AGREEMENT AND PLAN OF MERGER

by and among

VECTOR STEALTH HOLDINGS II, L.L.C.,

STEALTH ACQUISITION CORP.

and

SAFENET, INC.

Dated as of March 5, 2007

AGREEMENT AND PLAN OF MERGER, dated as of March 5, 2007 (the "Agreement"), among Vector Stealth Holdings II, L.L.C., a Delaware limited liability company ("Parent"), Stealth Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent ("Merger Sub"), and SafeNet, Inc., a Delaware corporation (the "Company").

WITNESSETH :

WHEREAS, the parties intend that Merger Sub be merged with and into the Company (the "Merger"), with the Company surviving the Merger as a wholly owned subsidiary of Parent;

WHEREAS, on the terms and subject to the conditions set forth herein, Merger Sub has agreed to commence a tender offer (the "Offer") to purchase all outstanding shares of common stock, par value $0.01 per share, of the Company (the "Shares"), at a price of $28.75 per Share, net to the seller in cash without interest (such price, or any higher price as may be paid in the Offer in accordance with this Agreement, the "Per Share Amount");

WHEREAS, following consummation of the Offer, Merger Sub shall merge with and into the Company in the Merger and each Share that is issued and outstanding immediately prior to the Effective Time (other than Shares owned directly or indirectly by Parent, Merger Sub or the Company, which will be canceled with no consideration issued in exchange therefor) will be canceled and converted into the right to receive cash in an amount equal to the Per Share Amount, all upon the terms and conditions set forth herein;

WHEREAS, the parties intend that the Company shall survive the Merger as a wholly owned subsidiary of Parent;

WHEREAS, the board of directors of the Company (the "Board of Directors") has (i) determined that it is in the best interests of the Company and its stockholders, and declared it advisable, to enter into this Agreement, (ii) approved the execution, delivery and performance of this Agreement, and (iii) determined to recommend that the Company's stockholders accept the Offer and tender their Shares to Merger Sub and, to the extent applicable, to adopt this Agreement;

WHEREAS, the boards of directors of Parent and Merger Sub have approved this Agreement and declared it advisable for Parent and Merger Sub, respectively, to enter into this Agreement; and

WHEREAS, Parent, Merger Sub and the Company desire to make certain representations, warranties, covenants and agreements specified herein in connection with this Agreement.

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

ARTICLE I

THE TENDER OFFER

Section 1.1 The Offer.

(a) Provided that this Agreement shall not have been terminated in accordance with Section 8.1, Merger Sub shall, and Parent shall cause Merger Sub to, as promptly as practicable following the execution of this Agreement, and in any event within five (5) Business Days following the date of this Agreement (or such other later date as the parties may mutually agree in writing commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) the Offer to purchase all outstanding Shares at the Per Share Amount; provided, however, that such five (5) Business Day deadline to commence the Offer will be extended until such date as the Company is ready to file the Schedule 14D-9 on the same date as the commencement of the Offer. The Per Share Amount shall be net to the seller in cash, subject to reduction only for any applicable federal backup withholding or stock transfer taxes payable by the seller. The obligations of Merger Sub to, and of Parent to cause Merger Sub to, accept for payment and to pay for any Shares tendered pursuant to the Offer shall be subject to only those conditions set forth in Annex I (the "TenderOffer Conditions"). The Company agrees that no Shares held by the Company or any of its Subsidiaries (other than any Shares held on behalf of third parties) will be tendered pursuant to the Offer.

(b) Parent on behalf of Merger Sub expressly reserves the right from time to time, subject to Sections 1.1(c) and 1.1(d), to waive any Tender Offer Condition, increase the Per Share Amount, provided that without the prior written consent of the Company, Merger Sub shall not, and Parent shall cause Merger Sub not to (i) decrease the Per Share Amount or change the form of consideration payable in the Offer, (ii) decrease the number of Shares sought to be purchased in the Offer, (iii) amend or waive satisfaction of the Minimum Condition (as defined in Annex I), (iv) impose additional conditions to the Offer, (v) modify or amend the Tender Offer Conditions (other than to waive such Tender Offer Conditions (other than the Minimum Condition)) or (vi) modify or amend any other term of the Offer, in the case of this clause (vi), in any manner (A) adverse to the holders of Shares or (B) which would reasonably be expected to result in, individually or in the aggregate, a Parent Material Adverse Effect; provided that (A) the Minimum Condition may be lowered as a result of the Companys becoming Current (as defined in Annex I) without the Companys consent as provided on Annex I hereto, and (B) Parent may, at its option and in its sole discretion, reduce the Minimum Condition to no less than a majority of the number of Shares outstanding assuming the full exercise of all options, rights and convertible securities (if any) with an exercise price of less than the Offer Price and the issuance of all Shares the Company is obligated to issue thereunder, in each case without the prior written consent of the Company.

(c) On the date of commencement of the Offer, Parent and Merger Sub shall file or cause to be filed with the SEC a Tender Offer Statement on Schedule TO (together with all amendments and supplements thereto, the "Schedule TO") with respect to the Offer which shall contain or incorporate by reference the offer to purchase (the "Offer to Purchase") and related letter of transmittal and summary advertisement and other ancillary Offer documents and instruments pursuant to which the Offer will be made (collectively with any supplements or amendments thereto, the "Offer Documents"). Parent, Merger Sub and the Company each agrees to promptly correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect and Merger Sub shall, and Parent further agrees to cause Merger Sub to, use reasonable best efforts to cause the Schedule TO, as so corrected or supplemented, to be filed with the SEC and the Offer Documents, as so corrected or supplemented, to be disseminated to holders of Shares, in each case as and to the extent required by applicable Federal securities laws as determined in Parents reasonable judgment. The Company and its counsel shall be given a reasonable opportunity to review and comment on any Offer Documents (including each amendment or supplement thereto) before they are filed with the SEC. Merger Sub shall, and Parent agrees to cause Merger Sub to, provide the Company with (in writing, if written), and to consult with the Company regarding, any comments (written or oral) that may be received by Parent, Merger Sub or their counsel from the SEC or its staff with respect to the Offer Documents as promptly as practicable after receipt thereof. The Company and its counsel shall be given a reasonable opportunity to review any such written and oral comments and proposed responses.

(d) The Offer to Purchase shall provide for an expiration date of the 20th Business Day (as defined in Rule 14d-1 under the Exchange Act, "Business Day") following (and including the day of) the commencement of the Offer (such date, or such subsequent date to which the expiration of the Offer is extended pursuant to and in accordance with the terms of this agreement, the "Expiration Date"). Merger Sub shall not, and Parent agrees that it shall cause Merger Sub not to, terminate or withdraw the Offer other than in connection with the effective termination of this Agreement in accordance with Section 8.1 hereof. Except as provided in this Section 1.1(d), Merger Sub shall not, and Parent shall cause Merger Sub not to, extend or delay the Expiration Date (or expiration time) without the prior written consent of the Company. Notwithstanding the foregoing, Merger Sub and Parent may, without receiving the consent of the Company, (A) extend the Expiration Date for any period required by applicable rules and regulations of the SEC, the NASDAQ Global Market (the "NASDAQ") or any other stock exchange or automated quotation system applicable to the Offer, or (B) in the event the Acceptance Date occurs but Parent does not acquire a number of Shares sufficient to enable a Short Form Merger to occur (assuming exercise of the Top-Up Option in full), elect to provide a subsequent offering period for the Offer in accordance with Rule 14d-11 of the Exchange Act. So long as the Offer and this Agreement have not been terminated pursuant to Section 8.1, if at any scheduled Expiration Date, the Tender Offer Conditions shall not have been satisfied or earlier waived, Merger Sub shall, and Parent shall cause Merger Sub to extend the Offer and the Expiration Date to a date that is not more than ten (10) Business Days after such previously scheduled Expiration Date; provided that Merger Sub shall not be required to, and Parent shall not be required to cause Merger Sub to, extend the Offer beyond the End Date. In the event the Acceptance Date occurs but Parent does not acquire a number of Shares sufficient to enable a Short Form Merger to occur (assuming exercise of the Top-Up Option in full), Merger Sub may provide one or more "subsequent offering periods" for the Offer in accordance with Rule 14d-11 under the Exchange Act for a number of days to be determined by Parent which shall be not less than three (3) nor more than twenty (20) Business Days in the aggregate; provided that Merger Sub shall, and Parent shall cause Merger Sub to, immediately accept and promptly pay for all Shares tendered during the initial offering period and immediately accept and promptly pay for all Shares tendered during each such subsequent offering period, in each case in accordance with Rule 14d-11 under the Exchange Act.

(e) Subject solely to the satisfaction or waiver (to the extent permitted by this Agreement) by Merger Sub of the Tender Offer Conditions, Merger Sub shall, and Parent shall cause Merger Sub to, as soon as possible after the scheduled expiration of the Offer (as it may be extended in accordance with Section 1.1(d)), accept for payment Shares validly tendered and not withdrawn pursuant to the Offer (the date of acceptance for payment, the "Acceptance Date," and the time of acceptance for payment on the Acceptance Date, the "Acceptance Time") and promptly pay for such Shares. Parent shall or shall cause Merger Sub to provide or cause to be provided to the Paying Agent on a timely basis the funds necessary to purchase any Shares that Merger Sub becomes obligated to purchase pursuant to the Offer.

Section 1.2 Company Action.

(a) The Board of Directors, at a duly called and held meeting, has unanimously adopted resolutions: (i) determining that the terms of the Offer, the Merger and the other transactions contemplated by this Agreement are fair and in the best interests of the Company and its stockholders, and declaring it advisable, to enter into this Agreement; (ii) approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Offer and the Merger; (iii) approving the Recommendation; (iv) rendering the limitations on business combinations contained in Section 203 of the General Corporation Law of the State of Delaware (the "DGCL") inapplicable to the Offer, this Agreement and the transactions contemplated hereby and thereby; and (v) electing that the Offer and the Merger, to the extent of the Board of Directors' power and authority and to the extent permitted by law, not to be subject to any "moratorium," "control share acquisition," "business combination," "fair price" or other form of anti-takeover laws and regulations (collectively, "Takeover Laws") of any jurisdiction that may purport to be applicable to the Offer, the Merger, this Agreement or the transactions contemplated hereby. Unless and until a Change of Recommendation has taken place in accordance with the terms of this Agreement, the Company hereby consents to the inclusion of the foregoing determinations and approvals in the Offer Documents and the Company hereby consents to the inclusion of the Recommendation in the Offer Documents.

