of any material right pertaining to its ownership of stock of the Surviving Corporation.

6.11 280G Stockholder Approval.

(a) Each Person who might receive any payments and/or benefits referred to in Section 5.3(b) hereof shall have executed and delivered to the Company a 280G Waiver, and such 280G Waiver shall be in full force and effect immediately prior to the Effective Time.

(b) With respect to any payments and/or benefits that Parent determines may constitute “parachute payments” under Section 280G of the Code with respect to any employees, the Company Stockholders shall have (i) approved, pursuant to the method provided for in the regulations promulgated under Section 280G of the Code, any such “parachute payments” or (ii) shall have voted upon and disapproved such parachute payments, and, as a consequence, such “parachute payments” shall not be paid or provided for in any manner, and Parent and the Parent Subsidiary shall not have any liabilities with respect to such “parachute payments.”

6.12 Intentionally Omitted.

6.13 Termination of Agreements. The Company shall have delivered to Parent written evidence satisfactory to Parent of the termination of the agreements identified on Schedule 6.13.

6.14 Company Preferred Stockholder Agreements. Holders of at least 90% of the outstanding shares of Company Preferred Stock and each of Xxxx Xxxxx and Xxxx Xxxxxxx (as applicable) shall have executed copies of each of the agreements identified on Schedule 6.14 (the “Preferred Stock Agreements”).

6.15 Release of Liens. Parent shall have received from the Company a duly and validly executed copy of all agreements, instruments, certificates and other documents, in form and substance reasonably satisfactory to Parent, that are necessary or appropriate to evidence the release of all liens set forth on Schedule 6.15 hereto.

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SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY

The obligations of the Company to effect the Merger and otherwise consummate the transactions contemplated by this Agreement are subject to the satisfaction, at or prior to the Closing, of the following conditions:

7.1 Accuracy of Representations. Each of the representations and warranties made by Parent and Merger Sub in this Agreement and in each of the other agreements and instruments delivered to Parent in connection with the transactions contemplated by this Agreement shall have been accurate in all material respects as of the date of this Agreement (without giving effect to any “Material Adverse Effect” or other materiality qualifications contained or incorporated directly or indirectly in such representations and warranties), and shall be accurate in all material respects as of the Closing Date as if made at the Closing Date (without giving effect to any update to the Parent Disclosure Schedule, and without giving effect to any “Material Adverse Effect” or other materiality qualifications contained or incorporated directly or indirectly in such representations and warranties), except that those representations and warranties which address matters only as of a particular date shall have been true and correct only on such date.

7.2 Performance of Covenants. All of the covenants and obligations that Parent and Merger Sub are required to comply with or to perform at or prior to the Closing shall have been complied with and performed in all material respects.

7.3 No Material Adverse Effect. Between the date of this Agreement and the Closing Date, there shall not have been any Material Adverse Effect on Parent, and no event shall have occurred or circumstance shall exist that could reasonably be expected to have or result in a Material Adverse Effect on Parent.

7.4 Stockholder Approval. The Merger shall have been duly approved and this Agreement shall have been duly adopted and approved by the Parent Required Stockholder Vote. The Merger shall have been duly approved and this Agreement shall have been duly adopted and approved by the Company Required Stockholder Vote. The sum of the number of Parent Dissenting Shares and the number of shares of Parent Capital Stock that may in the future become Company Dissenting Shares shall not exceed 10% of the number of shares of Company Capital Stock outstanding immediately prior to the Closing. The Parent Charter Amendment shall have been duly adopted and approved by the stockholders of Parent and filed with and accepted by the Secretary of State of the State of Delaware.

7.5 Consents. All Consents required to be obtained by Parent set forth on Schedule 7.5 shall have been obtained and shall be in full force and effect.

7.6 Documents. The Company shall have received the following agreements and documents, each of which shall be in full force and effect:

(a) the Escrow Agreement, executed by Parent and the Escrow Agent;

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(b) a certificate executed by Parent and containing the representation and warranty of Parent that each of the conditions set forth in Sections 7.1, 7.2 and 7.4 have been satisfied;

(c) a certificate executed by the Secretaries of Parent and Merger Sub attaching and certifying as to the resolutions of the board of directors of Parent and the resolutions of the board of directors and stockholders of Merger Sub approving and adopting this Agreement and the transactions contemplated hereby (the “Parent Closing Certificate”);

(d) the employment offer letters for the individuals identified on Exhibit E in substantially the form of Exhibit N, executed by Parent;

(e) a legal opinion of Xxxxxx Godward Kronish LLP dated as of the Closing Date, in the form of Exhibit R, which legal opinion shall be subject to customary qualifications;

(f) the Certificate of Merger, executed by Merger Sub;

(g) the Parent Acknowledgments of Payment and Release;

(h) long-form certificate of good standing from the Secretary of State of the State of Delaware which are dated within two Business Days prior to Closing with respect to Parent and Merger Sub;

(i) a Certificate of Status of Foreign Corporation of Parent from the applicable Governmental Authority in each jurisdiction where it is required to be qualified to do business, all of which are dated within five (5) Business Days prior to the Closing; and

(j) Noncompetition Agreements in the form of Exhibit F, executed by the individuals identified on Exhibit E;.

7.7 Permit; Compliance With §3(a)(10) of the Securities Act. The California Commissioner shall have issued a permit under Section 25121 of the California Corporations Code (following a hearing upon the fairness of the terms and conditions of the Merger, conducted pursuant to Section 25142 of the California Corporations Code) for the issuance of the Parent Common Stock to be issued in the Merger, and all applicable requirements of Section 3(a)(10) of the Securities Act shall have been satisfied.

7.8 Intentionally Omitted.

7.9 No Restraints. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Merger shall have been issued by any court of competent jurisdiction and remain in effect, and there shall not be any Legal Requirement enacted or deemed applicable to the Merger that makes consummation of the Merger illegal.

7.10 Company Preferred Stockholder Agreements. Parent and such requisite number of parties to each of the agreements identified on Schedule 6.14 shall have executed any and all amendments, certificates or other documents necessary to allow the Company Preferred Stockholders to be made parties thereto.

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SECTION 8. TERMINATION

8.1 Termination Events. This Agreement may be terminated prior to the Closing:

(a) by Parent if the timely satisfaction of any condition set forth in Section 6 has become impossible (other than as a result of any failure on the part of Parent or Merger Sub to comply with or perform any covenant or obligation of Parent or Merger Sub set forth in this Agreement);

(b) by the Company if the timely satisfaction of any condition set forth in Section 7 has become impossible (other than as a result of any failure on the part of the Company to comply with or perform any covenant or obligation set forth in this Agreement or in any other agreement or instrument delivered to Parent);

(c) by Parent if the Closing has not taken place on or before September 9, 2007¹ (other than as a result of any failure on the part of Parent to comply with or perform any covenant or obligation of Parent set forth in this Agreement or in any other agreement or instrument delivered to the Company);

(d) by the Company if the Closing has not taken place on or before September 9, 2007² (other than as a result of the failure on the part of the Company to comply with or perform any covenant or obligation set forth in this Agreement or in any other agreement or instrument delivered to Parent); or

(e) by the mutual consent of Parent and the Company.

8.2 Termination Procedures. If Parent wishes to terminate this Agreement pursuant to Section 8.1(a) or Section 8.1(c), Parent shall deliver to the Company a written notice stating that Parent is terminating this Agreement and setting forth a brief description of the basis on which Parent is terminating this Agreement. If the Company wishes to terminate this Agreement pursuant to Section 8.1(b) or Section 8.1(d), the Company shall deliver to Parent a written notice stating that the Company is terminating this Agreement and setting forth a brief description of the basis on which the Company is terminating this Agreement.

8.3 Effect of Termination. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement shall terminate; provided, however, that: (a) neither the Company nor Parent shall be relieved of any obligation or liability arising from any prior breach by such party of any provision of this Agreement; (b) the parties shall, in all events, remain bound by and continue to be subject to the provisions set forth in Section 10; and (c) the Company and Parent shall, in all events, remain bound by and continue to be subject to Section 5.5.

¹	5 months following the date of this Agreement.

²	5 months following the date of this Agreement.

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SECTION 9. INDEMNIFICATION, ETC.

9.1 Survival of Representations, Etc.

(a) Subject to limitations set forth herein, the representations and warranties made by the Company in this Agreement (including the representations and warranties set forth in Section 2 and the representations and warranties set forth in the Company Closing Certificate) shall survive the Closing and shall expire on the earlier of the date (the “Company Expiration Date”) that is (i) the eighteenth month anniversary of the Closing Date and (ii) the fourth month anniversary of the closing of a Qualified IPO; provided, however, that if, at any time prior to the Company Expiration Date, any Parent Indemnitee (acting in good faith) delivers to the Stockholders’ Representative a written notice alleging the existence of an inaccuracy in or a breach of any of the representations and warranties made by the Company (and setting forth in reasonable detail the basis for such Parent Indemnitee’s belief that such an inaccuracy or breach exists) and asserting a claim for recovery under Section 9.2 based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the Company Expiration Date until such time as such claim is fully and finally resolved. The representations and warranties made by Parent or Merger Sub in this Agreement (including the representations and warranties set forth in Section 3) shall survive the Closing and shall expire on the earlier of the date (the “Parent Expiration Date”) that is (i) the eighteenth month anniversary of the Closing Date anniversary of the Closing Date and (ii) the date of the closing of a Qualified IPO; provided, however, that if, at any time prior to the Parent Expiration Date, the Stockholders’ Representative (acting in good faith) delivers to Parent a written notice alleging the existence of an inaccuracy in or a breach of any of the representations and warranties made by Parent or Merger Sub (and setting forth in reasonable detail the basis for the Stockholders’ Representative’s belief that such an inaccuracy or breach exists) and asserting a claim for recovery under Section 9.3 based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the Parent Expiration Date until such time as such claim is fully and finally resolved. The agreements, covenants and other obligations of the parties hereto shall survive the Closing and the Effective Time in accordance with their respective terms.

(b) The representations and warranties made by the Company, and the covenants and obligations of the Company, and the rights and remedies that may be exercised by the Parent Indemnitees, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or Knowledge of, any of the Parent Indemnitees or any of their Representatives. The representations and warranties made by Parent and Merger Sub, and the covenants and obligations of Parent and Merger Sub, and the rights and remedies that may be exercised by the Stockholders’ Representative, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or Knowledge of, the Company, the Company Stockholders, the Stockholders’ Representative or any of the respective representatives.

(c) Nothing contained in this Section 9.1 or elsewhere in this Agreement shall limit any rights or remedy of any Parent Indemnitee or any Company Stockholder for claims based on fraudulent or intentional misrepresentation.

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9.2 Indemnification by Company Stockholders.

(a) From and after the Effective Time (but subject to Section 9.1(a)), the Company Stockholders who shall have received, or shall be entitled to receive, consideration pursuant to Section 1.5, shall each, in accordance with their respective Pro Rata Share of Damages, hold harmless and indemnify each of the Parent Indemnitees from and against, and shall compensate and reimburse each of the Parent Indemnitees for, any Damages which are suffered or incurred by any of the Parent Indemnitees or to which any of the Parent Indemnitees may otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of:

(i) any inaccuracy in or breach of any representation or warranty made by the Company in this Agreement as of the date of this Agreement (in each case, after giving effect to any “Material Adverse Effect” or other materiality qualification or any similar qualification contained or incorporated directly or indirectly in such representation or warranty, taking into account any update to the Company Disclosure Schedule pursuant to Section 4.3(b));

(ii) any inaccuracy in or breach of any representation or warranty made by the Company in this Agreement as if such representation or warranty was made on and as of the Closing, except for representations which address matters as of particular date, in which case, as of such particular date (in each case, after giving effect to any “Material Adverse Effect” or other materiality qualification or any similar qualification contained or incorporated directly or indirectly in such representation or warranty, taking into account any update to the Company Disclosure Schedule pursuant to Section 4.3(b));

(iii) any inaccuracies in the Company Closing Certificate or in any of the amounts set forth in the Closing Payment Schedule;

(iv) any breach of any covenant or obligation of the Company in this Agreement;

(v) any (a) Company Working Capital Deficit Adjustment and any Company Long-Term Liabilities Deficit Adjustment and fees, costs and expenses for which Parent is entitled to indemnification pursuant to Section 1.13, (b) any unpaid Closing Date Stockholder Liability Amount and any unpaid Closing Date Company Transaction Amount;

(vi) any indemnification pursuant to Section 9.12; and

(vii) any matter referenced in Annex 2.7 to the Company Disclosure Schedule.

(b) It is understood and agreed that if the Company suffers, incurs or otherwise becomes subject to any Damages as a result of or in connection with any inaccuracy in or breach of any representation, warranty, covenant or obligation, then (without limiting any of the rights of such Company as a Parent Indemnitee) Parent shall also be deemed, by virtue of its direct or indirect ownership of the stock of the Company, to have incurred (the same, not additional) Damages as a result of and in connection with such inaccuracy or breach.

