AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER,

DATED AS OF FEBRUARY 11, 2008,

MEDRAD, INC.,

PHOENIX ACQUISITION CORP. and

POSSIS MEDICAL, INC.

TABLE OF CONTENTS

		Page
ARTICLE I — THE OFFER			1
Section 1.01 The Offer			1
Section 1.02 Company Actions			4
Section 1.03 Directors			6
Section 1.04 Top-Up Option			7
ARTICLE II — THE MERGER			8
Section 2.01 The Merger			8
Section 2.02 Closing; Effective Time			8
Section 2.03 Effects of the Merger			9
Section 2.04 Articles of Incorporation and Bylaws			9
Section 2.05 Directors			9
Section 2.06 Officers			9
Section 2.07 Conversion of Capital Stock			9
Section 2.08 Company Stock Options and Restricted Shares			10
Section 2.09 Shareholders’ Meeting			10
Section 2.10 Merger Without Meeting of Shareholders			12
ARTICLE III —DISSENTING SHARES; EXCHANGE OF SHARES			12
Section 3.01 Dissenting Shares			12
Section 3.02 Exchange of Shares			12
Section 3.03 Withholding Rights			13
Section 3.04 No Liability			14
ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF THE COMPANY			14
Section 4.01 Organization			14
Section 4.02 Capitalization			15
Section 4.03 Authority; No Violation			16
Section 4.04 Financial Statements; Reports			18
Section 4.05 Absence of Certain Changes or Events			20
Section 4.06 Legal Proceedings			20
Section 4.07 Broker’s Fees			20
Section 4.08 Absence of Undisclosed Liabilities			20
Section 4.09 Compliance with Applicable Laws and Reporting Requirements			21
Section 4.10 Taxes and Tax Returns			21
Section 4.11 Employee Benefit Programs			23
Section 4.12 Labor and Employment Matters			26
Section 4.13 Material Contracts			26
Section 4.14 Real Properties			28
Section 4.15 Personal Properties			28
Section 4.16 Intellectual Property			29
Section 4.17 Regulatory Compliance			31
Section 4.18 Environmental, Health and Safety Liability			34
Section 4.19 Rights Plan; State Takeover Laws; Required Shareholder Vote			35

		Page
Section 4.20 Insurance			35
Section 4.21 Suppliers			36
Section 4.22 Opinion of Company’s Financial Advisors			36
Section 4.23 Transactions with Certain Persons			36
ARTICLE V — REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER			37
Section 5.01 Organization			37
Section 5.02 Authority; No Violation			37
Section 5.03 Legal Proceedings			38
Section 5.04 Available Funds			39
Section 5.06 Ownership of Shares			39
ARTICLE VI — COVENANTS			39
Section 6.01 Conduct of Business of the Company			39
Section 6.02 No Solicitation			41
Section 6.03 Access to Information; Confidentiality			44
Section 6.04 Approvals			45
Section 6.05 Public Announcements			46
Section 6.06 Indemnification; Insurance			46
Section 6.07 Employment Contracts, Benefits, etc.			47
Section 6.08 Purchaser			49
Section 6.09 Rule 16b-3 Actions			49
Section 6.10 Rule 14d-10 Matters			49
ARTICLE VII — CONDITIONS TO CONSUMMATION OF THE MERGER			49
Section 7.01 Conditions to Each Party’s Obligation to Effect the Merger			49
ARTICLE VIII — TERMINATION; AMENDMENTS; WAIVER			50
Section 8.01 Termination			50
Section 8.02 Effect of Termination			52
Section 8.03 Amendment			53
Section 8.04 Extension; Waiver			53
Section 8.05 Procedure for Termination, Amendment, Extension or Waiver			54
ARTICLE IX — MISCELLANEOUS			54
Section 9.01 Non-Survival of Representations and Warranties			54
Section 9.02 Entire Agreement; Assignment			54
Section 9.04 Validity			54
Section 9.05 Notices			54
Section 9.06 Governing Law			55
Section 9.07 Descriptive Headings			55
Section 9.08 Counterparts			56
Section 9.09 Expenses			56
Section 9.10 Third Party Beneficiaries			56
Section 9.11 Specific Performance			56

		Page
ARTICLE X — DEFINITIONS			56
Section 10.1 Definitions			56
Section 10.2 Other Defined Terms			59
Section 10.3 Interpretation			62

AGREEMENT AND PLAN OF MERGER

     AGREEMENT AND PLAN OF MERGER (the “ Agreement ”), dated as of February 11, 2008, by and among MEDRAD, INC., a Delaware corporation (“ Parent ”), PHOENIX ACQUISITION CORP., a Minnesota corporation and a wholly owned subsidiary of Parent (“ Purchaser ”), and POSSIS MEDICAL, INC., a Minnesota corporation (the “ Company ”). Capitalized terms used in this Agreement shall have the meanings assigned to them in Article X, or in the applicable Section of this Agreement to which reference is made in Article X.