(b) On the date of commencement of the Offer if practicable and otherwise not later than the fifth Business Day following the date of this Agreement, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the "Schedule 14D-9") that will comply in all material respects with the provisions of all applicable Federal securities laws. The Company shall use its reasonable best efforts to cause such Schedule 14D-9 to be disseminated to the stockholders of the Company concurrently with the Offer Documents, and in any event will cause such Schedule 14D-9 to be disseminated to the stockholders of the Company as promptly as possible. Subject to any Change of Recommendation in accordance with this Agreement, the Schedule 14D-9 and the Offer Documents shall contain the Recommendation. The Company agrees to promptly correct the Schedule 14D-9 if and to the extent that it shall become false or misleading in any material respect (and each of Parent and Merger Sub, with respect to written information supplied by it specifically for use in the Schedule 14D-9, shall promptly notify the Company of any required corrections of such information and cooperate with the Company with respect to correcting such information) and to supplement the information contained in the Schedule 14D-9 to include any information that shall become necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall use reasonable best efforts to cause the Schedule 14D-9 as so corrected or supplemented to be filed with the SEC and disseminated to the Companys stockholders to the extent required by applicable Federal securities laws as determined in the Companys reasonable judgment. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 (including each amendment or supplement thereto) before it is filed with the SEC. The Company shall provide Parent and Merger Sub (in writing, if written), and consult with Parent and Merger Sub regarding, any comments (written or oral) the Company or its counsel may receive from the SEC or its staff with respect to the Schedule 14D-9 as promptly as practicable after receipt of such comments. Parent and its counsel shall be given a reasonable opportunity to review any such written and oral comments and proposed responses.

(c) In connection with the Offer, the Company shall reasonably promptly following execution of this Agreement (and in any event within three (3) Business Days) furnish Parent with a list of its stockholders of record, mailing labels containing the names and addresses of all record holders of Shares, non-objecting beneficial owners list and security position listings of Shares held in stock depositories, each as of the most recent practicable date, and shall reasonably promptly furnish Parent with such additional information, including updated lists of stockholders, mailing labels, security position listings and computer files, and such other information and assistance as Merger Sub or its agents may reasonably request for the purpose of communicating the Offer to the record and beneficial holders of Shares.

(d) At any time after the Acceptance Date, Parent may request the Company to take all necessary actions, and the Company agrees to take such actions, to deregister the Company Common Shares under the Exchange Act and/or to delist the Shares from NASDAQ if (A) such actions are otherwise permitted under applicable Law and (B) such actions are reasonably expected to permit the Closing to occur sooner than it would otherwise occur.

Section 1.3 Directors. Effective upon the acceptance for payment by Parent or Merger Sub for all Shares tendered pursuant to the Offer which represent at least a majority of the Shares outstanding, and from time to time thereafter as Shares are acquired by Parent or Merger Sub, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Board of Directors as will give Parent, subject to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, representation on the Board of Directors equal to at least that number of directors which equals the product of the total number of directors on the Board of Directors (giving effect to the directors appointed or elected pursuant to this sentence and including current directors serving as officers of the Company and to the number of the Independent Directors specified below) multiplied by the percentage that the aggregate number of Shares beneficially owned by Parent or any affiliate of Parent (including for purposes of this Section 1.3 such Shares as are accepted for payment pursuant to the Offer, but excluding Shares held by the Company or any of its Subsidiaries) bears to the number of Shares outstanding; provided, however, that, in the event that Parents designees are appointed or elected to the Board of Directors, until the Effective Time (as defined in Section 2.3) the Board of Directors shall have at least two (2) directors who are directors on the date hereof who are neither officers of the Company nor designees, stockholders, affiliates or associates (within the meaning of the Federal securities laws) of Parent (one or more of such directors, the "Independent Directors"); providedfurther, that if there is in office only one Independent Director, the Board of Directors will take all reasonable action necessary to cause a person designated by the remaining Independent Director to fill such vacancy who shall be neither an officer of the Company nor a designee, stockholder, affiliate or associate of Parent, and such person shall be deemed to be an Independent Director for purposes of this Agreement, or, if no Independent Directors remain, the other directors shall designate two persons to fill the vacancies who shall be neither an officer of the Company nor a designee, stockholder, affiliate or associate of Parent, and each such person shall be deemed to be an Independent Director for purposes of this Agreement. At each such time, the Company will, subject to any limitations imposed by applicable Law, also cause (a) each committee of the Board of Directors, (b) the board of directors of each of the Subsidiaries and (c) each committee of such board of directors of each of the Subsidiaries to include persons designated by Parent constituting the same percentage of each such committee or board as Parents designees constitute on the Board of Directors. The Company shall take all reasonable action necessary to cause Parents designees to be so elected including, upon request by Parent, subject to the Companys Certificate of Incorporation, promptly increase the size of the Board of Directors or exercise its best efforts to secure the resignations of such number of directors as is necessary to enable Parents designees to be elected to the Board of Directors in accordance with the terms of this Section 1.3. Subject to applicable law, and subject to Parent supplying the Company with the information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder within five (5) Business Days after the date of commencement of the Offer, the Company shall take all action necessary pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3 and shall mail to the Companys stockholders no later than ten (10) days prior to the initial Expiration Date of the Offer such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 in order to fulfill its obligations under this Section 1.3. Notwithstanding anything in this Agreement to the contrary, following the time directors designated by Parent are elected or appointed to the Board of Directors and prior to the Effective Time, the affirmative vote of a majority of the Independent Directors shall be required to (w) amend or terminate this Agreement on behalf of the Company, (x) exercise or waive any of the Companys rights or remedies hereunder, (y) extend the time for performance of Parents or Merger Subs obligations hereunder or (z) take any other action by the Company in connection with this Agreement and the transactions contemplated hereby required to be taken by the Board of Directors. The Independent Directors shall have the authority to retain counsel (which may include current counsel to the Company) at the reasonable expense of the Company as determined appropriate by the Independent Directors for the purpose of fulfilling their obligations hereunder and shall have the authority, after the Acceptance Time, to institute any action on behalf of the Company to enforce the performance of this Agreement in accordance with its terms; provided, however, that Parent shall have received at least two Business Days prior notice of the commencement of any such action.

Section 1.4 Top-Up Option.

(a) The Company hereby irrevocably grants to Merger Sub an option (the "Top-Up Option"), exercisable upon the terms and conditions set forth in this Section 1.4, to purchase up to that number of Shares (the "Top-Up Option Shares") equal to the lowest number of Shares that, when added to the number of Shares directly or indirectly owned by Parent or Merger Sub at the time of such exercise, shall constitute one share more than 90% of the Shares outstanding immediately after exercise of the Top-Up Option at a price per share as set forth below; provided that in no event shall the Top-Up Option be exercisable for a number of Shares in excess of the Companys then authorized but unissued Shares (less the number of such Shares reserved for issuance in respect of vested Company Stock Options outstanding immediately prior to the expiration of the Offer with an exercise price less than the Per Share Amount (the "VestedIn-The-Money Options"). The purchase price for the Top-Up Option Shares shall be equal to the Offer Price, which price shall be payable in cash in an amount equal to the aggregate par value of the purchased Top-Up Option Shares and by the issuance of a full recourse note with a principal amount equal to the remainder of the exercise price in the form attached as Exhibit A.

(b) The Top-Up Option shall be exercised by Merger Sub, in whole or in part, at any time on or after the Acceptance Time (so long as the exercise of the Top-Up Option would, after the issuance of Shares thereunder, be sufficient to allow the Short Form Merger to occur), and prior to the earlier to occur of (i) the Effective Time and (ii) the termination of this Agreement in accordance with its terms; provided, however, that the obligation of the Company to deliver Top-Up Option Shares upon the exercise of the Top-Up Option is subject to the conditions that (A) no provision of any applicable Law and no judgment, injunction, order or decree shall prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Option Shares in respect of such exercise, (B) upon exercise of the Top-Up Option, the number of Shares owned by Parent or Merger Sub or any wholly-owned Subsidiary of Parent or Merger Sub constitutes one Share more than 90% of the number of Shares that will be outstanding immediately after the issuance of the Top-Up Option Shares, and (C) Merger Sub has accepted for payment all Shares validly tendered in the Offer and not withdrawn. The parties shall cooperate to ensure that the issuance of the Top-Up Option Shares is accomplished consistent with all applicable legal requirements of all Governmental Entities, including compliance with an applicable exemption from registration of the Top-Up Option Shares under the Securities Act.

(c) Upon the exercise of the Top-Up Option in accordance with Section 1.4(a), Parent shall so notify the Company and shall set forth in such notice (i) the number of Shares that are expected to be owned by Parent, Merger Sub or any wholly-owned Subsidiary of Parent or Merger Sub immediately preceding the purchase of the Top-Up Option Shares and (ii) a place and time for the closing of the purchase of the Top-Up Option Shares. The Company shall, as soon as practicable following receipt of such notice, notify Parent and Merger Sub of the number of Shares then outstanding and the number of Top-Up Option Shares. At the closing of the purchase of the Top-Up Option Shares, Parent or Merger Sub, as the case may be, shall pay the Company the aggregate price required to be paid for the Top-Up Option Shares pursuant to Section 1.4(a), and the Company shall cause to be issued to Parent or Merger Sub a certificate representing the Top-Up Option Shares.