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9.3 Indemnification by Parent. From and after the Effective Time (but subject to Section 9.1(a)), Parent shall hold harmless and indemnify each of the Company Stockholders from and against, and shall compensate and reimburse each of the Company Stockholders for, any Damages which are suffered or incurred by any of the Company Stockholders or to which any of the Company Stockholders may otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of:

(a) any inaccuracy in or breach of any representation or warranty made by Parent or Merger Sub in this Agreement as of the date of this Agreement (in each case, after giving effect to any “Material Adverse Effect” or other materiality qualification or any similar qualification contained or incorporated directly or indirectly in such representation or warranty taking into account any update to the Parent Disclosure Schedule pursuant to Section 4.3(d));

(b) any inaccuracy in or breach of any representation or warranty made by Parent or Merger Sub in this Agreement as if such representation or warranty was made on and as of the Closing, except for representations which address matters as of particular date, in which case, as of such particular date (in each case, after giving effect to any “Material Adverse Effect” or other materiality qualification or any similar qualification contained or incorporated directly or indirectly in such representation or warranty, taking into account any update to the Parent Disclosure Schedule pursuant to Section 4.3(d));

(c) any inaccuracies in the Parent Closing Certificate;

(d) any breach of any covenant or obligation of Parent or Merger Sub in this Agreement; and

(e) any matter referenced in Section 3.7 or regarding the Foxconn receivable referenced in Section 3.9(s) of the Parent Disclosure Schedule.

9.4 Adjustment to Aggregate Merger Consideration. Any indemnity payment made pursuant to Section 9 shall be treated as an adjustment to the Aggregate Merger Consideration for Tax purposes, unless a final determination with respect to the Parent Indemnitee or the Company Stockholders causes such payment to be treated other than as an adjustment to the amount of the Aggregate Merger Consideration for federal Tax purposes.

9.5 Maximum Liability.

(a) Except in the case of fraudulent or intentional misrepresentation, (i) the Escrow Shares and Escrow Cash shall be the exclusive means for Parent Indemnitees to collect any Damages under this Agreement; and (ii) the aggregate liability (including indemnification pursuant to the Escrow Fund) of each Company Stockholder shall not exceed such Company Stockholder’s Pro Rata Share of the Escrow Shares and Escrow Cash.

(b) Except in the case of fraudulent or intentional misrepresentation, the aggregate liability of Parent under this Agreement shall not exceed the Parent Escrow Cap.

(c) Nothing in this Agreement shall limit the rights or remedies of any Parent Indemnitee against any particular Company Stockholder, or the Liability of any particular

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Company Stockholder, for a breach by such particular Company Stockholder of any provision of any agreement (other than this Agreement) executed and delivered by such Company Stockholder in connection with the Merger.

(d) Notwithstanding anything to the contrary contained in this Agreement, in the case of fraudulent or intentional misrepresentation, the following provisions shall apply:

(i) the Parent Indemnitees shall have recourse to the Escrow Shares and Escrow Cash with respect to any Damages which arise from or as a result of, or are connected with, such fraudulent or intentional misrepresentation (irrespective of the Person who actually participated in or had actual knowledge of such fraudulent or intentional misrepresentation); and

(ii) in addition to the rights and remedies referred to in clause “(i)” of this sentence, with respect to any Company Stockholder who participated in or had actual knowledge of such fraudulent or intentional misrepresentation, there shall be no limit on such Company Stockholder’s liability for such fraudulent or intentional misrepresentation.

9.6 Threshold/Limitations.

(a) Subject to Section 9.6(b), the Company Stockholders and the Parent Indemnitees shall not be required to make any indemnification payment pursuant to Section 9.2 and Section 9.3, respectively, until such time as the total amount of all Damages that have been directly or indirectly suffered or incurred by any one or more of the Parent Indemnitees or Company Stockholders, as applicable, or to which any one or more of the Parent Indemnitees or Company Stockholders, as applicable, has or have otherwise become subject, exceeds $100,000 in the aggregate. If the total amount of such Damages exceeds $100,000, then the Parent Indemnitees or Company Stockholders, as applicable, shall be entitled to be indemnified against and compensated and reimbursed for the entire amount of such Damages, including the initial $100,000.

(b) The limitations that are set forth in Section 9.6(a) shall not apply: (i) in the case of fraudulent or intentional misrepresentation; (ii) to any inaccuracies in any of the amounts set forth in the Closing Payment Schedule; (iii) to any breach of the representation and warranty set forth in Section 3.15(g); or (iv) to indemnification pursuant to Sections 9.2(a)(iii), 9.2(a)(v) and 9.2(a)(vi).

9.7 No Contribution; Multiple Recovery. Each Company Stockholder waives, and acknowledges and agrees that such Company Stockholder shall not have and shall not exercise or assert (or attempt to exercise or assert), any right of contribution, right of indemnity or other right or remedy against Merger Sub or the Company in connection with any indemnification obligation or any other liability to which such Company Stockholder may become subject under or in connection with this Agreement or any other agreement or document delivered to Parent in connection with this Agreement. The parties agree that there shall not be any multiple recovery for any Damages.

9.8 Procedure for Recovery from Escrow Fund. The Parent Indemnitees on the one hand and the Stockholders’ Representative, on behalf of the Company Stockholders, on the other hand, shall follow the procedures set forth in the Escrow Agreement in order to recover Damages from the Escrow Fund.

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9.9 Defense of Third Party Claims.

(a) Promptly after receipt by an Indemnified Party of notice of the initiation of any investigation, the imposition by any Person of any penalty or assessment, or the assertion by any Person of any claim against it, or any material change to any of the foregoing, and promptly (and in no event later than ten (10) days) after the commencement by any Person of any Legal Proceeding against it or the amendment or dismissal in part of the claims brought in such Legal Proceeding, if such Indemnified Party may seek indemnification in respect thereof under this Section 9, such Indemnified Party shall give notice thereof to the Person obligated to indemnify such Indemnified Party under this Section 9 (the “Indemnifying Party”), specifying in reasonable detail (to the extent known) the nature of such investigation, imposition or claim (each, a “Third-Party Claim”) and the basis thereof, and shall attach to such notice any documentation provided by the claimant. The failure by an Indemnified Party to notify the Indemnifying Party as provided in this Section 9.9(a) shall not relieve such Indemnifying Party of any liability that it may have to such Indemnified Party, except to the extent that such Indemnifying Party demonstrates that it has suffered Damages, or that the defense of the Third-Party Claim is prejudiced, by such failure.

(b) If an Indemnified Party gives notice to the Indemnifying Party pursuant to Section 9.9(a) of the assertion of a Third-Party Claim, the Indemnifying Party upon written notice (the “Indemnifying Party Election”) to the Indemnified Party shall be entitled at any time after receipt of such notice (including after a prior election not to participate in or assume the defense of the Third-Party Claim) to participate in the defense of the Third-Party Claim and to assume the defense of the Third-Party Claim.

(c) The Indemnified Party will be entitled (at the Indemnified Party’s expense) to participate in the defense of any Third-Party Claim with its own counsel.

(d) While the Indemnifying Party has assumed the defense of a Third-Party Claim, the Indemnifying Party shall not, so long as it diligently conducts such defense, be liable to the Indemnified Party under this Section 9.9 for any fees of other counsel or any other costs and expenses with respect to the defense of the Third-Party Claim, in each case subsequently incurred by the Indemnified Party in connection with the defense of the Third-Party Claim, other than reasonable costs of investigation. If the Indemnifying Party assumes the defense of a Third-Party Claim, no compromise or settlement of the Third-Party Claim may be effected by the Indemnifying Party without the Indemnified Party’s consent unless (A) there is no finding or admission of any violation of any Legal Requirement or any violation of the rights of any Person which finding or admission may be materially adverse to the Indemnified Party; (B) the relief provided consists solely of monetary damages that are paid in full by the Indemnifying Party (or, with respect to claims to be paid by the Company Stockholders, there are sufficient Escrow Shares (valued at the Agreement Conversion Price) and Escrow Cash in the Escrow Fund to pay such relief in full; (C) the Indemnified Party shall have no liability with respect to any compromise or settlement; and (D) the Indemnifying Party has acknowledged in writing its obligation to indemnify the Indemnified Party with respect to the Third-Party Claim in accordance with this Section 9.

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(e) If the Indemnifying Party does not for any reason give the Indemnifying Party Election within ten (10) days after notice from the Indemnified Party of the assertion of a Third-Party Claim, or after giving the Indemnifying Party Election, does not continue the diligent defense of a Third-Party Claim, the Indemnified Party shall have the right to select separate counsel (in addition to local counsel solely for purposes of satisfying jurisdictional requirements) to participate in the defense of the Third-Party Claim on its behalf, at the expense of the Indemnifying Party, to the extent such expenses are reasonable, and to pay, compromise or settle such Third-Party Claim; provided that if more than one Indemnified Party is a party to the Third Party Claim or any related Third-Party Claim (whether or not brought in front of the same adjudicator), the Indemnifying Party shall be obligated to pay only for a single law firm to represent all the Indemnified Parties in all of the related Legal Proceedings, except to the extent (and only to the extent) that (i) joint representation would be inappropriate under the applicable rules of professional conduct, or (ii) if applicable, a single law firm reasonably satisfactory to the Indemnified Parties is not available which can represent the Indemnified Parties in all of the related Legal Proceedings.

(f) If an Indemnified Party determines in good faith that all of the conditions set forth in subsections (i) through (v) below (the “Defense Conditions”), are not satisfied, then the Indemnified Party may, by written notice to the Indemnifying Party, assume or continue the exclusive defense of such Third-Party Claim:

(i) the Indemnifying Party agrees in the Indemnifying Party Election (x) to bear the costs and expenses of defending the Third-Party Claim, and (y) as between the Indemnifying Party and the Indemnified Party, subject to Sections 9.5 and 9.6, the Indemnifying Party shall be solely obligated to satisfy and discharge the Third-Party Claim; provided, that if the Indemnifying Party later gives the Indemnified Party prompt written notice and an opportunity to participate in the defense thereof, the Indemnifying Party shall not be deemed to have agreed to be solely obligated to satisfy and discharge the Third-Party Claim to the extent (1) facts and circumstances arise subsequent to the date of the Indemnifying Party Election, or (2) claims are amended or dismissed, or new claims or cross-claims are made in the same action against the Indemnified Party, following the assumption of the defense of such Third Party Claim by the Indemnifying Party, which indicate, in the reasonable judgment of the Indemnifying Party, that the Indemnifying Party would not be solely responsible, as between the Indemnifying Party and the Indemnified Party, for the Damages resulting from the Third-Party Claim, and upon such notice, this condition shall no longer be satisfied;

(ii) in the case that a Parent Indemnitee is the Indemnified Party, the Escrow Fund contains Escrow Shares (valued at the Agreement Conversion Price) and/or Escrow Cash sufficient to satisfy and discharge the Third-Party Claim and the defense thereof after accounting for any Escrow Shares or Escrow Cash necessary to satisfy other escrow claims by the Parent Indemnitee;

(iii) the Indemnifying Party employs counsel reasonably satisfactory to the Indemnified Party;

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(iv) either (x) the Third-Party Claim is solely for monetary damages, or (y) if the Third Party Claim is not solely for monetary damages, then a judgment in favor of the third party claimant on any non-monetary claim (in light of the rights of indemnification provided hereunder and assuming each Escrow Share is worth not less than the Agreement Conversion Price to the Indemnified Party) would not, in the reasonable judgment of the Indemnified Party, have a material and adverse effect on (1) the assets, liabilities, revenues or expenses of Parent or the Company, (2) the current or planned operations or business of the Parent or the Company, or (3) the ability of the Parent or the Company to exploit the material Company Intellectual Property or Parent Intellectual Property; and

(v) the timing of the assumption of the defense by the Indemnifying Party will not, in the reasonable judgment of the Indemnified Party, adversely prejudice the defense of such Third Party Claim.

(g) If the Indemnifying Party has given the Indemnifying Party Election and has continued the diligent defense of a Third-Party Claim, but the Indemnified Party has assumed or continued the defense of the Third-Party Claim pursuant to Section 9.9(f) other than by reason of the condition set forth in Section 9.9(f)(i) not being satisfied, then:

(i) the Indemnifying Party will be responsible for only 75% of the reasonable legal fees and costs and other Damages of the Indemnified Party incurred or paid in connection with the Third-Party Claim, exclusive of payment, compromise, settlement or satisfaction of such Third-Party Claim, that it would have otherwise been responsible for under this Section 9;

(ii) the Indemnifying Party will be responsible for only 75% of the Damages it would have otherwise been responsible for pursuant to this Section 9 for any payment or satisfaction of such Third-Party Claim following a final adjudication thereof which is no longer subject to appeal;

(iii) the Indemnifying Party will be responsible for only 75% of the Damages it would have otherwise been responsible for pursuant to this Section 9 for any compromise or settlement of such Third-Party Claim, provided the Indemnifying Party shall have consented thereto, such consent not to be unreasonably withheld; and

(iv) if the Indemnifying Party has not consented to a compromise or settlement of such Third-Party Claim, the Indemnified Party may nonetheless effect such compromise or settlement, provided that the amounts paid by the Indemnified Party in connection with such compromise or settlement shall not be dispositive as to the Damages to which the Indemnified Party would otherwise be entitled pursuant to this Agreement.