     WHEREAS, the boards of directors of each of Parent, Purchaser and the Company have approved the acquisition of the Company by Parent on the terms and conditions set forth in this Agreement.

     WHEREAS, pursuant to this Agreement, and subject to the terms and conditions set forth herein, Purchaser has agreed to commence a tender offer (the “ Offer ”) to purchase all the outstanding shares of the Company’s common stock, par value $.40 per share (“ Company Common Stock ”), on the terms set forth herein.

     WHEREAS, the board of directors of the Company (a) has by unanimous vote of the directors (i) determined that this Agreement, the Offer, the Plan of Merger (as defined below) and the Merger (as defined below) are advisable, fair and in the best interest of the Company and its shareholders, (ii) approved the Offer and the merger of Purchaser with and into the Company, with the Company as the surviving corporation (the “ Merger ”) pursuant to a plan of merger (the “ Plan of Merger ”) in accordance with and in the form required by the Minnesota Business Corporation Act (the “ MBCA ”) and (iii) approved this Agreement and (b) is recommending that the Company’s shareholders (the “ Company Shareholders ”) accept the Offer, tender their shares of Company Common Stock into the Offer and, to the extent required by applicable Law, approve the Merger and the Plan of Merger and adopt this Agreement.

     WHEREAS, concurrently with the execution and delivery hereof and as a condition and inducement to the willingness of Parent and Purchaser to enter into this Agreement, each of the directors and executive officers of the Company, in their respective capacities as shareholders of the Company, have entered into tender and support agreements with Parent substantially in the form of Annex A (“ Company Support Agreements ”).

     NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements hereinafter contained and intending to be bound hereby, the parties hereto agree as follows:

ARTICLE I — THE OFFER

     Section 1.01 The Offer . (a) Provided that (i) this Agreement shall not have been terminated in accordance with Article VIII hereof, (ii) nothing shall have occurred that would render any of the conditions set forth in Section 1 of Annex B incapable of being satisfied and (iii) none of the conditions set forth in Section 2 of Annex B hereto shall have occurred and be continuing, Parent shall cause Purchaser (and the Company shall cooperate with Parent and Purchaser subject to Section 6.02(e)) to commence (within the meaning of Rule 14d-2 of the

Exchange Act), as promptly as reasonably practicable after the date of this Agreement but in no event more than ten (10) Business Days thereafter, an offer to purchase all outstanding shares of Company Common Stock (including the associated rights to purchase shares of capital stock of the Company (“ Rights ”) issued pursuant to that certain Shareholder Rights Plan dated as of December 23, 2006, by and between the Company and Wells Fargo Bank, National Association, as Rights Agent (the “ Rights Plan ”)) (each such share of Company Common Stock, together with the associated Rights, a “ Share ” and collectively, “ Shares ”) at a price of $19.50 per Share, net to the sellers in cash (such amount, or any greater amount per Share paid pursuant to the Offer, the “ Offer Price ”). Promptly after the later of: (i) the earliest date as of which Parent is permitted under applicable Law to accept for payment Shares tendered pursuant to the Offer and (ii) the earliest date as of which each of the Tender Offer Conditions shall have been satisfied or waived (and in any event in compliance with Rule 14e-1(c)), Purchaser shall, and Parent shall cause it to, accept for payment, and pay for (after giving effect to any required withholding Tax), all Shares validly tendered pursuant to the Offer and not withdrawn (the time and date of acceptance for payment, the “ Acceptance Date ”).

          (b) Purchaser expressly reserves the right, in its sole discretion, to waive, in whole or in part, any Tender Offer Condition or modify the terms of the Offer; provided , however , that without the prior written consent of the Company, Purchaser shall not (i) decrease the Offer Price, (ii) decrease the number of Shares sought to be purchased in the Offer, (iii) change the form of consideration payable in the Offer (other than by increasing the Offer Price, in the sole discretion of Purchaser), (iv) add to the Tender Offer Conditions, (v) waive or amend the Minimum Condition (as defined in Annex B ), (vi) extend or otherwise change the expiration date of the Offer, other than in accordance with Section 1.01(c) or (vii) make any other change in the terms or conditions of the Offer which is or would reasonably be expected to be materially adverse to any holder of Shares, it being agreed that a waiver by Purchaser of any of the conditions set forth in Annex B (other than the Minimum Condition) in whole or in part at any time and from time to time in its discretion shall not be deemed to be materially adverse to any holder of Shares.