(d) Parent and Merger Sub acknowledge that the Shares which Merger Sub may acquire upon exercise of the Top-Up Option will not be registered under the Securities Act and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering. Parent and Merger Sub represent and warrant to the Company that Merger Sub is, or will be upon the purchase of the Top-Up Option Shares, an "accredited investor", as

defined in Rule 501 of Regulation D under the Securities Act. Merger Sub agrees that the Top-Up Option and the Top-Up Option Shares to be acquired upon exercise of the Top-Up Option are being and will be acquired by Merger Sub for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof (within the meaning of the Securities Act).

ARTICLE II

THE MERGER

Section 2.1 The Merger. On the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time, Merger Sub will merge with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the Merger (the "Surviving Corporation").

Section 2.2 Closing. The closing of the Merger (the "Closing") shall take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York at 10:00 a.m., local time, on a date (the "Closing Date") which shall be the second Business Day after the satisfaction or waiver (to the extent permitted by applicable Law) of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied by actions to be taken at the Closing, but subject to the satisfaction or waiver of such conditions), or at such other place, date and time as the Company and Parent may agree in writing; provided,however, that if, as of or immediately following the Acceptance Date or the expiration of any subsequent offering period pursuant to Section 1.1(d), a Short Form Merger is available pursuant to Section 2.8 and Section 253 of the DGCL, the Closing shall, subject to the satisfaction or waiver of the conditions set forth in Section 7.1, occur no later than the Business Day immediately following the Acceptance Date or the expiration of such subsequent offering period, as applicable.

Section 2.3 Effective Time. Subject to the provisions of this Agreement, at the Closing, the Company will cause a certificate of merger (the "Certificate of Merger") to be executed, acknowledged and filed with the Secretary of State of the State of Delaware in accordance with Section 251 of the DGCL (or to the extent provided in Section 2.8 hereof, Section 253 of the DGCL). The Merger will become effective at such time as the Certificate of Merger has been duly filed with the Secretary of State of the State of Delaware or at such later date or time as may be agreed by the Company and Merger Sub in writing and specified in the Certificate of Merger in accordance with the DGCL (the effective time of the Merger being hereinafter referred to as the "Effective Time").

Section 2.4 Effects of the Merger. The Merger shall have the effects set forth in this Agreement and the applicable provisions of the DGCL.

Section 2.5 Certificate of Incorporation and By-laws of the SurvivingCorporation. At the Effective Time, (a) the certificate of incorporation of the Surviving Corporation shall be amended to read in its entirety as the certificate of incorporation of Merger Sub read immediately prior to the Effective Time, in the form attached hereto as Exhibit B, except that the name of the Surviving Corporation shall be SafeNet, Inc. and the provision in the certificate of incorporation of Merger Sub naming its incorporator shall be omitted, and (b) the by-laws of the Surviving Corporation shall be amended so as to read in their entirety as the bylaws of Merger Sub as in effect immediately prior to the Effective Time, in the form attached hereto as Exhibit C, until thereafter amended in accordance with applicable Law, except that the references to Merger Subs name shall be replaced by references to SafeNet, Inc.

Section 2.6 Directors. Subject to applicable Law, the directors of Merger Sub as of the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Section 2.7 Officers. The officers of Merger Sub as of the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office until their respective successors are duly elected and qualified, or their earlier death, resignation or removal.

Section 2.8 Merger Without Meeting of Stockholders. Notwithstanding anything in this Agreement to the contrary, but subject to Section 7.1, if, at any time following the Acceptance Date, Parent, or any direct or indirect Subsidiary of Parent shall own at least 90% of the outstanding Shares, pursuant to the Offer or otherwise, the parties hereto shall, subject to Article VII hereof, take all necessary and appropriate action to cause the Merger to become effective as soon as practicable after the satisfaction of such threshold, without a meeting of stockholders of the Company, in accordance with Section 253 of the DGCL (such Merger, a "Short Form Merger").

ARTICLE III

CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES

Section 3.1 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and without any action on the part of the Company, Merger Sub or the holders of any securities of the Company or Merger Sub:

(a) Conversion of Shares. Each Share outstanding immediately prior to the Effective Time, other than Shares to be cancelled pursuant to Section 3.1(b) and other than Dissenting Shares, shall be converted automatically into and shall thereafter represent the right to receive in cash an amount equal to the Per Share Amount (the "Merger Consideration"). All Shares that have been converted into the right to receive the Merger Consideration as provided in this Section 3.1 shall be automatically cancelled and shall cease to exist, and the holders of certificates which immediately prior to the Effective Time represented such Shares shall cease to have any rights with respect to such Shares other than the right to receive the Merger Consideration.

(b) Parent and Merger Sub-Owned Shares. Each Share that is owned, directly or indirectly, by Parent or Merger Sub immediately prior to the Effective Time or held by the Company immediately prior to the Effective Time (in each case, other than any such Shares held on behalf of third parties) (the "Cancelled Shares") shall be cancelled and retired and shall cease to exist, and no consideration shall be delivered in exchange for such cancellation and retirement.

(c) Company Subsidiary-Owned Shares. Each Share that is owned, directly or indirectly, by any Company Subsidiary immediately prior to the Effective Time shall be converted into such number of shares of common stock of the Surviving Corporation such that each such Subsidiary owns the same percentage of the Surviving Corporation immediately following the Effective Time as such Subsidiary owned in the Company immediately prior to the Effective Time.

(d) Conversion of Merger Sub Common Stock. Each share of common stock, par value $0.001 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation. From and after the Effective Time, all certificates representing the common stock of Merger Sub shall be deemed for all purposes to represent the number of shares of common stock of the Surviving Corporation into which they were converted in accordance with the immediately preceding sentence.

(e) Dissenters Rights. Any provision of this Agreement to the contrary notwithstanding, if required by the DGCL (but only to the extent required thereby), Shares that are issued and outstanding immediately prior to the Effective Time (other than Cancelled Shares) and that are held by holders of such Shares who have not voted in favor of the adoption of this Agreement or consented thereto in writing and who have properly exercised appraisal rights with respect thereto in accordance with, and who have complied with, Section 262 of the DGCL (the "Dissenting Shares") will not be converted into the right to receive the Merger Consideration, and holders of such Dissenting Shares will be entitled to receive payment of the fair value of such Dissenting Shares in accordance with the provisions of such Section 262 unless and until any such holder fails to perfect or effectively withdraws or loses its rights to appraisal and payment under the DGCL. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or loses such right, such Dissenting Shares will thereupon be treated as if they had been converted into and have become exchangeable for, at the Effective Time, the right to receive the Merger Consideration, without any interest thereon, and the Surviving Corporation shall remain liable for payment of the Merger Consideration for such Shares without any interest. At the Effective Time, any holder of Dissenting Shares shall cease to have any rights with respect thereto, except the rights provided in Section 262 of the DGCL and as provided in the previous sentence. The Company will give Parent (i) prompt notice of any demands received by the Company for appraisals of Shares and (ii) the opportunity to participate in and control all negotiations and proceedings with respect to such notices and demands. The Company shall not, except with the prior written consent of Parent, make any payment or offer of payment with respect to any demands for appraisal or settle or offer to settle any such demands.

Section 3.2 Exchange of Certificates.

(a) Paying Agent. At or promptly following the Effective Time, Parent shall deposit, or shall cause to be deposited, with a U.S. bank or trust company that shall be appointed to act as a paying agent hereunder and approved in advance by the Company (which approval shall not be unreasonably withheld) (and pursuant to an agreement in form and substance reasonably acceptable to Parent and the Company) (the "Paying Agent"), in trust for the benefit of holders of the Shares, the Company Stock Options and the Restricted Shares, cash in U.S. dollars sufficient to pay (i) the aggregate Merger Consideration in exchange for all of the Shares outstanding immediately prior to the Effective Time (other than the Cancelled Shares), payable upon due surrender of the certificates that immediately prior to the Effective Time represented Shares ("Certificates") or non-certificated Shares represented by book-entry ("Book-Entry Shares") pursuant to the provisions of this Article III and (ii) the Option and Stock-Based Consideration payable pursuant to Section 3.3 (such cash referred to in subsections (a)(i) and (a)(ii) being hereinafter referred to as the "Exchange Fund"); provided, however, that Parent, in its sole discretion, may elect to cause the Surviving Corporation (rather than the Paying Agent) to pay any consideration payable for Company Stock Options and Restricted Shares, in which case Parent may deduct from the amount it deposits with the Paying Agent pursuant to this Section 3.2(a) the amount of cash necessary to pay the consideration in exchange for Company Stock Options and Restricted Shares.

(b) Payment Procedures.

(i) As soon as reasonably practicable after the Effective Time and in any event not later than five (5) Business Days following the Closing Date, the Paying Agent shall mail (x) to each holder of record of Shares whose Shares were converted into the Merger Consideration pursuant to Section 3.1, (A) a letter of transmittal (which shall specify that, in the case of certificated Shares, delivery shall be effected, and risk of loss and title to Certificates shall pass, only upon delivery of Certificates to the Paying Agent and, in the case of Book-Entry Shares, delivery shall be effected only after complying with reasonable delivery procedures established by the Paying Agent and reasonably acceptable to the Company, and shall be in such form and have such other provisions as Parent and the Paying Agent may agree and which are reasonably satisfactory to the Company), and (B) instructions for use in effecting the surrender of Certificates or Book-Entry Shares in exchange for the Merger Consideration and (y) to the extent Parent elects to have the Paying Agent pay amounts payable in respect of Company Stock Options or Restricted Shares, pay to each holder of a Company Stock Option or Restricted Share, a check in an amount due and payable to such holder pursuant to Section 3.3 hereof in respect of such Company Stock Option or Restricted Share.