(h) Notwithstanding the provisions of Section 10.11, the Indemnified Party and the Indemnifying Party hereby consent to the nonexclusive jurisdiction of any court or other Governmental Body or arbitrator or arbitration panel in which a Legal Proceeding in respect of a Third-Party Claim is brought against any Indemnified Party for purposes of any claim that the Indemnified Party may have under this Agreement with respect to such Legal Proceeding or the matters alleged therein and agree that process may be served on the Indemnifying Party with respect to such a claim anywhere in the world.

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(i) With respect to any Third-Party Claim subject to indemnification under this Section 9: (i) both the Indemnified Party and the Indemnifying Party, as the case may be, shall keep the other of them fully informed of the status of the Third-Party Claim and any related Legal Proceedings at all stages thereof where such Person is not represented by its own counsel, and (ii) the Indemnified Party and the Indemnifying Party shall render (each at its own expense) to each other and each other’s counsel such assistance as they may reasonably require of each other and cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim.

(j) With respect to any Third-Party Claim subject to indemnification under this Section 9, the parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all Confidential Information and the attorney-client and work-product privileges. In connection therewith, each party hereto and beneficiary hereof agrees that: (i) it will use its commercially reasonable efforts, in respect of any Third-Party Claim in which it has assumed or participated in the defense, to avoid production of Confidential Information (consistent with applicable law and rules of procedure), and (ii) all communications between any party hereto or beneficiary hereof and counsel responsible for or participating in the defense of any Third-Party Claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege.

(k) In the event Parent and the Stockholders’ Representative subsequently agree, in their reasonable discretion, to the addition of an insurer to cover some or all of the potential liabilities hereunder, the parties acknowledge that reasonable revisions to the provisions herein related to defense of Third-Party Claims may be necessary in order to accommodate the insurer.

9.10 Indemnification Claims.

(a) In order to seek indemnification under this Section 9, a Person entitled to indemnification under Section 9.2 or Section 9.3 (an “Indemnified Party”) shall deliver, in good faith, a written demand (an “Indemnification Demand”) to the Stockholders’ Representative (in the case of Indemnification Demands from a Parent Indemnitee) or Parent (in the case of Indemnification Demands from Company Stockholders) which contains (i) a description and the amount (the “Asserted Damages Amount”) of any Damages incurred or reasonably expected to be incurred by the Indemnified Party, (ii) a statement that the Indemnified Party is entitled to indemnification under this Section 9 for such Damages and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Damages. If the Indemnified Party is a Parent Indemnitee and the Indemnified Party is entitled to indemnification under Section 9.2, Parent shall also deliver a copy of the Indemnification Demand to the Escrow Agent contemporaneously with its delivery to the Stockholders’ Representative. For all purposes of this Section 9.10(a), the Stockholders’ Representative shall be entitled to deliver Indemnification Demands to Parent on behalf of the Company Stockholders.

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(b) Within thirty (30) days after delivery of an Indemnification Demand to the Stockholders’ Representative or Parent (as the case may be), such party shall deliver to the other of such parties a written response (the “Response”) in which the party providing the Response shall: (i) agree that the Indemnified Party is entitled to receive all of the Asserted Damages Amount (in which case, if the Indemnified Party is (A) Parent, then the Stockholders’ Representative and Parent shall deliver to the Escrow Agent, within three days following the delivery of the Response, a written notice executed by both such parties instructing the Escrow Agent to distribute to Parent such number of Escrow Shares equal to the quotient of the Asserted Damages Amount divided by the Agreement Conversion Price, or (B) the Company Stockholders, then Parent shall, in accordance with a distribution method reasonably acceptable to the Stockholders’ Representative, distribute to the Company Stockholders cash equal to the Asserted Damages Amount (in either case, subject to the limitations of Sections 9.5 and 9.6); (ii) agree that the Indemnified Party is entitled to receive part, but not all, of the Asserted Damages Amount (such portion, the “Agreed Portion”) (in which case, if the Indemnified Party is (A) Parent, then the Stockholders’ Representative and Parent shall deliver to the Escrow Agent, within three days following the delivery of the Response, a written notice executed by both such parties instructing the Escrow Agent to distribute to Parent such number of Escrow Shares equal to the quotient of the Agreed Portion divided by the Agreement Conversion Price, or (B) the Company Stockholders, then Parent shall, in accordance with a distribution method reasonably acceptable to the Stockholders’ Representative, distribute to the Company Stockholders cash equal to the Amount of the Agreed Portion (subject to the limitations of Sections 9.5 and 9.6); or (iii) dispute that the Indemnified Party is entitled to receive any of the Asserted Damages Amount.

(c) In the event that the party providing a Response pursuant to Section 9.10(b) shall (i) dispute that the Indemnified Party is entitled to receive any of the Asserted Damages Amount, or (ii) agree that the Indemnified Party is entitled to only the Agreed Portion of the Asserted Damages Amount, the Stockholders’ Representative and Parent shall attempt in good faith to agree upon the rights of the respective parties with respect to each of the indemnification claims that comprise the Asserted Damages Amount (or the portion of the Asserted Damages Amount not comprising the Agreed Portion). If the Stockholders’ Representative and Parent should so agree, a memorandum setting forth such agreement shall be prepared and signed by both such Parties and, in the case of a demand for recovery from the Escrow Fund, shall be furnished to the Escrow Agent. If no such agreement can be reached after good faith negotiation within sixty days after delivery of a Response, either Parent or the Stockholders’ Representative may demand arbitration of any matter set forth in the applicable Indemnification Demand, which arbitration shall be conducted pursuant to Section 10.11.

(d) If on or prior to the Company Expiration Date, any Parent Indemnitee has made an Indemnification Demand containing a claim which has not been resolved prior to the Company Expiration Date in accordance with Section 9 and the Escrow Agreement, the Escrow Agent shall retain in the Escrow Account after the Company Expiration Date, Escrow Shares collectively having a Agreement Conversion Price of the Asserted Amount or contested portion of the Asserted Amount, as the case may be, with respect to all claims which have not then been resolved.

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9.11 Exercise of Remedies by Parent Indemnitees Other than Parent. No Parent Indemnitee (other than Parent or any successor thereto or assign thereof) shall be permitted to assert any indemnification claim or exercise any other remedy under this Agreement unless Parent (or any successor thereto or assign thereof) shall have consented to the assertion of such indemnification claim or the exercise of such other remedy.

9.12 Tax Matters. The following provisions shall govern the allocation of responsibility as between Parent and the Company Stockholders for certain Tax matters following the Closing Date:

(a) Tax Indemnification. The Company Stockholders shall indemnify the Parent Indemnitees and hold them harmless from and against, any Damages attributable to (i) all Taxes (or the non-payment thereof) of the Company for all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any taxable period that includes (but does not end on) the Closing Date (the “Preclosing Tax Period”), (ii) all Taxes of any member of an affiliated, consolidated, combined or unitary group of which the Company (or any predecessor of the Company) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous or similar state, local, or foreign law or regulation, (iii) any and all Taxes of any person (other than the Company) imposed on the Company as a transferee or successor, by contract or pursuant to any law, rule, or regulation, which Taxes relate to an event or transaction occurring before the Closing Date, and (iv) any Tax liability resulting from any adjustment in Tax liability relating to any “tax-free spin-off” occurring prior to the Closing Date being treated as a taxable event. Any amounts described in the preceding sentence shall be treated as Damages to Parent for all purposes hereunder, and Parent shall be entitled to receive payment from the Escrow Fund of the aggregate amount of such Damages, provided that the Company Stockholders shall not be liable for any amount of Taxes actually paid by the Company on or prior to the Closing Date, or for any Tax to the extent a reserve or payable for such Tax is reflected on the balance sheet of the Company on the Closing Date.

(b) Straddle Periods. For purposes of this Section 9.12, in the case of any Taxes that are imposed on a periodic basis and are payable for a Taxable period that includes (but does not end on) the Closing Date, the portion of such Tax attributed to the portion of such Taxable period ending on the Closing Date shall (x) in the case of any Taxes other than Taxes based upon or related to income or receipts, be deemed to be the amount of such Tax for the entire Taxable period multiplied by a fraction the numerator of which is the number of days in the Taxable period ending on the Closing Date and the denominator of which is the number of days in the entire Taxable period, and (y) in the case of any Tax based upon or related to income or receipts be deemed equal to the amount which would be payable if the relevant Taxable period ended on the Closing Date. For purposes of this Section, in the case of any Tax credit relating to a Taxable period that begins before and ends after the Closing Date, the portion of such Tax credit which relates to the portion of such Taxable period ending on the Closing Date shall be the amount which bears the same relationship to the total amount of such Tax credit as the amount of Taxes described in (y) above bears to the total amount of Taxes for such Taxable period. All determinations necessary to give effect to the foregoing allocations shall be made in a manner consistent with prior practice of the Company.

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(c) Responsibility for Filing Tax Returns. Except as provided in Section 5.12, Parent shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for the Company that are filed after the Closing Date.

(d) Tax Sharing Agreements. All Tax sharing agreements or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.

9.13 Transfer Taxes. Notwithstanding anything to the contrary in this Agreement, any transfer, documentary, sales, use, excise or other Taxes assessed upon or incurred in connection with the transactions contemplated by this Agreement will be borne and paid by the Company Stockholders, and the Company Stockholders shall promptly reimburse Parent for any such Tax, fee or duty which they are required to pay under applicable law.

9.14 Exclusive Remedy. After the Closing has occurred, the right to indemnification under this Section 9 shall be the exclusive remedy of each party hereto in connection with any breach by the other party of its representations, warranties, covenants or agreements contained herein.

SECTION 10. MISCELLANEOUS PROVISIONS

10.1 Stockholders’ Representative.

(a) Appointment. The Company Stockholders, by adopting this Agreement, hereby appoint Xxxx Xxxxx, as agent and attorney-in-fact (the “Stockholders’ Representative”) for, in the name and on behalf of the Company Stockholders. The Stockholders’ Representative shall have full power and authority to represent all of the Company Stockholders and their successors with respect to all matters arising under this Agreement and the Escrow Agreement and all actions taken by the Stockholders’ Representative hereunder and thereunder shall be binding upon all such Company Stockholders and their successors as if expressly confirmed and ratified in writing by each of them and no Company Stockholder shall have the right to object, dissent, protest or otherwise contest the same. The Stockholders’ Representative hereby accepts such appointment. The Stockholders’ Representative shall take any and all actions which he believes are necessary or appropriate under this Agreement and the Escrow Agreement for, in the name and on behalf of the Company Stockholders, as fully as if the Company Stockholders were acting on their own behalf, including executing and delivering the Escrow Agreement as Stockholders’ Representative, giving and receiving any notice or instruction permitted or required under this Agreement or the Escrow Agreement by the Stockholders’ Representative or any Company Stockholder, interpreting all of the terms and provisions of this Agreement and the Escrow Agreement, authorizing payments to be made with respect hereto or thereto, obtaining reimbursement as provided for herein for all out-of-pocket fees and expenses and other obligations of or incurred by the Stockholders’ Representative in connection with this Agreement and the Escrow Agreement, defending all indemnity claims against the Company Stockholders pursuant to Section 9 (a “Parent Indemnity Claim”), consenting to, compromising or settling all Parent Indemnity Claims, conducting negotiations with Parent and the Parent Indemnitees and agents regarding such claims, dealing with Parent and the Escrow Agent under this Agreement

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and the Escrow Agreement with respect to all matters arising under this Agreement and the Escrow Agreement, taking any and all other actions specified in or contemplated by this Agreement and the Escrow Agreement, and engaging counsel, accountants or other agents in connection with the foregoing matters. Without limiting the generality of the foregoing, the Stockholders’ Representative shall have full power and authority to interpret all the terms and provisions of this Agreement and the Escrow Agreement and to consent to any amendment hereof or thereof for, in the name and on behalf of all such Company Stockholders and such successors.

(b) Authorization. By their approval and adoption of this Agreement, the Company Stockholders hereby authorize the Stockholders’ Representative, for, in the name and on behalf of the Company Stockholders to:

(i) receive all notices or documents given or to be given to any of the Company Stockholders by Parent or any Parent Indemnitee or the Escrow Agent pursuant hereto or to the Escrow Agreement or in connection herewith or therewith and to receive and accept service of legal process in connection with any suit or proceeding arising under this Agreement or the Escrow Agreement;

(ii) deliver to Parent or any Parent Indemnitee or the Escrow Agent at the Closing all certificates and documents to be delivered to Parent by any of the Company Stockholders pursuant to this Agreement or the Escrow Agreement, together with any other certificates and documents executed and delivered by any of the Company Stockholders and deposited with the Stockholders’ Representative for such purpose;

(iii) engage counsel, and such accountants and other advisors for any of the Company Stockholders and incur such other expenses on behalf of any of the Company Stockholders in connection with this Agreement or the Escrow Agreement and the transactions contemplated hereby or thereby as the Stockholders’ Representative may in its sole discretion deem appropriate; and

(iv) take such action on behalf of any of the Company Stockholders as the Stockholders’ Representative may in its sole discretion deem appropriate in respect of:

(1) taking such other action as the Stockholders’ Representative or any of the Company Stockholders is authorized to take under this Agreement or the Escrow Agreement;

(2) receiving all documents or certificates and making all determinations, on behalf of any of the Company Stockholders, required under this Agreement or the Escrow Agreement;

(3) all such other matters as the Stockholders’ Representative may in its sole discretion deem necessary or appropriate to consummate this Agreement or the Escrow Agreement and the transactions contemplated hereby and thereby; and

(4) all such action as may be necessary after the Closing Date to carry out any of the transactions contemplated by this Agreement and the Escrow Agreement,

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including, without limitation, the defense and/or settlement of any claims for which indemnification is sought pursuant to Section 9 and any waiver of any obligation of Parent or the Surviving Corporation.