          (c) The initial expiration date of the Offer (the “ Expiration Date ”) shall be the 20th Business Day following the commencement of the Offer (determined using Rule 14d-2 under the Exchange Act). Without the prior written consent of the Company, Purchaser may extend the Expiration Date (which extended date shall thereupon be the Expiration Date for purposes of this Agreement) in increments of not more than ten (10) Business Days each, if at the scheduled Expiration Date any of the conditions to Purchaser’s obligation to purchase Shares are not satisfied, until such time as such conditions are satisfied or waived, provided that the Expiration Date shall not be later than the Outside Date as a result of such extension. Without limiting the right of Purchaser to extend the Offer, provided that this Agreement shall not have been terminated in accordance with Article VIII hereof, (1) Purchaser shall extend the Expiration Date for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer and (2) Purchaser shall extend the Expiration Date if the conditions set forth in clauses (ii) and (iii) of Section 1 of Annex B are not satisfied as of any scheduled Expiration Date, until such time as the conditions set forth in clauses (ii) and (iii) of Section 1 of Annex B are satisfied, provided that the Expiration Date shall not be later than the Outside Date as a result of such extension. Further, provided that this Agreement shall not have been terminated in accordance with Article VIII hereof, if any of the conditions set forth in

Annex B (other than the conditions set forth in clauses (ii) and (iii) of Section 1 of Annex B) are not satisfied as of any scheduled Expiration Date, then, except to the extent that such conditions are incapable of being satisfied, at the request of the Company, Purchaser shall extend the Expiration Date for a period requested by the Company of not more than ten (10) Business Days in order to permit the satisfaction of such conditions to the Offer; provided , however , that Purchaser shall not be required to so extend the Expiration Date pursuant to this sentence on more than two occasions or if the failure to meet any of such conditions set forth in Annex B was caused by or resulted from the failure of the Company to perform in any material respect any covenant or agreement of the Company contained herein, or the material breach by the Company of any representation or warranty contained herein. In addition, Purchaser shall have the right, without the consent of the Company, to make available a subsequent offering period (within the meaning of Rule 14d-11 under the Exchange Act) if, on the then-applicable Expiration Date, the conditions to the Offer set forth in Annex B have been satisfied or waived but there shall not have been tendered that number of Shares which would equal at least ninety percent (90%) of the issued and then outstanding Shares on a “fully diluted basis” (which assumes conversion or exercise of all derivative securities regardless of the conversion or exercise price, the vesting schedule or other terms and conditions thereof). Subject to the terms and conditions set forth in the Offer, Purchaser shall, and Parent shall cause it to, accept for payment and pay for all Shares validly tendered and not withdrawn during such subsequent offering period promptly after any such Shares are tendered during such subsequent offering period and in any event in compliance with Rule 14d-11 and Rule 14e-1(c) promulgated under the Exchange Act. The Offer may be terminated prior to its Expiration Date (as such expiration date may be extended and re-extended in accordance with this Agreement), but only if this Agreement is validly terminated in accordance with Section 8.01. In no event shall Purchaser extend the Offer beyond the Outside Date.

          (d) On the date of commencement of the Offer, Parent and Purchaser shall (i) 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 the offer to purchase and related letter of transmittal and summary advertisement and other ancillary documents and instruments required thereby pursuant to which the Offer will be made (collectively with any supplements or amendments thereto, the “ Offer Documents ”); (ii) cause the Offer Documents to be disseminated to holders of Shares as required by applicable Law; and (iii) timely file with the Commissioner of Commerce of the State of Minnesota any registration statement relating to the Offer required to be filed pursuant to Chapter 80B of the Minnesota Statutes and shall disseminate to the holders of Company Common Stock via the Offer Documents the information set forth in any such registration statement to the extent and within the time period required by Chapter 80B of the Minnesota Statutes. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Offer Documents prior to their filing with the SEC and Parent and Purchaser shall give reasonable and good faith consideration to any comments made by the Company and its counsel.

          (e) Parent and Purchaser shall cause the Offer Documents and any amendments or supplements thereto to (i) comply in all material respects with the Exchange Act, and (ii) not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no covenant is made by

Parent with respect to information supplied by the Company specifically for inclusion in the Offer Documents. Parent and Purchaser shall cause the information supplied by Parent and its affiliates specifically for inclusion in the Schedule 14D-9, the Information Statement or the Proxy Statement, at the respective times the Schedule 14D-9, the Information Statement or the Proxy Statement are filed with the SEC or, in the case of the Proxy Statement, at the time of the Special Meeting, not to contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Parent and Purchaser shall cause the Offer to be conducted in compliance in all material respects with the Exchange Act.

          (f) If at any time prior to the Effective Time, any information relating to the Offer, the Merger, the Company, Parent, Purchaser or any of their respective Affiliates, directors or officers, should be discovered by the Company or Purchaser which should be set forth in an amendment or supplement to the Offer Documents so that the Offer Documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, the party which discovers such information shall promptly notify the other parties, and an appropriate amendment or supplement describing such information shall be filed with the SEC and disseminated to the Company Shareholders, as and to the extent required by applicable Law or any applicable rule or regulation of any stock exchange. Parent and Purchaser agree to provide the Company with (i) any comments or other communications, whether written or oral, that may be received from the SEC or its staff with respect to the Offer Documents promptly after receipt thereof and prior to responding thereto and (ii) a reasonable opportunity to provide comments on that response (to which reasonable and good faith consideration shall be given).