(ii) Upon surrender of Certificates to the Paying Agent or compliance with the reasonable procedures established by the Paying Agent for delivery of Book-Entry Shares, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may customarily be required by the Paying Agent, the holder of such Certificates or Book-Entry Shares shall be entitled to receive in exchange therefor a check in an amount equal to the product of (x) the number of Shares represented by such holders properly surrendered Certificates or Book-Entry Shares multiplied by (y) the Merger Consideration. No interest will be paid or accrued on any amount payable upon due surrender of Certificates (or effective affidavits of loss in lieu thereof) or Book-Entry Shares. Parent and Merger Sub shall pay all stock transfer Taxes with respect to the sale and transfer of any Shares; provided, however, that in the event of a transfer of ownership of Shares that is not registered in the transfer records of the Company, a check for any cash to be paid upon due surrender of the Certificate may be paid to such a transferee if the Certificate formerly representing such Shares is presented to the Paying Agent, properly endorsed or otherwise in proper form for transfer (or in the case of Book-Entry Shares, accompanied by all documents (if any) required to evidence and effect such transfer) and in each case accompanied by evidence to the satisfaction of the Paying Agent that any applicable stock transfer Taxes have been paid or are not applicable.

(iii) The Paying Agent, Parent, Merger Sub or the Surviving Corporation shall be entitled to deduct and withhold from the consideration otherwise payable under this Agreement to any holder of Shares or holder of Company Stock Options or Restricted Shares, such amounts as are required to be withheld or deducted under the Internal Revenue Code of 1986, as amended (the "Code") or any provision of U.S. state or local Tax Law with respect to the making of such payment. To the extent that amounts are so withheld or deducted and paid over to the applicable Governmental Entity, such withheld or deducted amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares or holder of the Company Stock Options or Restricted Shares, in respect of which such deduction and withholding were made.

(c) Closing of Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation or Parent for transfer, they shall be cancelled and exchanged as provided in this Article III.

(d) Termination of Exchange Fund. Any portion of the Exchange Fund (including the proceeds of any investments thereof) that remains undistributed to the former holders of Shares and Company Stock Options or Restricted Shares (if Parent made the election in (b)(i)(y) above) for six (6) months after the Effective Time shall be delivered to the Surviving Corporation upon demand, and any former holders of Shares who have not surrendered their Shares in accordance with this Section 3.2 shall thereafter look only to the Surviving Corporation for payment of their claim for the Merger Consideration and, if applicable, Option and Stock-Based Consideration, without any interest thereon, upon due surrender of their Shares or, if applicable, such Company Stock Options or Restricted Shares.

(e) No Liability. Anything herein to the contrary notwithstanding, none of the Company, Parent, Merger Sub, the Surviving Corporation, the Paying Agent or any other person shall be liable to any former holder of Shares, Company Stock Options or Restricted Shares for any amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(f) Investment of Exchange Fund. The Paying Agent shall invest all cash included in the Exchange Fund as reasonably directed by Parent; provided, however, that any investment of such cash shall be limited to direct short-term obligations of, or short-term obligations fully guaranteed as to principal and interest by, the U.S. government. Any interest and other income resulting from such investments shall be paid to the Surviving Corporation pursuant to Section 3.2(d) .

(g) Lost Certificates. In the case of any Certificate that has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Paying Agent or Parent, the posting by such person of a bond in customary amount as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate a check in the amount of the number of Shares represented by such lost, stolen or destroyed Certificate multiplied by the Merger Consideration.

(h) Adjustments to Prevent Dilution. In the event that the Company changes the number of Shares or securities convertible or exchangeable into or exercisable for Shares issued and outstanding prior to the Effective Time as a result of a reclassification, stock split (including a reverse stock split), stock dividend or distribution, recapitalization, merger or other similar extraordinary transaction, the Merger Consideration shall be equitably adjusted.

Section 3.3 Treatment of Stock Options and Other Stock-Based Awards.

(a) Each option to purchase Shares (collectively, the "Company StockOptions") granted under the Company stock option plans, whether vested or unvested, that is outstanding immediately prior to the Effective Time will at the Effective Time be cancelled and the holder of such Company Stock Option will, in full settlement of such Company Stock Option, receive from the Surviving Corporation an amount (subject to any applicable withholding tax) in cash equal to the product of (x) the excess, if any, of the Merger Consideration over the exercise price per Share of such Company Stock Option multiplied by (y) the total number of Shares subject to such Company Stock Option (the aggregate amount of such cash hereinafter referred to as the "Option Consideration").

(b) Immediately prior to the Effective Time, each award of restricted Shares (the "Restricted Shares") shall vest in full and be converted into the right to receive the Merger Consideration as provided in Section 3.1(a), subject to any applicable withholding tax (the aggregate amount of such cash, together with the Option Consideration, hereinafter referred to as the "Option and Stock-Based Consideration").

(c) At the Acceptance Time, the then-current purchase period under the Company's Employee Stock Purchase Plan shall terminate and all accumulated payroll deductions shall be promptly distributed to eligible participants, without interest.

(d) Prior to the Effective Time, the Company will adopt such resolutions as may reasonably be required to effectuate the actions contemplated by this Section 3.3.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as disclosed in the Prior Company SEC Documents (but only to the extent (x) such disclosure does not constitute a "risk factor" and/or a "forward-looking" statement and (y) the applicability of such disclosure to a section or subsection of this Agreement is reasonably apparent on its face) or in the disclosure schedule delivered by the Company to Parent immediately prior to the execution of this Agreement (the "Company Disclosure Schedule") (it being understood that any information set forth in one section or subsection of the Company Disclosure Schedule shall be deemed to apply to and qualify the section or subsection of this Agreement to which it corresponds in number and each other section or subsection of this Agreement to which the relevance of such disclosure is reasonably apparent on its face), the Company represents and warrants to Parent and Merger Sub as follows:

Section 4.01 Qualification, Organization, Subsidiaries, etc. Each of the Company and its Subsidiaries is a legal entity duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except in the case of the Companys Subsidiaries where the failure to be so organized, validly existing, qualified or in good standing, or to have such power or authority, would not, individually or in the aggregate, reasonably be expected to (i) have a Company Material Adverse Effect, or (ii) prevent or materially delay the consummation of the Offer or the Merger. The Company has made available to Parent prior to the date of this Agreement true and complete copies of the Companys amended and restated certificate of incorporation and by-laws, each as amended through the date hereof and currently in effect. As used in this Agreement, any reference to any facts, circumstances, events or changes having a "Company Material Adverse Effect" means any event or effect (each, an "Event") that is materially adverse to the business or financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, but shall not include: (a) an Event to the extent resulting from (i) changes in general economic or political conditions or the securities, credit or financial markets in general, except to the extent the effects of such changes on the Company and its Subsidiaries, taken as a whole, are disproportionate to the effects on other non-governmental participants in the industries in which the Company and its Subsidiaries conduct their business, (ii) an Event generally affecting the industries in which the Company and its Subsidiaries operate, including general changes in Law or regulation across such industries, except to the extent the effect of such Event on the Company and its Subsidiaries, taken as a whole, is disproportionate to the effect on other non-governmental participants in the industries in which the Company and its Subsidiaries conducts their business, (iii) the announcement of this Agreement or the pendency or consummation of the Merger, (iv) the identity of Parent or any of its affiliates as the acquiror of the Company, (v) the taking of any specific action expressly required by this Agreement, (vi) any acts of terrorism or war, except to the extent such act of terrorism or war has a disproportionate effect on the Company and its Subsidiaries, taken as a whole, relative to other non-governmental participants in the industries in which the Company and its Subsidiaries conduct their businesses, (vii) changes in generally accepted accounting principles or the interpretation thereof, or (viii) any litigation arising from allegations of a breach of fiduciary duty or other violation of applicable Law relating to this Agreement or the transactions contemplated hereby; (b) (i) actions, claims, audits, arbitrations, mediations, investigations, suits, litigation, proceedings (public or private), criminal prosecutions, SEC "Wells" processes or investigations by or before any Person, Governmental Entity or any national securities exchange (including the NASDAQ) (in each case whether threatened, pending or otherwise), (ii) penalties, sanctions, fines, remedies, injunctive relief, remediation, delisting from any national securities exchange (including the NASDAQ), or any other civil or criminal sanction (in each case whether threatened, pending, deferred or otherwise, and whether financial or otherwise), or (iii) facts, circumstances, changes, effects, outcomes, results, occurrences and eventualities (whether or not known, contemplated or foreseeable, and whether financial or otherwise), in each case with respect to (b)(i) through (iii), resulting from, relating to or arising out of: (1) (A) the Companys pending restatement of its historical consolidated financial statements for the fiscal years ended December 31, 2005, December 31, 2004, December 31, 2003, December 31, 2002, December 31, 2001 and December 31, 2000 or the Companys pending restatement of the unaudited financial statements contained in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, or (B) the Companys failure to file in a timely manner its Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2006 and its Annual Report on Form 10-K for the year 2006, but only, in the case of this clause (1), to the extent resulting from or relating to the matters referred to in clauses (2) or (3) below; (2) the Companys historical stock-based compensation practices to the extent both (I) resulting from or relating to (x) the extent to which compensation, tax, disclosure, accounting and grant practices complied with GAAP, applicable Law, applicable stock option plans, or the Code or (y) issues concerning selecting, documenting, accounting for, recording of and disclosing grant and measurement dates, stock option expenses, and any other related items thereto and (II) materially consistent with (A) the Companys public statements and with its filings with and submissions and statements to the SEC disclosed to Parent prior to the date of this Agreement or (B) information provided to Parent or its affiliates and representatives prior to the date hereof and identified in Section 4.1(3)(II) of the Company Disclosure Schedule; or (3) the additional accounting adjustments to the extent disclosed in Section 4.4. (e) of the Company Disclosure Schedule (all of the matters mentioned in clause (b) hereof, including all sub-sections of clause (b), the "Restatement and Related Matters"); except in the case of Restatement and Related Matters to the extent that any such Event results in a suspension or debarment from bidding on contracts or subcontracts with any Governmental Entity thereof or otherwise results in any material limitation, restriction or prohibition on the Company and its Subsidiaries ability to do business with a Governmental Entity; or (c) any failure to meet internal or published projections, forecasts or revenue or earning predictions for any period, it being understood that any Event contributing to such failure may be considered in determining whether there has been a Company Material Adverse Effect.