All actions, decisions and instructions of the Stockholders’ Representative shall be conclusive and binding upon all of the Company Stockholders and no Company Stockholder shall have any claim or cause of action against the Stockholders’ Representative, and the Stockholders’ Representative shall have no liability to any Company Stockholder, for any action taken, decision made or instruction given by the Stockholders’ Representative in connection with the Escrow Agreement or this Agreement, except in the case of his own fraud or willful misconduct.

(c) Reliance. Parent shall be entitled to rely conclusively on the instructions and decisions given or made by, or believed in good faith by Parent to be given or made by, the Stockholders’ Representative as to the settlement of any claims for indemnification by Parent or the Surviving Corporation or any of them pursuant to Section 9 hereof, or any other actions required or permitted to be taken by the Stockholders’ Representative hereunder, and no party shall have any cause of action against Parent for any action taken by Parent in reliance upon any such instructions or decisions.

(d) Exculpation; Limitation of Liability.

(i) The Stockholders’ Representative shall incur no liability to the Company Stockholders with respect to any action taken or suffered by it in reliance upon any note, direction, instruction, consent, statement or other documents reasonably believed by the Stockholders’ Representative to be genuinely and duly authorized by at least a majority in interest of the Company Stockholders (determined on the basis of the number of shares of Company Capital Stock owned by each Company Stockholder immediately prior to the Effective Time) (the “Majority in Interest”), nor for other action or inaction taken or omitted in good faith in connection with this Agreement or the Escrow Agreement, in any case except for liability to the Company Stockholders for the Stockholders’ Representative’s own fraud or willful misconduct. In the exercise or performance of his powers, rights, duties and privileges hereunder and under the Escrow Agreement, the Stockholders’ Representative shall be entitled to rely upon any document or instrument reasonably believed by him to be genuine, accurate as to content and signed by any Company Stockholder. The Stockholders’ Representative may assume that any Person purporting to give any notice in accordance with the provisions hereof or of the Escrow Agreement has been duly authorized to do so.

(ii) The Stockholders’ Representative may, in all questions arising under this Agreement or the Escrow Agreement, rely on the advice of counsel and for anything done, omitted or suffered in good faith by the Stockholders’ Representative in accordance with such advice, the Stockholders’ Representative shall not be liable to any Company Stockholder.

(iii) If the Stockholders’ Representative is required by the terms of this Agreement or the Escrow Agreement to determine the occurrence of any event or contingency, the Stockholders’ Representative shall, in making such determination, be liable to the Company Stockholders only for his proven bad faith as determined in light of all the circumstances, including the time and facilities available to him in the ordinary conduct of business. In

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determining the occurrence of any such event or contingency, the Stockholders’ Representative may request from any of the Company Stockholders such reasonable additional evidence as the Stockholders’ Representative in his sole discretion may deem necessary to determine any fact relating to the occurrence of such event or contingency, and may at any time inquire of and consult with others, including Parent, any Parent Indemnitee or any of the Company Stockholders, and the Stockholders’ Representative shall not be liable to any Company Stockholder for any damages resulting from his delay in acting under this Agreement or the Escrow Agreement pending his receipt and examination of additional evidence requested by him.

(iv) No provision of this Agreement or the Escrow Agreement shall require the Stockholders’ Representative to expend or risk his own funds or otherwise incur any financial liability in the exercise or performance of any of his powers, rights, duties or privileges under this Agreement or the Escrow Agreement if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to him.

(v) The Stockholders’ Representative may exercise and perform any of the powers, rights, duties or privileges vested in him under this Agreement or the Escrow Agreement either himself or by or through his attorney or other Representatives, and the Stockholders’ Representative shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorney or Representative or for any Damages to the Company Stockholders resulting from any such act, default, neglect or misconduct, provided reasonable care was exercised in the selection and continued employment thereof.

(vi) In no event shall the Stockholders’ Representative be liable to any Company Stockholder or any other Person for any indirect, punitive, special or consequential damages.

(e) Indemnification. From and after the Effective Time, the Company Stockholders who shall have received, or shall be entitled to receive, consideration pursuant to Section 1.5, shall each, in accordance with their respective Pro Rata Share of Damages, hold harmless and indemnify the Stockholders’ Representative and his Representatives and their respective affiliates and Representatives (collectively, the “Stockholders’ Representative Indemnitees”) from and against, and shall compensate and reimburse the Stockholders’ Representative Indemnitees for, any Damages which are suffered or incurred by any Stockholders’ Representative Indemnitee or to which any Stockholders’ Representative Indemnitee may otherwise become subject (regardless of whether or not such Damages relate to any third-party claim) and which arise from or as a result of the performance or exercise by the Stockholders’ Representative, directly or through his Representatives, of his powers, rights, duties or privileges under this Agreement or the Escrow Agreement, including Damages resulting from the active negligence or gross negligence of the Stockholder Representative or the active negligence of his Representatives, other than such Damages resulting from the Stockholders’ Representative Indemnitee’s fraud or willful misconduct. This indemnification shall survive the termination of this Agreement or the Escrow Agreement.

(f) Access to Information. Upon the reasonable request of the Stockholders’ Representative, Parent shall provide the Stockholders’ Representative reasonable access to

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information of and concerning any Parent Indemnity Claim which is in the possession or control of Parent for purposes of performing the Stockholders’ Representative’s duties under this Agreement or the Escrow Agreement and exercising its rights under this Agreement and the Escrow Agreement, including for the purpose of evaluating any Parent Indemnity Claim by Parent; provided that, Parent shall not be obligated to provide any such information that is an attorney-client communication or, absent the execution by the Stockholders’ Representative of a nondisclosure agreement in a form reasonably satisfactory to Parent, that is confidential or proprietary in nature. Any failure by Parent to comply with this paragraph (f) shall not be a breach of its obligations except to the extent that the Stockholders’ Representative demonstrates that it has suffered Damages, or that the defense of the Parent Indemnity Claim is prejudiced, by such failure.

(g) Attorney-in-Fact.

(i) The Stockholders’ Representative is hereby appointed and constituted the true and lawful attorney-in-fact of each Company Stockholder, with full power in his, her or its name and on his, her or its behalf to act according to the terms of this Agreement and the Escrow Agreement in the absolute discretion of the Stockholders’ Representative; and in general to do all things and to perform all acts including, without limitation, executing and delivering the Escrow Agreement and any other agreements, certificates, receipts, instructions, notices or instruments contemplated by or deemed advisable in connection with the Escrow Agreement. The Stockholders’ Representative hereby accepts such appointment.

(ii) This power of attorney and all authority hereby conferred is granted and shall be irrevocable and shall not be terminated by any act of any Company Stockholder, by operation of law, whether by such Company Stockholder’s death, disability protective supervision or any other event. Without limitation to the foregoing, this power of attorney is to ensure the performance of a special obligation and, accordingly, each Company Stockholder hereby renounces its, his or her right to renounce this power of attorney unilaterally any time before the sixth (6^th) anniversary of the Effective Time and the complete distribution of the Escrow Fund.

(iii) Each Company Stockholder hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the Stockholders’ Representative taken in good faith under the Escrow Agreement.

(iv) Notwithstanding the power of attorney granted in this Section 10.1, no agreement, instrument, acknowledgement or other act or document shall be ineffective by reason only of the holders of a Majority in Interest having signed or given such agreement, instrument, acknowledgement or other act or document directly, instead of the Stockholders’ Representative.

(h) Reimbursement; Payment of Claims. The Stockholders’ Representative shall be entitled to seek reimbursement of any out-of-pocket costs and expenses (including attorneys’ and accountants’ fees and expenses) incurred by the Stockholders’ Representative in connection with the exercise or performance of his powers, rights, duties and privileges set forth in this Agreement and in the Escrow Agreement (including costs and expenses advanced or

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previously reimbursed by any Company Stockholder or any other Person for reimbursement to such Company Stockholder or other Person), and to obtain satisfaction of any amounts due to the Stockholders’ Representative pursuant to Section 10.1(e), from the Stockholders’ Representative Reserve and, subject to the terms and conditions of the Escrow Agreement (including the valuation of each Escrow Share at the Agreement Conversion Price and the subordination to the Parent Indemnity Claims), from the Escrow Fund. Each Stockholders’ Representative Indemnitee shall be entitled to payment of any amounts to which such Stockholders’ Representative Indemnitee is entitled pursuant to Section 10.1(e) from the Escrow Fund, subject to the terms and conditions of the Escrow Agreement (including the valuation of each Escrow Share at the Agreement Conversion Price and the subordination to the Parent Indemnity Claims). The Stockholders’ Representative agrees to submit claims for reimbursement to the Escrow Agent promptly upon receiving a valid claim, as determined in the sole discretion of the Stockholders’ Representative, from a Stockholders’ Representative Indemnitee.

(i) Orders. The Stockholders’ Representative is authorized, in his sole discretion, to comply with final, nonappealable Orders or decisions issued or process entered by any Court or arbitrator with respect to the Escrow Fund in connection with the Escrow Contributors. If any portion of the Escrow Fund is disbursed to the Stockholders’ Representative and is at any time attached, garnished or levied upon under any court order, or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any order, writ, injunction, judgment or decree (collectively, an “Order”), or in case any Order shall be made or entered by any Court affecting such property or any part thereof, then and in any such event, the Stockholders’ Representative is authorized, in his sole discretion, but in good faith, to rely upon and comply with any such Order which he is advised by legal counsel selected by him is binding upon him without the need for appeal or other action; and if the Stockholders’ Representative complies with any such Order, he shall not be liable to any Company Stockholder by reason of such compliance even though such Order may be subsequently reversed, modified, annulled, set aside or vacated.

(j) Adoption by Company Stockholders. In the event that this Agreement is adopted by the stockholders of the Company, then all such stockholders of the Company shall, without any further act of any stockholder of the Company, be deemed to have consented to and approved (i) the use of the Escrow Fund as collateral to secure the rights of the Parent Indemnitees under Section 9 and the Stockholders’ Representative and his Representatives under this Section 10.1, in each case in the manner set forth herein and in the Escrow Agreement; (ii) the appointment of the Stockholders’ Representative as the representative under this Agreement and the Escrow Agreement and as the attorney-in-fact and agent for and on behalf of each such Person (other than holders of Dissenting Shares); and (iii) the reimbursement and indemnification of the Stockholders’ Representative by the stockholders of the Company as contemplated herein and by the Escrow Agreement.

(k) Stockholders’ Representative Reserve. At or prior to the Closing, the Company shall deposit cash in the amount of $100,000 (together with any earnings thereon, the “Stockholders’ Representative Reserve”) into a separate account at a United States financial institution designated by the Stockholders’ Representative, provided that such deposit shall be insured by the Federal Deposit Insurance Corporation and, provided, further, that such account shall inure to the benefit of any successor Stockholders’ Representative hereunder. The

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Stockholders’ Representative may in his sole discretion apply the Stockholders’ Representative Reserve to defray, offset, pay or reimburse any charges, fees, costs, taxes, liabilities or expenses of the Stockholders’ Representative incurred in his capacity as Stockholders’ Representative under this Agreement or the Escrow Agreement, including fees of accountants and legal counsel, and to pay any indemnification amounts pursuant to Section 10.1(d). When the Stockholders’ Representative determines, in his sole discretion, that the Stockholders’ Representative Reserve is no longer necessary to assure the full payment of all amounts set forth in the sentence next preceding, the Stockholders’ Representative shall (i) if there was a Final Company Working Capital Deficit Amount, distribute or cause to be distributed (with the costs of such distribution to be paid from the Stockholders’ Representative Reserve) to each Company Stockholder who held any shares of Company Capital Stock immediately prior to the Closing its Pro Rata Share of the remaining Stockholders’ Representative Reserve and (ii) if there was not a Final Company Working Capital Deficit Amount, distribute or cause to be distributed (with the costs of such distribution to be paid from the Stockholders’ Representative Reserve) to Parent the remaining Stockholders’ Representative Reserve.