          (g) Purchaser shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to the Offer to any holder of Shares such amounts as Purchaser is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign Tax Law. To the extent that amounts are so withheld and paid over to the appropriate Taxing authority by Purchaser, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which such deduction and withholding was made by Purchaser.

          (h) Parent shall cause to be provided to Purchaser all of the funds necessary to purchase any Shares that Purchaser becomes obligated to purchase pursuant to the Offer, and shall cause Purchaser to perform, on a timely basis, all of Purchaser’s obligations under this Agreement.

     Section 1.02 Company Actions . (a) The Company hereby represents, that the Company’s board of directors, at a meeting duly called and held at which a quorum was present throughout, has unanimously (i) determined and declared that this Agreement and each of the Offer and the Merger are advisable, fair and in the best interests of the Company and its shareholders, (ii) approved this Agreement and the transactions contemplated by this Agreement, including the Offer, the Merger and the Plan of Merger, in all respects in accordance with the MBCA, (iii) recommended that the Company Shareholders accept the Offer, tender their Shares

into the Offer and, to the extent required by applicable Law, adopt this Agreement and the Plan of Merger (the “ Company Recommendations ”), and (iv) taken all action necessary to render Sections 302A.671 and 302A.673 of the MBCA inapplicable to each of the Offer and the Merger, provided , however , that the Company’s board of directors may withdraw, modify or amend the Company Recommendations in a manner adverse to Purchaser and Parent only prior to the Acceptance Date and, in any case, only in accordance with Section 6.02(e) of this Agreement. The Company shall file with the SEC and mail to the holders of Shares, on the date of the filing by Parent and Purchaser of the Offer Documents with the SEC, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the “ Schedule 14D-9 ”). Subject to Section 6.02(e), the Schedule 14D-9 will set forth the Company Recommendations. To the extent the Company Recommendations have not been withdrawn, modified or amended, the Company shall afford Parent a reasonable opportunity to review and comment on the Schedule 14D-9 prior to the time the Schedule 14D-9 is filed with the SEC and mailed to the holders of Shares. The Company hereby consents to the inclusion in the Offer Documents of the Company Recommendations to the extent such Company Recommendations are not withheld or withdrawn in accordance with and subject to Section 6.02(e). To the extent the Company Recommendations have been withdrawn, amended or modified in accordance with and subject to Section 6.02(e), the Company hereby consents to the inclusion of such recommendation, as so amended or modified, in the Offer Documents.

          (b) The Company shall cause the Schedule 14D-9, the Information Statement and, if a Proxy Statement is required in connection with the Merger, the Proxy Statement to (i) comply in all material respects with the Exchange Act and, on the date filed with the SEC and on the date first published, sent or given to the Company Shareholders and, in the case of the Proxy Statement, on the date of the Special Meeting, (ii) not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, except that no covenant is made by the Company with respect to information supplied by Parent or Purchaser for inclusion in the Schedule 14D-9, the Information Statement or the Proxy Statement and (iii) include the opinion of the Company’s Financial Advisor referred to in Section 4.22. The Company shall cause the information relating to the Company and its subsidiaries supplied by the Company specifically for inclusion in the Offer Documents, including any amendments or supplements thereto, at the respective times the Offer Documents or any amendments or supplements thereto are filed with the SEC, not to contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

          (c) If at any time prior to the Effective Time, any information relating to the Offer, the Merger, the Company, Parent, Purchaser or any of their respective Affiliates, directors or officers, should be discovered by the Company or Purchaser which should be set forth in an amendment or supplement to the Schedule 14D-9, so that the Schedule 14D-9 shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, the party which discovers such information shall promptly notify the other parties, and an appropriate amendment or supplement describing such information shall be filed with the SEC and disseminated to the Company Shareholders, as and

to the extent required by applicable Law or any applicable rule or regulation of any stock exchange. To the extent the Company Recommendations have not been withdrawn, modified or amended, the Company agrees to provide Parent and Purchaser with (i) any comments or other communications, whether written or oral, that may be received from the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt thereof and prior to responding thereto and (ii) a reasonable opportunity to provide comments on that response (to which reasonable and good faith consideration shall be given).

          (d) In connection with the Offer, the Company will cause its transfer agent to promptly furnish Purchaser with mailing labels, security position listings, non-objecting beneficial owner lists and any available listing or computer list containing the names and addresses of the record holders of Shares and lists of security positions of Company Common Stock held in stock depositories as of the most recent practicable date and shall furnish Purchaser with such additional available information (including updated lists of holders of Shares and their addresses, mailing labels and lists of security positions and non-objecting beneficial owner lists) and such other assistance as Purchaser or its agents may reasonably request in communicating the Offer to the Company’s record and beneficial shareholders. Subject to the requirements of applicable Laws, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent, Purchaser and their Affiliates, associates, agents and advisors, shall keep such information confidential and use the information contained in any such labels, listings and files only in connection with the Offer and the Merger and, should the Offer terminate or if this Agreement shall be terminated, will deliver to the Company all copies of such information then in their possession.