Section 4.02 Capital Stock.

(a) The authorized share capital of the Company consists of 50,000,000 Shares and 500,000 shares of preferred stock (the "Preferred Stock"). As of February 28, 2007, there were (i) 21,072,626 Shares issued and outstanding and no shares of Preferred Stock issued and outstanding, (ii) Company Stock Options to purchase an aggregate of 329,903 Shares issued and outstanding under the 1990 Rainbow Plan, 236,433 Shares issued and outstanding under the 1999 Stock Option Plan, 200,435 Shares issued and outstanding under the 2000 Non-Qualified Stock Option Plan, 358,546 Shares issued and outstanding under the 2000 Rainbow Plan, 2,923,525 Shares issued and outstanding under the 2001 Omnibus Stock Plan, 394,265 Shares issued and outstanding under the 2001 Rainbow Plan, and 44,880 Shares issued and outstanding under the 2003 Rainbow Plan, 7,001 Shares issued and outstanding under the Cylink Restated 1994 Flexible Stock Option Plan, 417 Shares issued and outstanding under the Cylink/ARL 1997 Option Plan, 15,093 Shares issued and outstanding under the Datakey 2001 Stock Option Plan, and 4,987 Shares issued and outstanding under the Datakey Outside Plan, and 20,048 Shares issued and outstanding under the MediaSentry Plan and (iii) 1,999,650 Shares available for issuance under the 2001 Omnibus Stock Plan. All outstanding Shares are duly authorized, validly issued, fully paid and non-assessable, and are not subject to and were not issued in violation of any preemptive or similar right, purchase option, call or right of first refusal or similar right. No Subsidiaries of the Company own any Shares or any other equity securities of the Company.

(b) Except as set forth in subsection (a) above, as of the date hereof, (i) the Company does not have any shares of its capital stock issued or outstanding, and (ii) there are no outstanding subscriptions, options, warrants, calls, convertible securities or other similar rights, agreements or commitments relating to the issuance of capital stock to which the Company or any of the Companys Subsidiaries is a party obligating the Company or any of the Companys Subsidiaries to (A) issue, transfer or sell any shares of capital stock or other equity interests of the Company or any Subsidiary of the Company or securities convertible into or exchangeable for such shares or equity interests, (B) grant, extend or enter into any such subscription, option, warrant, call, convertible securities or other similar right, agreement or arrangement, (C) redeem or otherwise acquire any such shares of capital stock or other equity interests, (D) register any shares of capital stock or other equity interests of the Company or any Subsidiary of the Company or securities convertible into or exchangeable for such shares or equity interests, or (E) provide a material amount of funds to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, any Subsidiary or provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other person. The Company has not declared or paid any dividend or distribution in respect of the Shares, and has not issued, sold, repurchased, redeemed or otherwise acquired any Shares, and its Board of Directors has not authorized any of the foregoing.

(c) Section 4.2(c) of the Company Disclosure Schedule sets forth the following information with respect to outstanding Company Stock Options as of the date indicated in Section 4.2(c) of the Company Disclosure Schedule: (i) the name of the optionee; (ii) the number of Shares subject to such Company Stock Option; (iii) the exercise price of such Company Stock Option; and (iv) the applicable vesting schedule. The foregoing schedule shall also include the plan under which such Company Stock Option was granted.

(d) Section 4.2(d) of the Company Disclosure Schedule sets forth the name of each person (other than direct and indirect wholly-owned Subsidiaries) in which the Company or any of its Subsidiaries owns any equity or similar interest in or any interest convertible into or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business as of the date of this Agreement, that persons jurisdiction of incorporation or organization and the percentage of and kind of interest owned.

(e) Except for awards to acquire Shares under the stock option plans referred to in subsection (c) above, neither the Company nor any of its Subsidiaries has outstanding bonds, debentures, notes or other obligations, the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the stockholders of the Company on any matter.

(f) There are no voting trusts or other agreements or understandings to which the Company or any of its Subsidiaries is a party with respect to the voting of the capital stock or other equity interest of the Company or any of its Subsidiaries.

Section 4.3 Corporate Authority Relative to This Agreement; No Violation.

(a) The Company has requisite corporate power and authority to enter into this Agreement and, subject to receipt of the Company Stockholder Approval, to consummate the transactions contemplated hereby. The Board of Directors at a duly held meeting has (i) determined that it is in the best interests of the Company and its stockholders, and declared it advisable, to enter into this Agreement, (ii) approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Offer and the Merger, and (iii) resolved to recommend that the stockholders of the Company tender their Shares in the Offer or otherwise approve the adoption of this Agreement (the "Recommendation") and directed that to the extent required by the DGCL this Agreement and the Merger be submitted for consideration of the stockholders of the Company at the Company Meeting. Except for the Company Stockholder Approval and the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, no other corporate proceedings on the part of the Company are necessary to authorize the consummation of the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and, assuming this Agreement constitutes the valid and binding agreement of Parent and Merger Sub, constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

(b) The execution, delivery and performance by the Company of this Agreement and the consummation of the Merger by the Company do not and will not require any consent, approval, authorization or permit of, action by, filing with or notification to any United States or foreign governmental or regulatory agency, commission, court, body, entity or authority (each, a "Governmental Entity") or the NASDAQ other than (i) the filing of the Certificate of Merger, (ii) compliance with the applicable requirements of the HSR Act and any other antitrust, competition or similar Laws of any foreign jurisdiction, (iii) compliance with the applicable requirements of the Exchange Act, including the filing of the Schedule 14D-9 in connection with the Offer and the Proxy Statement, if applicable, in connection with the Company Stockholder Approval, (iv) compliance with the rules and regulations of the NASDAQ, or (v) compliance with any applicable foreign or state securities or blue sky laws, and (vi) the other consents and/or notices set forth on Section 4.3(b) of the Company Disclosure Schedule (collectively, clauses (i) through (vi), the "Specified Approvals"), and other than any consent, approval, authorization, permit, action, filing or notification the failure of which to make or obtain would not individually or in the aggregate, (A) reasonably be expected to have a Company Material Adverse Effect, or (B) prevent or materially delay the consummation of the Offer or the Merger.

(c) Assuming compliance with the matters referenced in Section 4.3(b), receipt of the Specified Approvals and the receipt of the Company Stockholder Approval, the execution, delivery and performance by the Company of this Agreement, the consummation by Parent of the Offer and the consummation by the Company of the Merger and the other transactions contemplated hereby do not and will not (i) contravene or conflict with the organizational or governing documents of (A) the Company or (B) any of its Subsidiaries, (ii) contravene or conflict with in any material respect or constitute a material violation of any provision of any Law binding upon or applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, or (iii) result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to the loss of a material benefit under any written or oral loan, guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture, lease, agreement, contract, instrument, permit, concession, franchise, right or license (each, a "Contract") binding upon the Company or any of its Subsidiaries or result in the creation of any Lien (other than Permitted Liens) upon any of the properties or assets of the Company or any of its Subsidiaries, other than, in the case of clauses (i)(B) or (iii), any such violation, conflict, default, termination, cancellation, acceleration, right, loss or Lien that would not (A) individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect or (B) prevent or materially delay the consummation of the Offer or the Merger.

Section 4.4 Reports and Financial Statements.

(a) With the exception of the Restatement and Related Matters, the Company has filed or furnished on a timely basis all forms, documents and reports required to be filed or furnished prior to the date hereof by it with the SEC since December 31, 2004 (such forms, documents and reports, the "Prior Company SEC Documents"), each of which (subject to any disclaimers, exceptions and qualifications set forth within such Prior Company SEC Document) at the time of its filing or being furnished (after giving effect to all post-filing or post-furnishing amendments thereto filed or furnished prior to the date hereof) complied in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and as of the date filed with the SEC, and as of their respective dates, none of the Company SEC Documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the representations contained in this Section 4.4(a) do not relate to any financial information. Any documents or reports filed or furnished with the SEC after the date of this Agreement (such documents and reports, in each case as finally amended prior to the Effective Time) the "Subsequent Company SEC Documents" and together with the Prior Company SEC Documents, the "Company SEC Documents") (subject to any disclaimers, exceptions and qualifications set forth within such Prior Company SEC Documents) at the time of its filing or being furnished will comply in all material respects with the applicable requirements of the Securities Act, the Exchange Act and the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder, and as of the date filed with the SEC, and as of their respective dates, none of the Subsequent Company SEC Documents will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Anything to the contrary in this sub-section notwithstanding, with regards to Subsequent Company SEC Documents filed or furnished with the SEC prior to the restatement of the Company's financial statements or the Companys regaining current filer status, the immediately preceding sentence of this paragraph will be subject to the Restatement and Related Matters and any disclaimers, exceptions and qualifications set forth within such Subsequent Company SEC Documents).

(b) Subject to the Restatement and Related Matters, the Company is in compliance in all material respects with the applicable listing and corporate governance rules and regulations of NASDAQ.

(c) Attached to Section 4.4(c) of the Company Disclosure Schedules are the unaudited consolidated balance sheets and related statements of income and cash flows of the Company and its consolidated subsidiaries for and as at (i) the fiscal year ended December 31, 2006 (the "AU Statements") and (ii) the fiscal quarters ended March 31, June 30, September 30 and December 31, 2006 (the "QA Statements" and, together with the AU Statements, the "Preliminary Statements"). The Preliminary Statements were prepared on a basis consistent with GAAP and fairly present, in all material respects, the consolidated financial position of the Company and its Subsidiaries, as of the respective dates thereof, provided that the Preliminary Statements (A) do not include any information or notes not required by GAAP to be included in interim financial statements, (B) in the case of the QA Statements are subject to normal year-end adjustments (which are not expected to be material), (C) need not have been reviewed by the Companys independent accounting firm as provided in Standards No. 100 or include information described in Item 303 or Item 305 of Regulation S-K with respect to quarterly periods to the extent such information would otherwise be required to be filed in a Quarterly Report on Form 10-Q, (D) are subject to the effects of the Restatement and Related Matters and (E) are subject to other matters that may arise in the course of the Companys accounting review. The balance sheet for the year ended December 31, 2006 referred to in this paragraph is referred to herein as the "December 31, 2006 Balance Sheet."