(l) Successors. If the Stockholders’ Representative shall die, become disabled, resign or otherwise be unable to fulfill his responsibilities hereunder, a Majority in Interest of the Company Stockholders shall appoint a new Stockholders’ Representative as soon as reasonably practicable by written consent by sending notice and a copy of the duly executed written consent appointing such new Stockholders’ Representative to Parent and the Escrow Agent. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by Parent and the Escrow Agent. The parties hereto and each Indemnified Party shall stay any proceedings under or pursuant to Section 9 pending the appointment of a successor Stockholders’ Representative. If the Majority in Interest shall not have appointed a successor Stockholders’ Representative within 20 days after receipt of notice of the death, disability, resignation or other termination of the Stockholders’ Representative, Parent or the Surviving Corporation may petition any court of competent jurisdiction for the appointment of either (i) a Company Stockholder holding not less than 1% of the outstanding shares of Company Capital Stock immediately prior to the Closing, or (ii) an officer or director of the Company immediately prior to the Closing, as the successor Stockholders’ Representative or for other appropriate relief, and any such resulting appointment shall be binding upon all Company Stockholders, all parties hereto and all beneficiaries hereof. Any successor Stockholders’ Representative shall accept his appointment, and such appointment shall become effective upon such successor executing and delivering to Parent and the Escrow Agent counterpart signature pages to this Agreement and the Escrow Agreement.

10.2 Further Assurances. Each party hereto shall execute and cause to be delivered to each other party hereto such instruments and other documents, and shall take such other actions, as such other party may reasonably request (prior to, at or after the Closing) for the purpose of carrying out or evidencing any of the transactions contemplated by this Agreement.

10.3 Fees and Expenses. Subject to the terms and conditions set forth herein, each party to this Agreement shall bear and pay all fees, costs and expenses (including legal fees and accounting fees) that have been incurred or that are incurred by such party in connection with the transactions contemplated by this Agreement, including all fees, costs and expenses incurred by such party in connection with or by virtue of (a) the investigation and review conducted by

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Parent and its Representatives with respect to the Company’s business (and the furnishing of information to Parent and its Representatives in connection with such investigation and review), (b) the investigation and review conducted by the Company and its Representatives with respect to Parent’s business (and the furnishing of information to Parent and its Representatives in connection with such investigation and review), (c) the negotiation, preparation and review of this Agreement (including the Company Disclosure Schedule and Parent Disclosure Schedule) and all agreements, certificates, opinions and other instruments and documents delivered or to be delivered in connection with the transactions contemplated by this Agreement, (d) the preparation and submission of any filing or notice required to be made or given in connection with any of the transactions contemplated by this Agreement, and the obtaining of any Consent required to be obtained in connection with any of such transactions, and (e) the consummation of the Merger.

10.4 Attorneys’ Fees. If any action or proceeding relating to this Agreement or the enforcement of any provision of this Agreement is brought against any party hereto, the prevailing party shall be entitled to recover reasonable attorneys’ fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled).

10.5 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto):

if to Parent:

Entropic Communications, Inc.

0000 Xxxxxxxx Xxxx, Xxxxx 000

Xxx Xxxxx, XX 00000

Attention: Chief Executive Officer

Fax: (000) 000-0000

With a copy to:

Cooley Godward Kronish LLP

0000 Xxxxxxxx Xxxx

Xxx Xxxxx, XX 00000-0000

Attention: Xxxxx Xxxxxxx, Esq.

Fax: (000) 000-0000

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if to the Company:

RF Magic, Inc.

Attn: Xxxx Xxxxx

00000 Xxxxxxx Xxxxx, 0xx Xxxxx

Xxx Xxxxx, XX 00000

Fax: (000) 000-0000

with a copy to:

Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP

00000 Xx Xxxxxx Xxxx, Xxxxx 000

Xxx Xxxxx, XX 00000

Fax: (000) 000-0000

Attn: Xxxx X. Xxxxxxxx, Esq. and Xxxx X. Xxxxxxx, Esq.

if to the Stockholders’ Representative:

Xxxx Xxxxx

RF Magic, Inc.

00000 Xxxxxxx Xxxxx, 0xx Xxxxx

Xxx Xxxxx, XX 00000

Fax: (000) 000-0000

10.6 Time of the Essence. Time is of the essence of this Agreement.

10.7 Headings. The underlined headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.

10.8 Counterparts. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement.

10.9 Governing Law. This Agreement shall be construed in accordance with, and governed in all respects by, the internal laws of the State of California (without giving effect to principles of conflicts of laws).

10.10 Successors and Assigns. This Agreement shall be binding upon: the Company and its successors and assigns (if any); Parent and its successors and assigns (if any); and Merger Sub and its successors and assigns (if any). This Agreement shall inure to the benefit of: the Company; the Company Stockholders (to the extent set forth in Section 1.5); the holders of assumed Company Options and Company Warrants (to the extent set forth in Section 1.6 and Section 1.7); Parent; Merger Sub; the other Parent Indemnitees (subject to Section 9.12); and the respective successors and assigns (if any) of the foregoing. Neither this Agreement nor any of a party’s rights or obligations hereunder may be assigned or delegated by either the Company or Parent without the prior written consent of Parent or the Company, as applicable, and any attempted assignment or delegation of this Agreement or any of such rights or

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obligations by such party without the other party’s prior written consent shall be void and of no effect; provided, however, that following the Closing Date, Parent and the Surviving Corporation may assign this Agreement to any successor by reason or merger, reorganization, sale of all or substantially all of the assets, change of control or operation of law without the prior written consent of the other parties to this Agreement.

10.11 Arbitration.

(a) Each party is required to notify the other parties, in writing, of any dispute, claim, or controversy arising out of this Agreement. As to disputes related to indemnification, the parties shall provide written notice in accordance with Section 9.10. As to all other disputes, the parties shall provide notice in the form of a written description of the basis for the dispute and the remedy sought, delivered in accordance with Section 10.6. If, within thirty days after delivery of the notice, the parties are unable to resolve the dispute, then any party may submit the dispute to binding arbitration.

(b) Any dispute, claim, or controversy arising out of this Agreement which cannot be resolved by the parties, including but not limited to Indemnification Demands made pursuant to Section 9.10, shall be determined by binding arbitration conducted by one arbitrator and administered by Judicate West, pursuant to the American Arbitration Association Commercial Arbitration Rules then in effect except to the extent those Rules conflict with any provision of this section. If, within thirty days after submission of any dispute to arbitration, the parties cannot mutually agree on one Judicate West arbitrator, then the parties shall arrange for Judicate West to designate a single arbitrator according to the process set forth in the American Arbitration Association Commercial Arbitration Rules.

(c) Any such arbitration shall be held in San Diego, California. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator, to discover relevant information from the opposing parties about the subject matter of the dispute. In an arbitration regarding an Indemnification Demand, the decision of the arbitrator as to the validity and amount of any indemnification claim in such Indemnification Demand shall be subject to the limitations set forth in this Agreement and final, binding, and conclusive upon the parties. In an arbitration to resolve any other dispute, claim, or controversy arising out of this Agreement, the decision of the arbitrator shall be final, binding, and conclusive upon the parties.

(d) The decision of the arbitrator shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrator. As part of such award, the prevailing party (as determined by the arbitrator) shall be awarded legal fees and expenses incurred in conjunction with the dispute and the losing party shall be required to pay the arbitrator’s fees and the administrative fee of Judicate West. All payments required by the decision of the arbitrator shall be made within thirty days after the decision of the arbitrator is rendered. Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction.

(e) The rights and remedies of the parties hereto shall be cumulative (and not alternative). The parties to this Agreement agree that, in the event of any breach or threatened

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breach by any party to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other party to this Agreement, such other party shall be entitled (in addition to any other remedy that may be available to it) to (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach.

10.12 Waiver.

(a) No failure on the part of any Person to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Person in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.

(b) No Person shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Person; and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.

10.13 Amendments. This Agreement may not be amended, modified, altered or supplemented other than by means of a written instrument duly executed and delivered on behalf of all of the parties hereto.

10.14 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

10.15 Parties in Interest. Except for the provisions of Sections 1.5, 1.6, 1.7 and 9, none of the provisions of this Agreement is intended to provide any rights or remedies to any Person other than the parties hereto and their respective successors and assigns (if any).

10.16 Entire Agreement. This Agreement and the other agreements referred to herein set forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersede all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof; provided, however, that the

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confidentiality provisions set forth in paragraph 7 of the Letter of Intent shall not be superseded by this Agreement and shall remain in effect in accordance with its terms until the earlier of (a) the Effective Time, or (b) the date on which such provision terminates pursuant to the Letter of Intent. All information contained (i) herein and (ii) in the Company Disclosure Schedule and Parent Disclosure Schedule shall be deemed to be “Confidential Information” (as defined and subject to the exceptions contained in the Letter of Intent).

10.17 Conflict of Interest. If the Stockholders’ Representative so desires, acting on behalf of the Company Stockholders and without the need for any consent or waiver by the Company or Parent, Sheppard, Mullin, Xxxxxxx & Xxxxxxx LLP (“SMRH”) shall be permitted to represent the Company Stockholders after the Closing in connection with any matter, including without limitation anything related to the transactions contemplated by this Agreement any other agreements referenced herein or any disagreement or dispute relating thereto. Without limiting the generality of the foregoing, after the Closing, SMRH shall be permitted to represent the Company Stockholders, any of their agents and affiliates, or any one or more of them, in connection with any negotiation, transaction or dispute (“dispute”) includes litigation, arbitration or other adversary proceeding) with Parent, the Company or any of their agents or affiliates under or relating to this Agreement, any transaction contemplated by this Agreement, and any related matter, such as claims or disputes arising under other agreements entered into in connection with this Agreement. Upon and after the Closing, the Company shall cease to have any attorney-client relationship with SMRH, unless and to the extent SMRH is specifically engaged in writing by the Company to represent the Company after Closing and either such engagement involves no conflict of interest with respect to the Company Stockholders or the Stockholders’ Representative consents in writing at the time to such engagement. Any such representation of the Company by SMRH after the Closing shall not affect the foregoing provisions hereof. For example, and not by way of limitation, even if SMRH is representing the Company after the Closing, SMRH shall be permitted simultaneously to represent the Company Stockholders in any matter, including any disagreement or dispute relating hereto. Furthermore, SMRH shall be permitted to withdraw from any representation of the Company in order to be able to represent or continue so representing the Company Stockholders, even if such withdrawal causes the Company or Parent additional legal expense (such as to bring new counsel “up to speed”), delay or other prejudice. Except with the consent of the Stockholders’ Representative, neither Parent nor the Surviving Corporation, nor any Person purporting to act on behalf of or through Parent or the Surviving Corporation, will seek to obtain attorney-client privileged communications among the Company and its Representatives and SMRH related to the Merger between the period of January 1, 2007 and the Effective Time.

10.18 Intentionally Omitted.

10.19 Construction.

(a) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include the masculine and feminine genders.

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(b) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.

(c) As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”

(d) Except as otherwise indicated, all references in this Agreement to “Sections” and “Exhibits” are intended to refer to Sections of this Agreement and Exhibits to this Agreement.

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The parties hereto have caused this Agreement to be executed and delivered as of the date first written above.


ENTROPIC COMMUNICATIONS, INC.
a Delaware corporation

By:		/s/ Xxxxxxx Xxxxx
		Xxxxxxx Xxxxx
		President and Chief Executive Officer

RAPTOR ACQUISITION SUB, INC.
a Delaware corporation

By:		/s/ Xxxxxxx Xxxxx
		Xxxxxxx Xxxxx
		President

RF MAGIC, INC.,
a Delaware corporation

By:		/s/ Xxxx Xxxxx
		Xxxx Xxxxx
		President and Chief Executive Officer

STOCKHOLDERS’ REPRESENTATIVE,

By:		/s/ Xxxx Xxxxx
		Xxxx Xxxxx

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EXHIBIT A

CERTAIN DEFINITIONS

For purposes of the Agreement (including this Exhibit A):

280G Waiver. “280G Waiver” shall mean the 280G Waiver in the form attached as Exhibit J hereto.

Acquisition Proposal. “Acquisition Proposal” shall mean any offer or proposal (other than an offer or proposal made or submitted by Parent) contemplating or otherwise relating to any Acquisition Transaction.

Acquisition Transaction. “Acquisition Transaction” shall mean any transaction (except for Parent’s initial public offering of Parent Common Stock) involving:

(a) the sale, license, disposition or acquisition of all or a substantial portion of the Company’s or Parent’s, as applicable, or any of its subsidiary’s business or assets;

(b) any purchase from the Company or Parent, as applicable, by any Person of more than a fifty percent (50%) interest in the total outstanding voting securities of the Company or Parent, as applicable, or any of its subsidiaries or any transaction in which the stockholders of the Company or Parent, as applicable, immediately preceding such transaction hold, directly or indirectly, less than fifty percent (50%) of the equity interests in the surviving or resulting entity of such transaction or in any parent entity immediately following such transaction; or

(c) any merger, consolidation, business combination, reorganization or similar transaction involving the Company or Parent, as applicable.