     Section 1.03 Directors . (a) Subject to compliance with applicable Laws and this Section 1.03 , promptly upon the payment by Purchaser of Shares as represents at least two-thirds of the total number of outstanding shares of Company Common Stock on a “fully diluted basis” (which assumes conversion or exercise of all derivative securities regardless of the conversion or exercise price, the vesting schedule or other terms and conditions thereof) pursuant to the Offer and from time to time thereafter, Parent shall be entitled to designate such number of directors, rounded up to the next whole number, on the Company’s board of directors as is equal to the product of (x) the total number of directors on the Company’s board of directors (determined after giving effect to the election of any additional directors pursuant to this sentence) multiplied by (y) the percentage that the aggregate number of shares of Company Common Stock beneficially owned by Purchaser or any of its Affiliates bears to the total number of shares of Company Common Stock then outstanding, and the Company shall promptly take all actions necessary to cause Parent’s designees to be so elected or appointed (including, if necessary, seeking the resignations of one or more existing directors or increasing the size of the Company’s board of directors) in compliance with applicable Law; provided , however , that Parent shall be entitled to designate at least two-thirds of the directors on the Company’s board of directors (as long as Parent and its Affiliates beneficially own two-thirds of the outstanding shares of Company Common Stock). From time to time the Company shall take all action necessary to cause Parent’s designees to constitute substantially the same percentage (rounding up where appropriate) as is on the Company’s board of directors on (i) each committee of the Company’s board of directors and (ii) each board of directors of each subsidiary and each committee of each such board. Notwithstanding the foregoing, prior to the Effective Time, the Company’s board of directors shall always have at least two members who are not Purchaser

Insiders. “ Purchaser Insiders ” means officers, directors, shareholders, employees or designees of Purchaser or any of its Affiliates. If the number of directors who are not Purchaser Insiders is reduced below two prior to the Effective Time, the remaining director who is not a Purchaser Insider shall be entitled to designate a Person who is not a Purchaser Insider to fill such vacancy and the Person so designated shall be a director not deemed to be a Purchaser Insider for all purposes of this Agreement.

          (b) The Company’s obligations to appoint Parent’s designees to the Company’s board of directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. The Company shall promptly take all actions required pursuant to such Section and Rule in order to fulfill its obligations under this Section 1.03 , including the mailing to the Company Shareholders of an information statement (the “ Information Statement ”) containing the information required by such Section 14(f) of the Exchange Act and Rule 14f-1 thereunder, as promptly as practicable following the mailing of the Schedule 14D-9, so long as Parent shall have timely provided to the Company all information with respect to Parent and its designees, officers, directors and Affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. Parent shall promptly supply to the Company in writing, and shall be solely responsible for, all such information.

          (c) Following the Acceptance Date and prior to the Effective Time, (i) any amendment or termination of this Agreement by the Company, (ii) any extension by the Company of the time for the performance of any of the obligations or other acts of Parent or Purchaser, (iii) any waiver of any of the Company’s rights or any of the obligations of Parent or Purchaser hereunder, (iv) any other consent, action or recommendation by the Company or the Company’s board of directors with respect to this Agreement, the Offer or the Merger or any other transaction contemplated thereby or in connection therewith or (v) any amendment or modification to the Company’s articles of incorporation or bylaws will require the consent of both of the directors of the Company then in office who are not Purchaser Insiders (or the approval of the sole director if there shall only be one director then in office who is not a Purchaser Insider).

     Section 1.04 Top-Up Option . (a) The Company hereby grants to Purchaser an irrevocable option (the “ Top-Up Option ”), exercisable on the terms and conditions set forth in this Section 1.04 , to purchase at a price per share equal to the Offer Price up to that number of newly issued shares of Company Common Stock (the “ Top-Up Shares ”) equal to the lowest number of shares of Company Common Stock that, when added to the number of shares of Company Common Stock directly or indirectly owned by Parent or Purchaser at the time of exercise of the Top-Up Option, shall constitute one share more than 90% of the shares of Company Common Stock outstanding immediately after the issuance of the Top-Up Shares (determined on a “fully diluted basis” (which assumes conversion or exercise of all derivative securities regardless of the conversion or exercise price, the vesting schedule or other terms and conditions thereof)); provided , however , that (i) the Top-Up Option shall not be exercisable for a number of shares of Company Common Stock that exceeds the number of authorized shares of Company Common Stock, less shares of Company Common Stock issued or reserved for issuance at the time of exercise of the Top-Up Option and (ii) the Top-Up Option may not be exercised unless, following the acceptance by Purchaser of shares of Company Common Stock tendered in the Offer or after a subsequent offering period, eighty percent (80%) or more of the

shares of Company Common Stock shall be directly or indirectly owned by Parent or Purchaser. The Top-Up Option shall be exercisable once at any time within six (6) Business Days following the later to occur of the Acceptance Date or the expiration of any subsequent offering period and prior to the earlier to occur of (a) the Effective Time and (b) the termination of this Agreement in accordance with its terms.