(d) The information attached to Section 4.4(d) of the Company Disclosure Schedules (the "PR Information") was prepared by the Company in good faith, based upon reasonable assumptions and represents managements best understanding and judgment regarding the matters covered thereby.

Section 4.5 Internal Controls and Procedures. The Company has established and maintains a system of internal accounting controls and financial reporting (as required by Rule 13a-15 under the Exchange Act) that are sufficient to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. The Companys disclosure controls and procedures are reasonably effective to ensure that all material information required to be disclosed by the Company in the reports that it files or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such material information is accumulated and communicated on a timely basis to the individuals responsible for the preparation of the Companys filings with the SEC to allow timely decisions regarding required disclosure and to make the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act. The Company has disclosed, based on its most recent completed evaluation prior to the date of this Agreement, to the Companys outside auditors and the audit committee of the board of directors of the Company (A) any significant deficiencies and material weaknesses in the design or operation of its internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that would be reasonably likely to materially and adversely affect the Companys ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting.

Section 4.6 No Undisclosed Liabilities. Except (i) as reflected or reserved against in the December 31, 2006 Balance Sheet, (ii) as expressly permitted or contemplated by this Agreement, (iii) for liabilities and obligations incurred in the ordinary course of business consistent with past practice since December 31, 2006, none of which would, individually or in the aggregate, reasonably be expected to be material to the business, results of operations or financial condition of the Company and its Subsidiaries, taken as a whole, or constitute indebtedness and (iv) liabilities resulting from or relating to the Restatement and Related Matters, neither the Company nor any Subsidiary of the Company has any liabilities (whether accrued, contingent, absolute, determined, determinable or otherwise) that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

Section 4.7 Compliance with Law; Permits; No Default.

(a) The Company and each of the Companys Subsidiaries are in compliance with and are not in default under or in violation of any applicable federal, state, local or foreign law, statute, ordinance, rule, regulation, judgment, order, injunction, decree or agency requirement of any Governmental Entity (collectively, "Laws" and each, a "Law"), except where such non-compliance, default or violation would not, individually or in the aggregate, (i) reasonably be expected to have a Company Material Adverse Effect or (ii) prevent or materially delay the consummation of the Offer or the Merger.

(b) The Company and the Companys Subsidiaries are in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exceptions, consents, certificates, approvals and orders of any Governmental Entity necessary for the Company and the Companys Subsidiaries to own, lease and operate their properties and assets or to carry on their businesses as they are now being conducted (the "Company Permits"), except where the failure to have any Company permit would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries taken as a whole, and all such Company Permits are in full force and effect, except where the failure to have any Company permit would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries taken as a whole. Neither the Company nor any of its Subsidiaries has received any notice that any Company Permits will be cancelled.

(c) Neither the Company nor any of its Subsidiaries is in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of its organizational or governing documents, except with respect to organization or governing documents of its Subsidiaries, for violations, breaches or defaults that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect.

Section 4.8 Employee Matters.

(a) Section 4.8(a) of the Company Disclosure Schedule lists all Company Benefit Plans including all Company Stock Plans. "Company Benefit Plans" means any employee welfare plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA), all material employee or director compensation and/or benefit plans, programs, policies, agreements or other arrangements, and any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control or fringe benefit plan, program or agreement, whether written, unwritten, formal or informal, in each case that are sponsored, maintained or contributed to by the Company or any of its Subsidiaries for the benefit of current or former employees, directors or consultants of the Company or its Subsidiaries, or with respect to which the Company or any of its Subsidiaries has or may in the future have any liability (contingent or otherwise). "Company Stock Plans" means all Company Benefit Plans pursuant to which the Company may grant equity or equity-based compensation awards.

(b) The Company has heretofore made available to Parent true and complete copies or materially accurate summaries of each of the Company Benefit Plans that has not been previously filed with the SEC and certain related documents, including, but not limited to, with respect to each Company Benefit Plan, (i) each writing constituting a part of such Company Benefit Plan, including all amendments thereto, and all related trust documents; (ii) the most recent summary plan description together with the summary or summaries of material modifications thereto, if any; (iii) the three most recent annual actuarial valuations, if any; (iv) the three most recent Annual Reports (Form 5500 Series) and accompanying schedules, if any; (v) all IRS or Department of Labor ("DOL") determination, opinion, notification and advisory letters (if applicable); (vi) all material correspondence to or from any Governmental Entity received in the last three years; and (vii) all discrimination tests for the most recent three plan years.

(c) Except as would not have, individually or in the aggregate, a Company Material Adverse Effect: (i) each Company Benefit Plan has been maintained and administered in compliance with its terms and with applicable Law, including ERISA and the Code to the extent applicable thereto, (ii) each of the Company Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has received a favorable determination letter from the IRS or is entitled to rely upon a favorable opinion issued by the IRS, and, to the knowledge of the Company, there are no existing circumstances or any events that have occurred that could reasonably be expected to adversely affect the qualified status of any such plan; (iii) no Company Benefit Plan provides retiree medical or other welfare benefits, other than coverage mandated by applicable Law; (iv) no liability under Title IV of ERISA has been incurred by the Company, its Subsidiaries or any of their respective current or former ERISA Affiliates that has not been satisfied in full; (v) all contributions or other amounts payable by the Company or its Subsidiaries as of the date hereof with respect to each Company Benefit Plan in respect of current or prior plan years have been timely paid or accrued in accordance with GAAP (other than with respect to amounts not yet due); (vi) neither the Company nor its Subsidiaries has engaged in a transaction in connection with which the Company or its Subsidiaries reasonably could be subject to either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 through 4980B of the Code; (vii) there are no pending, threatened or, to the knowledge of the Company, anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Company Benefit Plans or any trusts related thereto which could reasonably be expected to result in any liability of the Company or any of its Subsidiaries; (viii) to the knowledge of the Company, there are no audits, inquiries or proceedings pending or threatened by the IRS, DOL, or other Governmental Entity with respect to any Company Benefit Plan and (ix) no plan currently or ever in the past maintained, sponsored, contributed to or required to be contributed to by the Company, its Subsidiaries, or any of their respective current or former ERISA Affiliates is or ever in the past was a plan subject to Title IV of ERISA. "ERISA Affiliate" means, with respect to any entity, trade or business, any other entity, trade or business that is a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes the first entity, trade or business, or that is a member of the same "controlled group" as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

(d) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, each "nonqualified deferred compensation plan" (as defined in Section 409A(d)(1) of the Code) has been operated since January 1, 2005 in good faith compliance with Section 409A of the Code and all applicable IRS guidance promulgated thereunder. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, no nonqualified deferred compensation plan has been "materially modified" (within the meaning of IRS Notice 2005-1) at any time after October 3, 2004.

(e) No Company Benefit Plan is maintained outside the jurisdiction of the United States, or covers any employee residing or working outside the United States (any such Company Benefit Plan, a "Foreign Benefit Plan"). With respect to any Foreign Benefit Plans, except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (A) all Foreign Benefit Plans have been established, maintained and administered in compliance in all material respects with their terms and all applicable statutes, laws, ordinances, rules, orders, decrees, judgments, writs, and regulations of any controlling Governmental Entity, (B) all Foreign Benefit Plans that are required to be funded are fully funded, and with respect to all other Foreign Benefit Plans, adequate reserves therefor have been established on the balance sheets, and (C) no material liability or obligation of the Company or its Subsidiaries exists with respect to such Foreign Benefit Plans that has not been disclosed on Section 4.8(e) of the Disclosure Schedule.

(f) The consummation of the transactions contemplated by this Agreement will not, either alone or in combination with another event, (A) entitle any current or former employee, consultant or officer of the Company or any of its Subsidiaries to severance pay, unemployment compensation, forgiveness of indebtedness or any other payment, except as expressly provided in this Agreement or as required by applicable Law, or (B) accelerate the time of payment or vesting, or increase the amount of compensation or benefits to any such employee, consultant or officer, except as expressly provided in this Agreement. There is no Contract, plan or arrangement covering any current or former employee of the Company or any of its Subsidiaries that, individually or collectively, could give rise to the payment as a result of the transactions contemplated by this Agreement of any amount that would not be deductible by the Company or such Subsidiary by reason of Section 280G of the Code. For purposes of the foregoing sentence, the term "payment" shall include (without limitation) any payment, acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits.

(g) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) no work stoppage, slowdown, or labor strike against the Company or any Subsidiary is pending or reasonably anticipated, or, to the Companys Knowledge, threatened with respect to any employee; (ii) the Company has no Knowledge of any activities or proceedings of any labor union to organize any employee; (iii) there are no actions, suits, claims, labor disputes or grievances pending, or, to the Knowledge of Company, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any employee, including charges of unfair labor practices or discrimination complaints; (iv) neither the Company nor any Subsidiary is presently, or has been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to any employee and no collective bargaining agreement is being negotiated by the Company or any Subsidiary with respect to any employee; (v) currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit which could affect the Company; and (vi) the Company is currently in compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Entity.

(h) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, from the enactment of the Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act") to the date of this Agreement, the Company and its Subsidiaries have not effectuated (i) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company or its Subsidiaries thereto, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company or its Subsidiaries, nor has the Company or any of its Subsidiaries been affected by any transaction or engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local Law including California Labor Code Section 1400.

Section 4.9 Absence of Certain Changes or Events.

(a) Other than the Restatement and Related Matters, from June 30, 2006 through the date of this Agreement, (i) the businesses of the Company and its Subsidiaries have been conducted, in all material respects, in the ordinary course of business consistent with past practice, and (ii) there has not been any Event that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(b) Since the date of this Agreement, there has not been any Event that has had or would reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect.