Aggregate Merger Consideration. “Aggregate Merger Consideration” shall mean the aggregate number of shares of Parent Common Stock and Parent Series D Preferred Stock (on an as converted basis) issuable, pursuant to Sections 1.5, 1.6 and 1.7 to holders of Company Common Stock outstanding immediately prior to the Effective Time, holders of Company Preferred Stock outstanding immediately prior to the Effective Time, holders of Company Common Warrants (assuming full exercise of all Company Common Warrants) outstanding immediately prior to the Effective Time, holders of Company Preferred Warrants (assuming full exercise of all Company Preferred Warrants) outstanding immediately prior to the Effective Time, holders of Company Options (assuming full vesting and exercise of all Company Options) outstanding immediately prior to the Effective Time and Company Options unissued but available for issuance pursuant to the Company Option Plan immediately prior to the Effective Time, in each case, prior to any contributions to the Escrow Fund and adjustments pursuant to Section 1.13.

Agreed Portion. “Agreed Portion” shall have the meaning set forth in Section 9.10 of the Agreement.

Agreement. “Agreement” shall mean the Agreement and Plan of Merger and Reorganization to which this Exhibit A is attached (including the Company Disclosure Schedule and Parent Disclosure Schedule), as it may be amended from time to time.

Agreement Conversion Price. “Agreement Conversion Price” shall mean $2.00, adjusted as appropriate to reflect any stock split, reverse stock split, stock dividend or similar transaction effected by Parent after the Closing Date; provided, however, for purposes of Sections 9 and 10 of the Agreement and of the Escrow Agreement, after a Qualified IPO, “Agreement Conversion Price” shall mean the volume weighted average price of one share of Parent Common Stock as reported by the exchange on which the Parent Common Stock is then trading, during the thirty (30) trading days prior to the date of the determination.

Asserted Damages Amount. “Asserted Damages Amount” shall have the meaning set forth in Section 9.10 of the Agreement.

California Commissioner. “California Commissioner” shall have the meaning set forth in Section 5.2 of the Agreement.

Certificate of Merger. “Certificate of Merger” shall have the meaning set forth in Section 1.3 to the Agreement.

CGCL. “CGCL” shall mean the California General Corporation Law.

Closing. “Closing” shall have the meaning set forth in Section 1.3 to the Agreement.

Closing Company Fully Diluted Number. “Closing Company Fully Diluted Number” shall mean the aggregate of (i) Company Preferred Stock (on an as converted to Company Common Stock basis) outstanding immediately prior to the Effective Time, (ii) Company Common Stock outstanding immediately prior to the Effective Time, (iii) Company Preferred Stock (on an as converted to Company Common Stock basis) issuable upon exercise of Company Preferred Warrants outstanding immediately prior to the Effective Time (assuming full exercise of Company Preferred Warrants), (iv) Company Common Stock issuable upon exercise of Company Common Warrants outstanding immediately prior to the Effective Time (assuming full exercise of Company Common Warrants) and (v) Company Common Stock reserved for issuance under the Company Option Plan immediately prior to the Effective Time.

Closing Company Parent Share Number. “Closing Company Parent Share Number” shall mean the product of (a) 34 divided by 66, multiplied by (b) the Closing Parent Fully Diluted Number.

Closing Company Schedule. “Closing Company Schedule” shall have the meaning set forth in Section 1.13 of the Agreement.

Closing Date. “Closing Date” shall have the meaning set forth in Section 1.3 of the Agreement.

Closing Date Company Balance Sheet. “Closing Date Company Balance Sheet” shall have the meaning set forth in Section 1.13(c) of the Agreement.

Closing Date Company Transaction Expense Amount. “Closing Date Company Transaction Expense Amount” shall mean all fees, costs and expenses of the legal advisor to the Company that have been incurred or that are incurred (whether prior to the date of the Agreement, during the Pre-Closing Period or, pursuant to the direction of the Persons who were Representatives of the Company before the Effective Time, at or after the Effective Time) by or on behalf of the Company relating directly or indirectly to, or arising from or in connection with, the transactions contemplated by the Agreement.

Closing Date Parent Balance Sheet. “Closing Date Parent Balance Sheet” shall have the meaning set forth in Section 1.13(c) of the Agreement.

Closing Date Parent Transaction Expense Amount. “Closing Date Parent Transaction Expense Amount” shall mean all fees, costs and expenses of the legal advisors to Parent that have been incurred or that are incurred (whether prior to the date of the Agreement, during the Pre-Closing Period) by or on behalf of Parent relating directly or indirectly to, or arising from or in connection with, the transactions contemplated by the Agreement.

Closing Date Stockholder Liability Amount. “Closing Date Stockholder Liability Amount” shall mean the total Liabilities of the Company to holders of Company equity.

Closing Parent Fully Diluted Number. “Closing Parent Fully Diluted Number” shall mean the aggregate of (i) Parent Preferred Stock (on an as converted to Parent Common Stock basis) outstanding immediately prior to the Effective Time, (ii) Parent Common Stock outstanding immediately prior to the Effective Time, (iii) Parent Preferred Stock (on an as converted to Parent Common Stock basis) issuable upon exercise of each warrant to purchase Parent Preferred Stock that is outstanding immediately prior to the Effective Time (assuming full exercise of such warrants), (iv) Parent Common Stock issuable upon exercise of each warrant to purchase Parent Common Stock that is outstanding immediately prior to the Effective Time (assuming full exercise of such warrants), (v) Parent Common Stock reserved for issuance under the Parent Option Plan immediately prior to the Effective Time and (vi) if Parent has not consummated the acquisition of Arabella Software Ltd. contemplated by that certain Agreement and Plan of Merger and Reorganization dated February 28, 2007 and providing that such agreement has not been terminated prior to the Closing Date, 1,300,000 shares of Parent Common Stock.

Closing Parent Schedule. “Closing Parent Schedule” shall have the meaning set forth in Section 1.13 of the Agreement.

Closing Payment Schedule. “Closing Payment Schedule” shall have the meaning set forth in Section 6.6(o) of the Agreement.

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

Common Stock Escrow Shares. “Common Stock Escrow Shares” shall mean the aggregate number of shares of Parent Common Stock withheld and placed in the Escrow Fund on behalf of Company Common Stockholders pursuant to Section 1.5 of the Agreement.

Company. “Company” shall have the meaning set forth in the introductory paragraph to the Agreement.

Company Acknowledgments of Payment and Release. “Company Acknowledgments of Payment and Release” shall have the meaning set forth in Section 4.6 of the Agreement.

Company Affiliate. “Company Affiliate” shall mean any Person under common control with the Company within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.

Company Associate. “Company Associate” shall mean any current or former officer or other employee, or current or former independent contractor, consultant or director, of or to any of the Company or any Company Subsidiary.

Company Balance Sheet. “Company Balance Sheet” shall have the meaning set forth in Section 2.8 of the Agreement.

Company Capital Stock. “Company Capital Stock” shall mean the Company Common Stock and the Company Preferred Stock.

Company Capital Stock Right. “Company Capital Stock Right” shall have the meaning set forth in Section 2.2(e) of the Agreement.

Company Charter Amendment. “Company Charter Amendment” shall have the meaning set forth in Section 5.3(c) of the Agreement.

Company Charter Documents. “Company Charter Documents” shall have the meaning set forth in Section 2.1 of the Agreement.

Company Charter Vote Requirement. “Company Charter Vote Requirement” shall have the meaning set forth in Section 5.3(d) of the Agreement.

Company Closing Certificate. “Company Closing Certificate” shall have the meaning set forth in Section 6.6 of the Agreement.

Company Common Stock. “Company Common Stock” means the Company’s common stock, par value $0.001 per share.

Company Common Stock Ratio. “Company Common Stock Ratio” shall mean the quotient of (a) the Company Common Stock outstanding immediately prior to the Effective Time divided by (b) the sum of the Company Preferred Stock outstanding immediately prior to the Effective Time and the Company Common Stock outstanding immediately prior to the Effective Time.

Company Common Stockholder. “Company Common Stockholder” shall mean a holder of the Company Common Stock.

Company Common Warrant. “Company Common Warrant” shall have the meaning set forth in Section 1.7 of the Agreement.

Company Contract. “Company Contract” shall mean any Contract: (a) to which the Company or its subsidiaries are a Party, (b) by which the Company (or its subsidiaries’) or any of the Company’s (or its subsidiaries’) assets is or may become bound or under which the Company is (or its subsidiaries are), or may become subject to, any obligation, or (c) under which the Company has (or its subsidiaries have) or may acquire any right or interest.

Company Counsel. “Company Counsel” shall mean Sheppard, Mullin, Xxxxxxx & Hampton LLP.

Company Disclosure Schedule. “Company Disclosure Schedule” shall mean the schedule (dated as of the date of the Agreement) delivered to Parent on behalf of the Company and attached to the Agreement as Exhibit S.

Company Dissenting Shares. “Company Dissenting Shares” shall have the meaning set forth in Section 1.10 of the Agreement.

Company Employee. “Company Employee” shall mean any current or former employee, independent contractor or director of the Company or any Company Subsidiary.

Company Employee Agreement. “Company Employee Agreement” shall mean each management, employment, severance, consulting, relocation, repatriation or expatriation agreement or other Contract between the Company or any Company Subsidiary and any Company Employee, other than any such management, employment, severance, consulting, relocation, repatriation or expatriation agreement or other Contract with a Company Employee which is terminable “at will” without any obligation on the part of the Company or any Company Affiliate to make any payments or provide any benefits in connection with such termination.

Company Employee Plan. “Company Employee Plan” shall mean any plan, program, policy, practice, Contract or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits, pension plan, retirement or early retirement plan or provident fund, or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA (whether or not ERISA is applicable to such plan), that is or has been maintained, contributed to, or required to be contributed to, by the Company or any Company Affiliate for the benefit of any Company Employee, or with respect to which the Company or any Company Affiliate has or may have any liability or obligation, except such definition shall not include any Company Employee Agreement.

Company Expiration Date. “Company Expiration Date” shall have the meaning set forth in Section 9.1(a) of the Agreement.

Company Financial Statements. “Company Financial Statements” shall have the meaning set forth in Section 2.8 of the Agreement.

Company IP. “Company IP” shall mean (a) all Intellectual Property Rights in or pertaining to the Company Products or methods or processes used to manufacture the Company Products, and (b) all other Intellectual Property Rights owned by or exclusively licensed to the Company and the Company Subsidiaries.

Company Material Contract. “Company Material Contract” shall have the meaning set forth in Section 2.14 of the Agreement.

Company Objection Notice. “Company Objection Notice” shall have the meaning set forth in Section 1.13(e) of the Agreement.

Company Option. “Company Option” shall have the meaning set forth in Section 1.6 of the Agreement.

Company Option Plan. “Company Option Plan” shall mean the RF Magic, Inc. 2000 Incentive Stock Plan and the RF Magic, Inc. (France) 2000 Incentive Stock Plan.

Company Option Pool Amendment. “Company Option Pool Amendment” shall have the meaning set forth in Section 5.3(c) of the Agreement.

Company Payment Schedule. “Closing Payment Schedule” shall have the meaning set forth in Section 6.6 of the Agreement.

Company Preferred Stock. “Company Preferred Stock” shall mean the Company’s preferred stock, including the Company Series A Preferred Stock, the Company Series B Preferred Stock and the Company Series C Preferred Stock.

Company Preferred Stock Ratio. “Company Preferred Stock Ratio” shall mean the quotient of (a) the Company Preferred Stock outstanding immediately prior to the Effective Time divided by (b) the sum of the Company Preferred Stock outstanding immediately prior to the Effective Time and the Company Common Stock outstanding immediately prior to the Effective Time.

Company Preferred Stockholder. “Company Preferred Stockholder” shall mean a holder of the Company Preferred Stock.

Company Preferred Warrant. “Company Preferred Warrant” shall have the meaning set forth in Section 1.7 of the Agreement.

Company Product. “Company Product” shall mean any product or service designed, developed, manufactured, or exclusively licensed at any time by the Company or the Company Subsidiaries.

Company Related Parties. “Company Related Parties” shall have the meaning set forth in Section 2.20 of the Agreement.

Company Required Stockholder Vote. “Company Required Stockholder Vote” shall have the meaning specified in Section 2.3(b) of the Agreement.

Company Series A Preferred Stock. “Company Series A Preferred Stock” means the Company’s Series A Preferred Stock, par value $0.001 per share.

Company Series B Preferred Stock. “Company Series B Preferred Stock” means the Company’s Series B Preferred Stock, par value $0.001 per share.

Company Series C Preferred Stock. “Company Series C Preferred Stock” means the Company’s Series C Preferred Stock, par value $0.001 per share.

Company Software. “Company Software” shall have the meaning set forth in Section 2.12(g) of the Agreement.

Company Stock Certificate. “Company Stock Certificate” shall have the meaning set forth in Section 1.8 of the Agreement.

Company Stockholder. “Company Stockholder” shall mean a holder of Company Common Stock or Company Preferred Stock.

Company Subsidiaries. “Company Subsidiaries” shall have the meaning set forth in Section 2.4 of the Agreement.

Company Warrant. “Company Warrant” shall mean a Company Common Warrant or a Company Preferred Warrant, as applicable, and “Company Warrants” shall mean all Company Common Warrants and Company Preferred Warrants.