          (b) The parties shall cooperate to ensure that the issuance and delivery of the Top-Up Shares comply with all applicable Law, including compliance with an applicable exemption from registration of the Top-Up Shares under the Securities Act. If Purchaser wishes to exercise the Top-Up Option, Purchaser shall give the Company one Business Day prior written notice, specifying (i) the number of shares of the Company’s Common Stock directly or indirectly owned by Parent at the time of such notice and (ii) a place and a time for the closing of such purchase. The Company shall, as soon as practicable following receipt of such notice, deliver written notice to Purchaser specifying, based on the information provided by Purchaser in its notice, the number of Top-Up Shares. At the closing of the purchase of Top-Up Shares, the purchase price owed by Purchaser to the Company therefor shall be paid to the Company (i) in cash, by wire transfer or cashier’s check or (ii) by issuance by Purchaser to the Company of a promissory note on terms reasonably satisfactory to the Company. Each of Parent and Purchaser agrees to consummate the Merger as promptly as practicable following the closing of the purchase of Top-Up Shares in accordance with Section 302A.621 of the MBCA and the terms and conditions of this Agreement. Without the prior written consent of the Company, the right to exercise the Top-Up Option granted pursuant to this Agreement shall not be assigned by Purchaser except to any direct or indirect wholly owned subsidiary of Parent. Any attempted assignment in violation of this Section 1.04(b) shall be null and void.

ARTICLE II — THE MERGER

     Section 2.01 The Merger . Subject to the terms and conditions of this Agreement, in accordance with the MBCA, at the Effective Time, Purchaser shall merge with and into the Company. The Company shall be the surviving corporation (the “ Surviving Corporation ”) in the Merger, and shall continue its corporate existence under the Laws of the State of Minnesota. Upon consummation of the Merger, the separate corporate existence of Purchaser shall terminate.

     Section 2.02 Closing; Effective Time . The closing of the Merger (the “ Closing ”) will take place at 10:00 a.m., prevailing Eastern time, on a date and at a place to be specified by the parties, which shall be not later than the second Business Day after satisfaction (or waiver as provided herein) of the conditions set forth in Article VII (other than those conditions that by their nature will be satisfied at the Closing but subject in all events to the satisfaction or waiver of such conditions), unless another time, date and/or place is agreed to in writing by the parties. The date on which the Closing occurs is referred to in this Agreement as the “ Closing Date ”. As soon as practicable on the Closing Date, the parties shall file with the Secretary of State of the State of Minnesota Articles of Merger containing the Plan of Merger and meeting the requirements of Section 302A.615 of the MBCA (the “ Articles of Merger ”). The Merger shall become effective at the date and time (the “ Effective Time ”) when Articles of Merger shall have been duly executed and filed with the Secretary of State of the State of Minnesota, or at such

later date and time as is mutually agreed upon by Parent, Purchaser and the Company and is specified in the Articles of Merger in accordance with the MBCA.

     Section 2.03 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in the MBCA.

     Section 2.04 Articles of Incorporation and By-Laws . The Articles of Incorporation and the By-Laws of the Purchaser shall be the Articles of Incorporation and By-Laws of the Surviving Corporation until thereafter changed or amended as provided therein or by Law.

     Section 2.05 Directors . The directors of Purchaser immediately prior to the Effective Time shall constitute the initial Board of Directors of the Surviving Corporation from and after the Effective Time until their respective successors are duly elected and qualified or until their earlier of their resignation or removal in accordance with the Surviving Corporation’s Articles of Incorporation or By-Laws and in accordance with applicable Law, as the case may be.

     Section 2.06 Officers . The initial officers of the Surviving Corporation from and after the Effective Time shall be as set forth in Schedule 2.06 until their respective successors are duly elected and qualified or until their earlier of their resignation or removal in accordance with the Surviving Corporation’s Articles of Incorporation or By-Laws and in accordance with applicable Law, as the case may be.

     Section 2.07 Conversion of Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of the capital stock of the Company or the capital stock of Purchaser:

          (a) Capital Stock of Purchaser . Each share of the common stock of Purchaser issued and outstanding immediately prior to the Effective Time shall continue as one fully paid and nonassessable share of common stock, $.001 par value per share, of the Surviving Corporation.

          (b) Conversion of Company Common Stock . Each share of Company Common Stock (other than (x) any shares of Company Common Stock owned by Parent or Purchaser immediately prior to the Effective Time, which shares shall be cancelled and shall cease to exist and as to which no consideration shall be delivered in exchange therefore and (y) Dissenting Shares (as defined in Section 3.01 )) issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive an amount in cash, without interest, equal to the Offer Price per share (the “ Merger Consideration ”). As of the Effective Time, all such shares of Company Common Stock shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate or evidence of shares held in book-entry form representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration upon surrender of such certificate in accordance with Section 3.02 , without interest.