(c) From June 30, 2006 through the date of this Agreement, there has not been:

(i) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company or any of its Subsidiaries (except for dividends or other distributions by any direct or indirect wholly owned Subsidiary to the Company or to any wholly owned Subsidiary of the Company); or

(ii) any material change in any method of financial accounting or financial accounting practice by the Company or any of its Subsidiaries, except as may be appropriate to conform to statutory or regulatory accounting rules or GAAP or regulatory requirements with respect thereto, or to any changes thereto.

Section 4.10 Investigations; Litigation. Other than the Restatement and Related Matters, there is no investigation or review pending (or, to the knowledge of the Company, threatened) by any Governmental Entity with respect to the Company or any of the Companys Subsidiaries which would, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, and there are no actions, suits, inquiries, investigations or proceedings pending (or, to the knowledge of the Company, threatened) against or affecting the Company or any of the Companys Subsidiaries, or any of their respective properties at law or in equity before, and there are no orders, judgments or decrees of, or before, any Governmental Entity, in each case which would, individually or in the aggregate, (A) reasonably be expected to have a Company Material Adverse Effect, or (B) prevent or materially delay the consummation of the Offer or the Merger. Section 4.10 of the Company Disclosure Schedule sets forth, as of the date hereof, any reviews, actions, suits, inquiries, investigations or proceedings pending (or, to the knowledge of the Company, threatened) against the Company or any of the Companys Subsidiaries, or any of their respective properties at law or in equity before, and any orders, judgments or decrees of, or before, any Governmental Entity which would reasonably be expected to be material to the Company and its Subsidiaries taken as a whole.

Section 4.11 Schedule 14D-9, Offer Documents.

(a) None of the information supplied or to be supplied in writing by or on behalf of the Company specifically for inclusion in the Offer Documents will, at the times such documents are filed with the SEC, at the time they are mailed to stockholders of the Company and at the time of consummation of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, or necessary to correct any statement supplied by the Company made in any communication with respect to the Offer previously filed with the SEC or disseminated to the stockholders of the Company. The Schedule 14D-9 and each other document required to be filed by the Company with the SEC or required to be distributed or dissemination to the Companys stockholders by the Company (the "Company Disclosure Documents") will not, at the time they are filed with the SEC and at all times prior to the purchase of Shares by Merger Sub pursuant to the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to information supplied in writing by Parent, Merger Sub or an affiliate of Parent or Merger Sub which is contained in the Company Disclosure Documents. The Company Disclosure Documents will comply as to form and substance in all material respects with the provisions of the Exchange Act and the rules and regulations of the SEC thereunder.

Section 4.12 Tax Matters.

(a) Except (A) as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect or (B) with respect to matters for which adequate reserves have been established in accordance with GAAP: (i) the Company and each of its Subsidiaries have prepared and timely filed (taking into account any extension of time within which to file) all Tax Returns required to be filed by any of them and all such filed Tax Returns are true, complete and accurate; (ii) the Company and each of its Subsidiaries have paid all Taxes that are required to be paid by any of them; (iii) there are not pending or, to the knowledge of the Company, threatened in writing, any audits, examinations, investigations or other proceedings in respect of Taxes of the Company or any of its Subsidiaries; (iv) neither the Company nor any of its Subsidiaries has received written notice of any proposed or determined Tax deficiency or assessment from any Governmental Entity; (v) neither the Company nor any of its Subsidiaries or any predecessor has waived any statute of limitations with respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency, or has made any request in writing for any such extension or waiver; (vi) neither the Company nor any of its Subsidiaries has been a "controlled corporation" or a "distributing corporation" in any distribution occurring during the two-year period ending on the date hereof that was purported or intended to be governed by Section 355 of the Code (other than a distribution from one member of an affiliated group to another member of such group, as defined in Section 1504(a) without regard to the exceptions set forth in Section 1504(b)); (vii) neither the Company nor any of its Subsidiaries has entered into any "listed transaction" within the meaning of Treasury Regulation Section 1.6011 -4(b)(2), or any other transaction requiring disclosure under analogous provisions of state, local or foreign Law; (viii) the Company and each of the Subsidiaries have withheld and paid all Taxes required to be withheld and paid in connection with amounts paid and owing to any employee, independent contractor, creditor, stockholder or other third party (whether domestic or foreign); (ix) neither the Company nor any of its Subsidiaries has Liability for the Taxes of any Person other than the Company and its Subsidiaries under Treasury Regulations Section 1.1502 -6 (or any similar provision of state, local or foreign Law); (x) there are no adjustments under Section 481 of the Code (or any similar adjustments under corresponding foreign, state or local Laws) that are required to be taken into account by the Company or any of its Subsidiaries in any period ending after the Closing Date by reason of a change in method of accounting in any taxable period ending on or before the Closing Date; (xi) none of the Company or any Subsidiary has been informed in writing by any jurisdiction that the jurisdiction believes that the Company or any Subsidiary was required to file any Tax Return that was not filed; and (xii) none of the assets of the Company or any Subsidiary: (a) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954; or (b) is "tax-exempt use property" within the meaning of Section 168(h) of the Code.

(b) As used in this Agreement, (i) "Taxes" means any and all domestic or foreign, federal, state, local or other taxes of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity, including taxes on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, unemployment, social security, workers compensation or net worth, and taxes in the nature of excise, withholding, ad valorem or value added, and (ii) "Tax Return" means any return, report or similar filing (including the attached schedules) required to be filed with respect to Taxes, including any information return, claim for refund, amended return or declaration of estimated Taxes. It is agreed and understood that no representation or warranty is made in respect of Tax matters in any Section of this Agreement other than this Section 4.12.

Section 4.13 Intellectual Property.

(a) Section 4.13(a) of the Company Disclosure Schedule sets forth a complete and accurate list (by name and other appropriate product identifiers) of all material Company Products. "Company Products" means all products or services sold or licensed by the Company and its Subsidiaries.

(b) Either the Company or a Subsidiary of the Company owns, or holds a valid license or otherwise possesses legally enforceable rights to all Company IP (as defined below) or has the exclusive rights to use, sell, license, assign, transfer, convey, dispose of, or otherwise commercially exploit the Company-Owned IP. "Intellectual Property" means all worldwide intellectual property rights arising from or in respect of the following: (i) patents and patent applications; (ii) trademarks, service marks, trade names, service names, brand names, trade dress rights, logos, web addresses and corporate names, and all applications, registrations and renewals thereof; (iii) copyrights and registrations and applications therefor, works of authorship and mask work rights and registrations and applications therefore; (iv) trade secrets and know-how; (v) any registrations and applications for industrial designs; and (vi) software. For the purposes of this Agreement, "Company IP" means all Intellectual Property used or held for use by the Company in the Company Products or to conduct its businesses as now conducted, and "Company-Owned IP" means Intellectual Property owned by, purported to be owned by, or exclusively licensed to, the Company and its Subsidiaries.

(c) There are no pending or, to the knowledge of the Company, threatened claims by any person alleging infringement or misappropriation, unfair competition or trade practices under the Laws of any jurisdiction, by the Company or any of its Subsidiaries for their use of the Company IP, their conduct of their businesses and the Company Products.

(d) Except as would not, individually or in the aggregate, be material to the Company and its Subsidiaries taken as a whole, to the Companys knowledge, the conduct of the business of the Company and its Subsidiaries, the use of the Company IP and the Company Products does not infringe or misappropriate any Intellectual Property rights of any third party, or constitute unfair competition or trade practices under the Laws of any jurisdiction.

(e) As of the date hereof, neither the Company nor any of its Subsidiaries has made any claim of a violation or infringement by others of its rights to or in connection with the Company IP.

(f) To the knowledge of the Company, no person is infringing or misappropriating any Company-Owned IP in a manner material to the business of the Company or its Subsidiaries taken as a whole.

(g) No person has asserted in writing (or has continued to assert) or threatened in writing to assert, in the three (3) years prior to the date of this Agreement, any material claims (i) contesting the right of the Company or any of its Subsidiaries to use, exercise, sell, license, transfer or dispose of any Company-Owned IP or any Company Products or (ii) challenging the ownership, validity or enforceability of any of the Company-Owned IP. There are no pending or, to the knowledge of the Company, threatened interference, re-examinations, or oppositions involving any patents or patent applications of the Company or any of its Subsidiaries.

(h) None of the Company-Owned IP, and to the knowledge of the Company, none of the other Company IP, is subject to any outstanding order, judgment, writ, injunction or decree of any court of competent jurisdiction or Governmental Entity materially restricting the use, transfer, or licensing thereof by Company or any of its Subsidiaries.

(i) Section 4.13(i) of the Company Disclosure Schedule sets forth as of the date specified therein (by owner, country, number, and title) all patents and patent applications issued to or filed by the Company; all registered trademarks of the Company; and all registered copyrights of the Company; and all other issuances, registrations, applications and the like with respect to those or any other Intellectual Property rights that have been, with respect to the Company, issued, registered, filed, certified or otherwise perfected or recorded with or by any state, government or other public legal entity (collectively, the "Company Registered IP"). Each item of Company Registered IP is subsisting, and, to the knowledge of the Company, valid and all necessary registration, maintenance and renewal fees in connection with Company Registered IP have been paid and all necessary documents, recordations and certificates in connection with such registered Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Company Registered IP.

(j) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not (a) constitute a material breach of any material instrument or agreement governing any of the Company IP, (b) result in material alteration or modification of any material rights granted with respect to any Company IP, or (c) require the payment of any additional material amounts or consideration in respect of any Company IP other than ongoing fees or royalties which the Company and its Subsidiaries would otherwise be required to pay.

(k) To the extent that any Intellectual Property has been developed or created independently or jointly by an independent contractor or other third party for the Company or any of its Subsidiaries, or is incorporated into any of the Company Products that the Company or its Subsidiaries are currently offering, supporting, or currently plan to offer, the Company or one of its Subsidiaries has a written agreement with such independent contractor or third party and has thereby either obtained ownership of or the necessary licenses for or authorization to use such independent contractors or third partys Intellectual Property to the extent necessary for the Company and its Subsidiaries to conduct their businesses.