Company Working Capital. “Company Working Capital” shall mean the Working Capital of the Company on a specified date; provided, that Company Working Capital shall be adjusted upwards for the amount of any Closing Date Company Transaction Expense Amount.

Company Working Capital Deficit Adjustment. “Company Working Capital Deficit Adjustment” shall be equal to the amount by which the Final Company Working Capital Deficit Amount exceeds the Estimated Company Working Capital Deficit Amount, if any.

Company Working Capital Deficit Amount. “Company Working Capital Deficit Amount” shall mean the aggregate absolute amount by which Company Working Capital, as of the Closing Date, is less than the Company Working Capital Projection, provided, however, that in the event that Company Working Capital, as of the Closing Date, is greater than or equal to the Company Working Capital Projection, the Company Working Capital Deficit Amount shall equal zero.

Company Working Capital Pro Rated Projection. “Company Working Capital Pro Rated Projection” shall be equal to the product of:

(i) (a) the difference of (I) the projected Company Working Capital for the last day of the calendar month in which the Closing Date occurs (as set forth in Exhibit T to the Agreement) minus (II) the projected Company Working Capital for the last day of the calendar month immediately preceding the calendar month in which the Closing Date occurs (as set forth in Exhibit T to the Agreement); divided by (b) the number of days between the two month ends described in clauses (I) and (II);

multiplied by

(ii) the number of days elapsed from (but not including) the last day of the calendar month immediately preceding the calendar month in which the Closing Date occurs to (and including) the Closing Date.

Company Working Capital Projection. “Company Working Capital Projection” shall be equal to, (i) if the Closing Date is the last calendar day of a calendar month, the projected Company Working Capital for such day set forth in Exhibit T to the Agreement, and (ii) if the Closing Date is other than the last calendar day of a calendar month, the sum of (a) the projected Company Working Capital for the last day of the calendar month preceding the calendar month in which the Closing Date occurs and (b) the Company Working Capital Pro Rated Projection.

Consent. “Consent” shall mean any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).

Contract. “Contract” shall mean any written, oral or other agreement, contract, subcontract, lease, understanding, instrument, note, warranty, insurance policy, benefit plan or legally binding commitment or undertaking of any nature.

Current Assets. “Current Assets” shall mean the aggregate amount of the accounts receivable, short-term investments, inventory and prepaid and other current assets of the (including cash and cash equivalents).

Current Liabilities. “Current Liabilities” shall mean the accounts payable and accrued liabilities (including the short-term portion of capitalized leases and long-term liabilities and accruals for doubtful accounts).

Damages. “Damages” shall include any loss, damage, injury, decline in value, liability, claim, demand, settlement, judgment, award, fine, penalty, Tax, fee (including reasonable attorneys’ fees), charge, cost (including costs of investigation) or expense of any nature.

Deemed Estimated Company Working Capital Deficit Amount. “Deemed Estimated Company Working Capital Deficit Amount” shall mean the Estimated Company Working Capital Deficit Amount divided by the Agreement Conversion Price.

Deemed Estimated Parent Working Capital Deficit Amount. “Deemed Estimated Parent Working Capital Deficit Amount” shall mean the Estimated Parent Working Capital Deficit Amount divided by the Agreement Conversion Price.

Defense Conditions. “Defense Conditions” shall have the meaning set forth in Section 9.9(f).

Description of Company Variances. “Description of Company Variances” shall have the meaning set forth in Section 1.13(f) of the Agreement.

Description of Parent Variances. “Description of Parent Variances” shall have the meaning set forth in Section 1.13(g) of the Agreement.

DGCL. “DGCL” shall mean the Delaware General Corporation Law.

DOL. “DOL” shall mean the United States Department of Labor.

Effective Time. “Effective Time” shall have the meaning set forth in Section 1.3 to the Agreement.

Eligible Stock Option. “Eligible Stock Option” shall mean any Company Stock Option other than (a) a French Stock Option for which a Put-Call Agreement is not in place, as described in Section 1.6(b), and (b) Company Stock Options issued to residents of the United Kingdom and Taiwan that Parent shall not be obligated to assume pursuant to Section 1.6(c).

Encumbrance. “Encumbrance” shall mean any lien, pledge, hypothecation, charge, mortgage, security interest, encumbrance, claim, infringement, interference, option, right of first

refusal, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).

Entity. “Entity” shall mean any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, organization or entity.

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

Escrow Cash. “Escrow Cash” shall mean the proceeds from the sale of the Escrow Shares pursuant to Section 12 of the Escrow Agreement.

Escrow Contributors. “Escrow Contributors” shall mean the holders of Company Common Stock, Company Series A Preferred Stock, Company Series B Preferred Stock and Company Series C Preferred Stock on whose behalf any amounts have been or are required to be contributed to the Escrow Fund in accordance with Section 1.5 and 1.13 of the Agreement.

Escrow Fund. “Escrow Fund” shall mean the escrow fund established pursuant to the Escrow Agreement.

Escrow Percentage. “Escrow Percentage” shall mean 15%.

Escrow Shares. “Escrow Shares” shall mean the sum of the Common Stock Escrow Shares and the Preferred Stock Escrow Shares.

Estimated Company Working Capital Deficit Amount. “Estimated Company Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13 of the Agreement.

Estimated Parent Working Capital Deficit Amount. “Estimated Parent Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13 of the Agreement.

Excess Company Transaction Expense Amount. “Excess Company Transaction Expense Amount” shall mean the quotient of (i) the amount by which the Closing Date Company Transaction Expense Amount exceeds $350,000, if any, divided by (ii) the Agreement Conversion Price.

Excess Parent Transaction Expense Amount. “Excess Parent Transaction Expense Amount” shall mean the quotient of (i) the amount by which the Closing Date Parent Transaction Expense Amount exceeds $350,000, if any, divided by (ii) the Agreement Conversion Price.

Exchange Ratio. “Exchange Ratio” shall mean (a) (A) the Closing Company Parent Share Number minus (B) the Deemed Estimated Company Working Capital Deficit Amount and the Excess Company Transaction Expense Amount, if any, plus (C) the Deemed Estimated Parent Working Capital Deficit Amount and the Excess Parent Transaction Expense Amount, if any; divided by (b) the Closing Company Fully Diluted Number.

Fairness Approval. “Fairness Approval” shall have the meaning set forth in Section 5.2 of the Agreement.

Fairness Hearing. “Fairness Hearing” shall have the meaning set forth in Section 5.2 of the Agreement.

Final Company Working Capital Deficit. “Final Company Working Capital Deficit” shall have the meaning set forth in Section 1.13(j) of the Agreement.

Final Parent Working Capital Deficit. “Final Parent Working Capital Deficit” shall have the meaning set forth in Section 1.13(j) of the Agreement.

French Stock Option. “French Stock Option” shall mean a Company Stock Option issued pursuant to the RF Magic, Inc. (France) 2000 Incentive Stock Plan.

GAAP. “GAAP” shall have the meaning set forth in Section 2.8 of the Agreement.

Government Contract. “Government Contract” shall mean any prime contract, subcontract, letter contract, purchase order or delivery order executed or submitted to or on behalf of any Governmental Body or any prime contractor or higher-tier subcontractor, or under which any Governmental Body or any such prime contractor or subcontractor otherwise has or may acquire any right or interest.

Governmental Authorization. “Governmental Authorization” shall mean any: (a) permit, license, certificate, franchise, permission, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement; or (b) right under any Contract with any Governmental Body.

Governmental Body. “Governmental Body” shall mean any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or Entity and any court or other tribunal).

Indemnification Demand. “Indemnification Demand” shall have the meaning set forth in Section 9.10 of the Agreement

Indemnified Party. “Indemnified Party” shall have the meaning set forth in Section 9.10 of the Agreement

Indemnifying Party Election. “Indemnifying Party Election” shall have the meaning set forth in Section 9.9(b) of the Agreement.

Information Statement. “Information Statement” shall have the meaning set forth in Section 5.3(a) of the Agreement.

10.

Intellectual Property. “Intellectual Property” shall mean and include all algorithms, application programming interfaces, apparatus, chemical compositions or structures, circuit designs and assemblies, databases and data collections, diagrams, formulae, gate arrays, IP cores, inventions (whether or not patentable), know-how, logos, marks (including brand names, product names, logos, and slogans), methods, network configurations and architectures, net lists, photomasks, processes, proprietary information, protocols, schematics, specifications, software, software code (in any form including source code and executable or object code), subroutines, test results, test vectors, user interfaces, techniques, URLs, web sites, works of authorship, and other forms of technology (whether or not embodied in any tangible form and including all tangible embodiments of the foregoing such as instruction manuals, laboratory notebooks, prototypes, samples, studies, and summaries).

Intellectual Property Rights. “Intellectual Property Rights” shall mean and include all rights of the following types, which may exist or be created under the laws of any jurisdiction in the world: (a) rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights, and mask works; (b) trademark and trade name rights and similar rights; (c) trade secret rights; (d) patents and industrial property rights; and (e) all registrations, renewals, extensions, continuations, divisions, or reissues of, and applications for, any of the rights referred to in clauses (a) through (d) above.

IRS. “IRS” shall mean the United States Internal Revenue Service.

Knowledge. “Knowledge” shall mean, with respect to any fact, circumstance, event or other matter in question, the actual knowledge of such fact, circumstance, event or other matter in question of, (A) with respect to the Company, Xxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxx Xxxxx, Xxxx X. Xxxxxxx, Xxxxx X. Xxxx, Xxxxxxxxx Xxxxxxxx, Xxxxxx Xxxxxx, Xxxxxx X. Xxxxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxx, Xxxxx Xxxxx, and Xxxxxxxx Xxxxxx and (B) with respect to Parent or Merger Sub, Xxxxx Xxxxxxxxx, Xxxx Xxxxxx, Xxxxxxx Xxxxx, Xxxxxxx Economy, Xxx Xxxxxx, Xxxx Xxxxx, Xxxxx Xxxx, Xxxx Xxxxxx, Xxxxx Xxxxxxx, and Xxxxxxxx Xxxxxx.

Legal Proceeding. “Legal Proceeding” shall mean any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.

Legal Requirement. “Legal Requirement” shall mean any applicable federal, state, local, municipal, foreign or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.

Letter of Intent. “Letter of Intent” shall mean the letter of intent dated March 16, 2006, by and between Parent and the Company.

Liability. “Liability” shall mean any liability or obligation of whatever kind of nature (whether known of unknown, whether asserted or unasserted, whether absolute or contingent, whether assured or unassured, whether liquidated or unliquidated, and whether due or to become due).

11.

Long-Term Liabilities. “Long-Term Liabilities” shall mean liabilities that are due to be paid in more than one year.

Material Adverse Effect. A violation or other matter will be deemed to have a “Material Adverse Effect” on the Person if such violation or other matter (considered together with all other matters that would constitute exceptions to the representations and warranties set forth in the Agreement but for the presence of “Material Adverse Effect” or other materiality qualifications, or any similar qualifications, in such representations and warranties) would have a material adverse effect on the Person’s business, condition, assets, intellectual property, liabilities, operations or financial performance; provided, however, that none of the following (individually or in combination) shall be deemed to constitute, or shall be taken into account in determining whether there has been or would be, a Material Adverse Effect: (i) any change, event, violation, inaccuracy, circumstance or effect (each, an “Effect”) resulting from general business or economic conditions in the United States to the extent such Effect does not disproportionately affect such entity; (ii) any Effect resulting from conditions generally affecting the industry in which such party operates to the extent such Effect does not disproportionately affect such entity; (iii) any Effect to the extent resulting from the announcement or pendency of the Merger; and (iv) any Effect resulting from the circumstances described in Section 2.9(a) of the Company Disclosure Schedule.

Merger. “Merger” shall have the meaning set forth in Recital A to the Agreement.

Merger Securities. “Merger Securities” shall have the meaning set forth in Section 3.18 of the Merger Agreement.

Merger Sub. “Merger Sub” shall have the meaning set forth in the introductory paragraph to the Agreement.

Neutral Auditor. “Neutral Auditor” shall have the meaning set forth in Section 1.13(i) of the Agreement.

Order. “Order” shall have the meaning set forth in Section 10.1.

Ordinary Course. “Ordinary Course” shall mean an action taken by a Person that does not require authorization by the board of directors or stockholders of such Person (or by any Person or group of Persons exercising similar authority) or any other separate or special authorization of any nature, and either (a) is consistent in nature, scope and magnitude with the past practices of such Person and is taken in the ordinary course of the normal, day-to day operations of such Person; or (b) is similar in nature, scope and magnitude to actions customarily taken, without any separate or special authorization, in the ordinary course of the normal, day-to-day operations of other Persons that are in the same line of business as such Person.

Parent. “Parent” shall have the meaning set forth in the introductory paragraph to the Agreement.

Parent Acknowledgments of Payment and Release. “Parent Acknowledgments of Payment and Release” shall have the meaning set forth in Section 4.6 of the Agreement.

12.

Parent Affiliate. “Parent Affiliate” shall mean any Person under common control with the Parent within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.