          Section 2.08 Company Stock Options and Restricted Shares . (a) As soon as practicable following the date of this Agreement, the Company’s board of directors (or, if appropriate, any committee thereof administering the Company Stock Plans) shall adopt such resolutions or take such other actions as may be required to effect the following:

               (i) adjust the terms of each outstanding option to acquire shares of Company Common Stock (“ Company Stock Option ”), whether vested or unvested, as necessary to provide that each Company Stock Option outstanding immediately prior to the Effective Time shall be canceled and the holder thereof shall then become entitled to receive, in full satisfaction of the rights of such holder with respect thereto, as soon as practicable following the Effective Time, a single lump-sum cash payment equal to the product of (A) the number of shares of Company Common Stock for which such Company Stock Option shall not theretofore have been exercised and (B) the excess, if any, of the Merger Consideration over the exercise price per share of such Company Stock Option; provided, however, if the exercise price of any Company Stock Option exceeds the Merger Consideration, then such Company Stock Option shall be cancelled without payment of any consideration therefor and shall be of no further force and effect;

               (ii) adjust the terms of all outstanding shares of Company Common Stock that are outstanding as of immediately prior to the Effective Time but are subject to vesting or other forfeiture restrictions or are subject to a right of repurchase by the Company at a fixed purchase price (shares so subject, “ Company Restricted Shares ”) to provide that, as of the Effective Time, each Company Restricted Share outstanding immediately prior to the Effective Time shall immediately vest and the restrictions associated therewith shall automatically be deemed waived at the Effective Time; and

               (iii) make such other changes to the Company Stock Plans as the Company and Parent may agree are appropriate to give effect to the Merger and to terminate, as of the Effective Time, the Company Stock Plans and the provisions in any other plan, program or arrangement providing for the issuance or grant by the Company or any of its subsidiaries of any interest in respect of the capital stock of the Company or any of its subsidiaries so that following the Effective Time no holder of Company Stock Options or any participant in the Company Stock Plans or any other such plans, programs or arrangements shall have any right thereunder to acquire any equity securities of the Company, the Surviving Corporation or any subsidiary thereof.

          (b) All amounts payable pursuant to Section 2.08 shall be subject to any required withholding taxes and shall be paid without interest promptly following the Effective Time.

     Section 2.09 Shareholders’ Meeting . (a) If the adoption of this Agreement and the Plan of Merger by the holders of Company Common Stock is required by applicable Law in order to consummate the Merger, the Company, acting through the Company’s board of directors, shall, as promptly as reasonably practicable following the Acceptance Date, in accordance with applicable Law:

               (i) establish a record date (which shall be as promptly as reasonably practicable following the Acceptance Date) for, duly call, give notice of, convene and hold a special meeting of its shareholders (the “ Special Meeting ”) for the purpose of considering and taking action upon this Agreement and the Plan of Merger;

               (ii) state in the notice of the Special Meeting that a resolution to adopt this Agreement and the Plan of Merger will be considered at the Special Meeting;

               (iii) prepare and file with the SEC a preliminary proxy statement relating to this Agreement and shall (A) use its reasonable best efforts to respond to any comments of the SEC with respect to the proxy statement and to cause the SEC to confirm that it has no comments or no further comments, as the case may be, on the proxy statement, (B) promptly notify Parent upon the receipt of any comments from the SEC, or any request from the SEC for amendments or supplements to the proxy statement, and shall provide Parent with copies of all correspondence relating to the proxy statement between it and its representatives, on the one hand, and the SEC, on the other hand, (C) prior to the filing of the proxy statement (or any amendment or supplement thereto) with the SEC or the dissemination thereof to the shareholders of the Company, or responding to any comments of the SEC with respect thereto, provide Parent a reasonable opportunity to review and comment on such document or response (including the proposed final version of such document or response) and give good faith consideration to Parent’s comments on such document or response, (D) cause a definitive proxy statement (the “ Proxy Statement ”) to be mailed to its shareholders and (E) if at any time prior to the Special Meeting any information relating to the Offer, the Merger, the Company, Parent, Purchaser or any of their respective Affiliates, directors or officers should be discovered by the Company, Parent or Purchaser which should be set forth in an amendment or supplement to the Proxy Statement, so that the Proxy Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, file with the SEC and disseminate to the holders of Company Common Stock an appropriate amendment or supplement describing such information, as and to the extent required by applicable Law or any applicable rule or regulation of any stock exchange;

               (iv) subject to the fiduciary duties of the Company’s board of directors, include in the Proxy Statement the Company Recommendations that Company Shareholders vote in favor of the approval of this Agreement and the Plan of Merger; and

               (v) include in the Proxy Statement the opinion of the Company’s Financial Advisor referred to in Section 4.22 .

          (b) Parent agrees that it will vote, or cause to be voted, all of the shares of Company Common Stock then owned by it, Purchaser or any of its subsidiaries in favor of the approval of the Merger and adoption of this Agreement and the Plan of Merger.