(l) Neither the Company nor any of its Subsidiaries has granted or agreed to grant any material exclusive license of or material exclusive right to use, or authorized the retention of any material exclusive rights to use or joint ownership of, any material Intellectual Property that is or was Company-Owned IP, to any third party.

(m) No Company Product or software embodying material Company-Owned IP has been or is being distributed by the Company or any of its Subsidiaries, in whole or in part, or was used, or is being used in conjunction with any Public Software by the Company or any of its Subsidiaries in a manner which would require that such Company Product or software be disclosed or distributed in source code form or made available at no charge. "Public Software" means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software or open source software (e.g., Linux), including software licensed or distributed under any of the following licenses or distribution models: (A) GNUs General Public License (GPL) or Lesser/Library GPL (LGPL), (B) the Artistic License (e.g., PERL), (C) the Mozilla Public License, (D) the Netscape Public License, (E) the Sun Community Source License (SCSL), (F) the Sun Industry Standards License (SISL), (G) the BSD License, and (H) the Apache License.

(n) The Company and its Subsidiaries have taken reasonable steps under the circumstances to protect and preserve the confidentiality of all confidential information of the Company and its Subsidiaries. Without limiting the foregoing, the Company and its Subsidiaries have and enforce policies (i) requiring each employee of the Company or any of its Subsidiaries to execute a proprietary rights and confidentiality agreement substantially in the form provided to Parent, and all current employees and former employees whose employment has ceased within the past 24 months of the Company and its Subsidiaries with access to confidential information have executed such an agreement and (ii) requiring each consultant of the Company and its Subsidiaries to undertake or be bound by obligations of confidentiality substantially similar to the form of proprietary rights and confidentiality agreement provided to Parent discussed in clause (i) of this Section 4.13(m) .

Section 4.14 Property.

(a) Neither the Company nor any of its Subsidiaries owns any real property. Section 4.14 of the Company Disclosure Schedule sets forth, as of the date hereof, a list of all real property currently leased by the Company and any of its Subsidiaries, the name of the lessor, the date of the lease and each amendment thereto and, with respect to any current lease, the aggregate annual rental and/or other fees payable under any such lease (the "Leases"). All the Leases are in full force and effect without penalty, acceleration, termination, repurchase right or other adverse consequence. Except where such failure to be in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, neither the Company nor any of its Subsidiaries nor, to the knowledge of the Company, any other party, is in default of or in material under any such Lease.

(b) Except as would not, individually or on the aggregate, reasonably be expected to have a Material Adverse Effect, (i) the Company or a Subsidiary of the Company owns or has valid leasehold interests in all of its properties, free and clear of all Liens (except for Permitted Liens ) and (ii) all the plants, structures and equipment of the Company and its Subsidiaries are adequate for the conduct of the business of the Company and its Subsidiaries as currently conducted.

Section 4.15 Insurance. The Company maintains for itself and its Subsidiaries policies covering the assets, business, equipment, properties, operations, employees, directors and officers, and product warranty and liability claims, and such other forms of insurance in such amounts, with such deductibles and against such risks and losses as, in its good faith judgment, are reasonable for the business and assets of the Company and its Subsidiaries. All material insurance policies are in full force and effect, all premiums due and payable thereon have been paid, and the Company and its Subsidiaries are otherwise in compliance in all material respects with the terms and conditions of such policies and bonds.

Section 4.16 Takeover Laws; Charter Provisions. The Board of Directors has approved the Offer, the Merger and this Agreement, and such approval is sufficient to render inapplicable to the Offer, Merger and this Agreement, any Takeover Law or restrictive provision of any applicable anti-takeover provision in the Companys certificate of incorporation or bylaws. To the knowledge of the Company, no other Takeover Law applies to the Offer, the Merger, this Agreement or any of the transactions contemplated by this Agreement.

Section 4.17 Opinions of Financial Advisors. The Board of Directors of the Company has received the separate opinions of each of Merrill Lynch & Co. and Credit Suisse Securities (USA) LLC, to the effect that, as of the date of such opinion, the Per Share Amount to be received by holders of Shares (other than Parent, Merger Sub and their respective affiliates) in the Offer and the Merger, taken together, is fair, from a financial point of view, to such holders, written copies of which will be delivered to Parent solely for informational purposes promptly following delivery to the Company.

Section 4.18 Required Vote of the Company Stockholders. The affirmative vote of the holders of a majority of the outstanding Shares is the only vote of holders of securities of the Company required to approve this Agreement and the transactions contemplated hereby, including the Merger (the "Company Stockholder Approval").

Section 4.19 Material Contracts.

(a) As of the date of this Agreement, except for this Agreement or the Company Benefit Plans, neither the Company nor any of its Subsidiaries is a party to or bound by: (A) any Contract relating to indebtedness for borrowed money or any financial guaranty in excess of $100,000; (B) any Contract that limits the ability of the Company or any of its Subsidiaries to compete in any business line or in any geographic area; (C) any Contract that involves any exchange traded, over-the-counter or other swap, cap, floor, collar, futures contract, forward contract, option or any other derivative financial instrument; (D) any Contract that involved expenditures or guaranteed receipts by the Company or any of its Subsidiaries of more than $2 million in the last fiscal year or is expected to involve expenditures or guaranteed receipts by the Company or any of its Subsidiaries of more than $2 million in the next fiscal year; (E) any Contract that involved, since January 1, 2004, the acquisition or disposition, directly or indirectly (by merger or otherwise), of assets or capital stock or other equity interests of another person (other than acquisitions or dispositions of assets in the ordinary course of business, including acquisitions and dispositions of inventory); (F) any Contract that by its terms limits the payment of dividends or other distributions by the Company or any of its Subsidiaries; (G) any material joint venture or partnership Contract; (H) any Contract that purports to limit the ability of the Company or any of its Subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any material amount of assets or business; and (I) any Contract deemed to be a "material contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC (all contracts of the type described in this Section 4.19(a) (being referred to herein as "Company Material Contracts").

(b) Section 4.19(b) of the Company Disclosure Schedule sets forth a true and complete list of the Company Material Contracts. True, correct and complete copies have been made available to Parent of all Company Material Contracts to which the Company or any of its Subsidiaries is a party; provided, however, that the Company need not provide to Parent any Company Material Contracts or portions thereof that contain confidentiality provisions or are otherwise subject to restrictions on disclosure including, without limitation, restrictions relating to security clearance.

(c) Neither the Company nor any Subsidiary of the Company nor, to the knowledge of the Company, any other party, is in material breach of or material default under the terms of any Contract that would qualify as a Company Material Contract pursuant to Section 4.19(a)(A), (C), (D), (G) or (I) (each, a "Specified Contract"). Except as would not reasonably be expected to have a Company Material Adverse Effect, neither the Company nor any Subsidiary of the Company nor, to the knowledge of the Company, any other party, is in material breach of or material default under the terms of any Company Material Contract that is not a Specified Contract. Except as would not, individually or in the aggregate, reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, each Specified Contract, and, except as would not reasonably be expected to have a Company Material Adverse Effect, each Company Material Contract that is not a Specified Contract or a Contract of the type referred to in Section 4.19(a)(B) or (H), is a valid and binding obligation of the Company or the Subsidiary of the Company which is party thereto and, to the knowledge of the Company, of each other party thereto, and is in full force and effect, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar Laws, now or hereafter in effect, relating to creditors rights generally and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.

Section 4.20 Finders or Brokers. Except for Merrill Lynch & Co., and Credit Suisse Securities (USA) LLC, neither the Company nor any of its Subsidiaries has employed any investment banker, broker or finder in connection with the transactions contemplated by this Agreement who might be entitled to any fee or any commission in connection with or upon consummation of the Merger. The Company has heretofore furnished Parent with a complete and correct copy of all agreements between the Company and Merrill Lynch & Co. and the Company and Credit Suisse Securities (USA) LLC pursuant to which such firm would be entitled to any fee or commission relating to the transactions contemplated hereby.

Section 4.21 Environmental Matters.

(a) Except in each case for such matters that would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect: (i) to the knowledge of the Company, the Company and its Subsidiaries have complied with all applicable Environmental Laws; (ii) to the knowledge of the Company, the Company and its Subsidiaries possess all permits, licenses, registrations, identification numbers, authorizations and approvals required under applicable Environmental Laws for the operation of the business as presently conducted; (iii) neither the Company violation or alleged violation of any applicable Environmental Law or concerning any actual or alleged liability of the Company or any of its Subsidiaries arising under or pursuant to any Environmental Law; and (iv) there are no writs, injunctions, decrees, orders or judgments outstanding, or any actions, suits or proceedings pending or, to the knowledge of the Company, threatened, concerning noncompliance by, or actual or potential liability of, the Company or any Subsidiary with any Environmental Law.

(b) As used herein, the term "Environmental Law" means, as currently in effect, any applicable Law (A) concerning the protection of the environment, (including air, water, soil and natural resources) or (B) the use, storage, handling, release or disposal of Hazardous Substances. As used herein, the term "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic or radioactive under any applicable Environmental Law including petroleum and any derivative or by-products thereof.

Section 4.22 Government Contracts.

(a) The Company and its Subsidiaries are not currently in, and the execution and delivery of this Agreement by the Company and the consummation of the Offer and the Merger by the Company will not result in, any material violation, breach or default of any term or provision or trigger automatic or optional termination of (i) any material Contract with any Governmental Entity, (ii) any material subcontract issued at any tier under a prime contract with any Governmental Entity, or (iii) any material bid, proposal, offer or quotation relating to a Contract with any Governmental Entity or a material subcontract issued under a material Contract with any Governmental Entity. The Company and its Subsidiaries are not in any material violation, breach or default of any provision of any federal order, statute, rule or regulation (including the Federal Acquisition Regulation ("FAR"), agency supplements to the FAR, the Arms Export Control Act (22 U.S.C. 277 et seq.), and agency export regulations) or any similar state or Law governing