Parent Associate. “Parent Associate” shall mean any current or former officer or other employee, or current or former independent contractor, consultant or director, of or to any of Parent or the Parent Subsidiary.

Parent Balance Sheet. “Parent Balance Sheet” shall have the meaning set forth in Section 3.8 of the Agreement.

Parent Capital Stock. “Parent Capital Stock” shall have the meaning set forth in Section 3.2(e) of the Agreement.

Parent Charter Amendment. “Parent Charter Amendment” shall have the meaning set forth in Section 5.3(g) of the Agreement.

Parent Charter Documents. “Parent Charter Documents” shall have the meaning set forth in Section 3.1 of the Agreement.

Parent Closing Certificate. “Parent Closing Certificate” shall have the meaning set forth in Section 7.6(c) of the Agreement.

Parent Common Stock. “Parent Common Stock” means Parent’s common stock, par value $0.001 per share.

Parent Disclosure Schedule. “Parent Disclosure Schedule” shall mean the schedule (dated as of the date of the Agreement) delivered to the Company on behalf of Parent and the Merger Sub and attached to the Agreement as Exhibit U.

Parent Dissenting Shares. “Parent Dissenting Shares” shall have the meaning set forth in Section 1.11 of the Agreement.

Parent Employee. “Parent Employee” shall mean any current or former employee, independent contractor or director of Parent or the Parent Subsidiary.

Parent Employee Agreement. “Parent Employee Agreement” shall mean each management, employment, severance, consulting, relocation, repatriation or expatriation agreement or other Contract between Parent or the Parent Subsidiary and any Parent Employee, other than any such management, employment, severance, consulting, relocation, repatriation or expatriation agreement or other Contract with a Parent Employee which is terminable “at will” without any obligation on the part of Parent or the Parent Subsidiary to make any payments or provide any benefits in connection with such termination.

Parent Employee Plan. “Parent Employee Plan” shall mean any plan, program, policy, practice, Contract or other arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock-related awards, fringe benefits, pension plan, retirement or early retirement plan or provident fund, or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including each “employee benefit plan,” within the meaning of Section 3(3) of ERISA (whether

13.

or not ERISA is applicable to such plan), that is or has been maintained, contributed to, or required to be contributed to, by Parent or any Parent Affiliate for the benefit of any Parent Employee, or with respect to which Parent or any Parent Affiliate has or may have any liability or obligation, except such definition shall not include any Parent Employee Agreement.

Parent Escrow Cap. “Parent Escrow Cap” shall mean the product of the aggregate number of Escrow Shares immediately following the Closing multiplied by $2.00, adjusted as appropriate to reflect any stock split, reverse stock split, stock dividend or similar transaction effected by Parent.

Parent Expiration Date. “Parent Expiration Date” shall have the meaning set forth in Section 9.1(a) of the Agreement.

Parent Financial Statements. “Parent Financial Statements” shall have the meaning set forth in Section 3.8 of the Agreement.

Parent Indemnitees. “Parent Indemnitees” shall mean the following Persons: (a) Parent; (b) Parent’s current and future affiliates (including the Surviving Corporation); (c) the respective Representatives of the Persons referred to in clauses “(a)” and “(b)” above; and (d) the respective successors and assigns of the Persons referred to in clauses “(a)”, “(b)” and “(c)” above.

Parent IP. “Parent IP” shall mean (a) all Intellectual Property Rights in or pertaining to the Parent Products or methods or processes used to manufacture the Parent Products, and (b) all other Intellectual Property Rights owned by or exclusively licensed to Parent and the Parent Subsidiary.

Parent Long-Term Liabilities. “Parent Long-Term Liabilities” shall mean the Long-Term Liabilities of Parent on a specified date.

Parent Material Contract. “Parent Material Contract” shall have the meaning set forth in Section 3.14 of the Agreement.

Parent Objection Notice. “Parent Objection Notice” shall have the meaning set forth in Section 1.13(e) of the Agreement.

Parent Option. “Parent Option” shall mean options to purchase Parent Common Stock.

Parent Option Plan. “Parent Option Plan” shall mea Parent’s 2001 Stock Option Plan.

Parent Option Pool Amendment. “Parent Option Pool Amendment” shall have the meaning set forth in Section 5.3(c) of the Agreement.

Parent Preferred Stock. “Parent Preferred Stock” shall mean Parent’s preferred stock, including the Parent Series A Preferred Stock, the Parent Series B Preferred Stock and the Parent Series C Preferred Stock.

Parent Product. “Parent Product” shall mean any product or service designed, developed, manufactured, or exclusively licensed at any time by Parent or the Parent Subsidiary.

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Parent Proposed Company Working Capital Deficit Amount. “Parent Proposed Company Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13(c) of the Agreement.

Parent Proposed Parent Working Capital Deficit Amount. “Parent Proposed Parent Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13(c) of the Agreement.

Parent Related Parties. “Parent Related Parties” shall have the meaning set forth in Section 3.20 of the Agreement.

Parent Required Stockholder Vote. “Parent Required Stockholder Vote” shall have the meaning set forth in Section 3.3(b) of the Agreement.

Parent Series A Preferred Stock. “Parent Series A Preferred Stock” means Parent’s Series A Preferred Stock, par value $0.001 per share.

Parent Series B Preferred Stock. “Parent Series B Preferred Stock” means Parent’s Series B Preferred Stock, par value $0.001 per share.

Parent Series C Preferred Stock. “Parent Series C Preferred Stock” means Parent’s Series C Preferred Stock, par value $0.001 per share.

Parent Series D Preferred Stock. “Parent Series D Preferred Stock” means the newly issued (a) Series D-1 Preferred Stock, par value $0.001 per share, of Parent, (b) Series D-2 Preferred Stock, par value $0.001 per share, of Parent and (c) Series D-3 Preferred Stock, par value $0.001 per share, of Parent.

Parent Software. “Parent Software” shall have the meaning set forth in Section 3.12(g) of the Agreement.

Parent Subsidiary. “Parent Subsidiary” shall have the meaning set forth in Section 3.4 of the Agreement.

Parent Warrants. “Parent Warrants” shall have the meaning set forth in Section 3.2(c) of the Agreement.

Parent Working Capital. “Parent Working Capital” shall mean the Working Capital of Parent on a specified date; provided, that Parent Working Capital shall be adjusted upwards for the amount of any Closing Date Parent Transaction Expense Amount.

Parent Working Capital Adjustment Shares. “Parent Working Capital Adjustment Shares” shall mean the aggregate number of shares of Parent D-1 Preferred Stock, Parent D-2 Preferred Stock, Parent D-3 Preferred Stock and Parent Common Stock equal to the quotient of (a) the Parent Working Capital Deficit Adjustment divided by (b) the Agreement Conversion Price.

Parent Working Capital Deficit Adjustment. “Parent Working Capital Deficit Adjustment” shall be equal to the amount by which the Final Parent Working Capital Deficit Amount exceeds the Estimated Parent Working Capital Deficit Amount, if any.

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Parent Working Capital Deficit Amount. “Parent Working Capital Deficit Amount” shall mean the aggregate absolute amount by which Parent Working Capital, as of the Closing Date, is less than the Parent Working Capital Projection, provided, however, that in the event that Parent Working Capital, as of the Closing Date, is greater than or equal to the Parent Working Capital Projection, the Parent Working Capital Deficit Amount shall equal zero.

Parent Working Capital Pro Rated Projection. “Parent Working Capital Pro Rated Projection” shall be equal to the product of:

(i) (a) the difference of (I) the projected Parent Working Capital for the last day of the calendar month in which the Closing Date occurs (as set forth in Exhibit T to the Agreement) minus (II) the projected Parent Working Capital for the last day of the calendar month immediately preceding the calendar month in which the Closing Date occurs (as set forth in Exhibit T to the Agreement); divided by (b) the number of days between the two month ends described in clauses (I) and (II);

multiplied by

Parent Working Capital Projection. “Parent Working Capital Projection” shall be equal to, (i) if the Closing Date is the last calendar day of a calendar month, the projected Parent Working Capital for such day set forth in Exhibit T to the Agreement, and (ii) if the Closing Date is other than the last calendar day of a calendar month, the sum of (a) the projected Parent Working Capital for the last day of the calendar month preceding the calendar month in which the Closing Date occurs and (b) the Parent Working Capital Pro Rated Projection.

Permit Application. “Permit Application” shall have the meaning set forth in Section 5.2 of the Agreement.

Pro Rata Share. “Pro Rata Share” shall mean, with respect to a particular Company Stockholder, a fraction, the numerator of which is the number of shares of Company Common Stock and/or Company Preferred Stock held by such Company Stockholder immediately prior to the Closing and the denominator of which is the total number of shares of Company Capital Stock held by all Company Stockholders immediately prior to the Closing.

Person. “Person” shall mean any individual, Entity or Governmental Body.

Pre-Closing Period. “Pre-Closing Period” shall have the meaning set forth in Section 4.1 of the Agreement.

Pre-Closing Tax Period. “Pre-Closing Tax Period” shall have the meaning set forth in Section 9.12(a) of the Agreement.

Preferred Stock Agreements. “Preferred Stock Agreements” shall have the meaning set forth in Section 6.14 of the Agreement.

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Preferred Stock Escrow Shares. “Preferred Stock Escrow Shares” shall mean the aggregate number of shares of (i) Parent Series D-1 Preferred Stock, (ii) Parent Series D-2 Preferred Stock and (iii) Parent D-3 Preferred Stock, withheld and placed in the Escrow Fund on behalf of Company Preferred Stockholders pursuant to Section 1.5.

Put-Call Agreement. “Put-Call Agreement” shall have the meaning set forth in Section 1.6(b).

Qualified IPO. “Qualified IPO” shall mean a firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of Parent Common Stock (other than a registration on Form X-0, Xxxx X-0 or comparable or successor forms), with aggregate gross proceeds (prior to underwriters’ commissions and expenses) to Parent of more than $20,000,000 and a per share price of not less than $2.4051.

Registered IP. “Registered IP” shall mean all Intellectual Property Rights that are registered, filed, or issued under the authority of any Governmental Body, including all patents, registered copyrights, registered mask works, and registered trademarks and all applications for any of the foregoing.

Representatives. “Representatives” shall mean officers, directors, employees, agents, attorneys, accountants, advisors and representatives.

Resolution Period. “Resolution Period” shall have the meaning set forth in Section 1.13(h) of the Agreement.

Response. “Response” shall have the meaning set forth in Section 9.10 of the Agreement.

SEC. “SEC” shall mean the United States Securities and Exchange Commission.

Securities Act. “Securities Act” shall mean the Securities Act of 1933, as amended.

Stockholders’ Representative Proposed Company Working Capital Deficit Amount. “Stockholders’ Representative Proposed Company Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13(f) of the Agreement.

Stockholders’ Representative Proposed Parent Working Capital Deficit Amount. “Stockholders’ Representative Proposed Parent Working Capital Deficit Amount” shall have the meaning set forth in Section 1.13(g) of the Agreement.

Superior Offer. “Superior Offer” shall mean an unsolicited bona fide written offer or proposal by a third party to enter into (a) a merger, consolidation, recapitalization, exchange offer or similar transaction as a result of which either (x) the stockholders of the Company prior to such transaction in the aggregate cease to own at least fifty percent (50%) of the voting securities of the entity surviving or resulting from such transaction (or the ultimate parent entity thereof) or (y) a Person or “group” (as defined in the Securities Exchange Act of 1934 and the rules promulgated thereunder) directly or indirectly acquires beneficial or record ownership of securities representing fifty percent (50%) or more of the Company Common Stock and Company Preferred Stock, taken together on an as-converted basis or (b) a sale, exclusive

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license, or other disposition of all or substantially all of the assets of the Company, in the case of clauses (a) and (b), in a single transaction or a series of related transactions, that: (1) was not obtained or made as a direct or indirect result of a breach of (or any action inconsistent with) any provision of the Agreement or any “standstill” or similar Contract under which the Company or any Subsidiary has any rights or obligations; (2) is not subject to a financing contingency; and (3) is determined by the board of directors of the Company, in its good faith judgment, after obtaining and taking into account such information that the board of directors of the Company deems relevant, and after taking into account the likelihood and anticipated timing of consummation, to be more favorable, from a financial point of view, to the Company’s stockholders than the Merger.

Surviving Corporation. “Surviving Corporation” shall have the meaning set forth in Section 1.1 of the Agreement.

Tax. “Tax” shall mean any tax (including any income tax, franchise tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, withholding tax or payroll tax), levy, assessment, tariff, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Body.

Tax Return. “Tax Return” shall mean any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Legal Requirement relating to any Tax.

Written Consents. “Written Consents” shall have the meaning set forth in Section 5.3(a) of the Agreement.

Working Capital. “Working Capital” shall mean Current Assets less the sum of (a) Current Liabilities and (b) Long-Term Liabilities;

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION among: ENTROPIC COMMUNICATIONS, INC., a Delaware corporation; RAPTOR ACQUISITION SUB, INC., a Delaware corporation; RF MAGIC, INC., a Delaware corporation; and (solely for purposes of Section 9 and 10.1)...

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