     Section 2.10 Merger Without Meeting of Shareholders . Notwithstanding Section 2.09 , in the event that Parent, Purchaser or any other subsidiary of Parent collectively shall acquire at least 90% of the outstanding shares of Company Common Stock pursuant to the Offer or otherwise, the parties hereto agree to take all necessary and appropriate action to cause the Merger to become effective as soon as reasonably practicable after the Acceptance Date without a meeting of shareholders of the Company, in accordance with Section 302A.621 of the MBCA.

ARTICLE III —DISSENTING SHARES; EXCHANGE OF SHARES

     Section 3.01 Dissenting Shares . Notwithstanding anything in this Agreement to the contrary, shares of Company Common Stock outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger and who has delivered a written notice of intent to demand payment of the fair value of such shares in accordance with Section 302A.473 of the MBCA (the “ Dissenting Shares ”) shall not be converted into the right to receive the Merger Consideration pursuant to Section 2.07(b), unless and until such holder fails to perfect or effectively withdraws or otherwise loses such holder’s right to demand payment under the MBCA. Such holder shall be entitled to receive payment of the fair value of such shares of Company Common Stock in accordance with the provisions of the MBCA, provided that such holder complies with the provisions of Section 302A.473 of the MBCA. If, after the Effective Time, any such holder fails to perfect or effectively withdraws or otherwise loses such holder’s right to payment under Section 302A.473 of the MBCA, such Dissenting Shares shall thereupon be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration, without interest thereon. The Company shall give Parent and Purchaser prompt notice of any demands received by the Company pursuant to Section 302A.473 of the MBCA, and, prior to the Effective Time, Parent and Purchaser shall have the right to participate, at Parent’s expense, in all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, except with the prior written consent of Purchaser, make any payment with respect to, or settle or offer to settle, any such demands.

     Section 3.02 Exchange of Shares . (a) Prior to the Effective Time, Purchaser shall designate a bank or trust company or similar entity reasonably acceptable to the Company which is authorized to exercise corporate trust or stock powers to act as Exchange Agent in the Merger (the “ Exchange Agent ”). At the Effective Time, Purchaser will provide the Exchange Agent the funds necessary to make the cash payments contemplated by Section 2.07 (the “ Exchange Fund ”). The Exchange Agent shall cause the Exchange Fund to be (i) held for the benefit of the holders of shares of Company Common Stock and (ii) promptly applied to making the payments provided for in Section 2.07. The Exchange Fund shall not be used for any purpose that is not provided for herein. The Exchange Agent shall invest any cash included in the Exchange Fund, in direct obligations of the United States of America, obligations for which the full faith and credit of the United States of America is pledged to provide for the payment of all principal and interest, or as otherwise directed by Parent. Any interest and other income resulting from such investments shall be kept in the Exchange Fund. To the extent that there are losses with respect to such investments, or the Exchange Fund diminishes for other reasons below the level required to make prompt payments of the Merger Consideration as contemplated hereby, Parent shall promptly replace or restore the portion of the Exchange Fund lost through investments or other

events so as to ensure that the Exchange Fund is, at all times, maintained at a level sufficient to make such payments.

          (b) Promptly after the Effective Time, Purchaser shall cause the Exchange Agent to mail to each record holder, as of the Effective Time, of an outstanding certificate or certificates which immediately prior to the Effective Time represented outstanding Shares (the “ Certificates ”), one or more forms of a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent) and instructions for use in effecting the surrender of the Certificate in exchange for the Merger Consideration. Upon surrender to the Exchange Agent of a Certificate, together with such letter of transmittal duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor, and Purchaser shall cause the Exchange Agent to promptly so pay, cash in an amount equal to the product of the number of Shares represented by such Certificate multiplied by the amount of the Merger Consideration with respect to Shares, and such Certificate shall then be canceled. No interest will be paid or accrued on the cash payable upon the surrender of any Certificate. If payment is to be made to a person other than the person in whose name the Certificate surrendered is registered, it shall be a condition of payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such payment shall pay transfer or other Taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered or establish to the satisfaction of the Surviving Corporation that such Tax has been paid or is not applicable. Until surrendered in accordance with the provisions of this Section 3.02, each Certificate (other than Certificates representing Shares held by Parent, the Company or any subsidiary of Parent or of the Company and Dissenting Shares) shall be deemed at any time after the Effective Time to represent for all purposes only the right to receive the Merger Consideration in cash multiplied by the number of Shares evidenced by such Certificate, without any interest thereon.

          (c) At any time following the ninth month after the Effective Time, the Surviving Corporation shall be entitled to require the Exchange Agent to deliver to it any funds which have been made available to the Exchange Agent and not disbursed to the holders of Shares (including, without limitation, all interest and other income available to it) and thereafter, such holders shall be entitled to look to the Surviving Corporation (subject to abandoned property, escheat and other similar Laws) only as general creditors thereof with respect to the Merger Consideration that may be due or payable on surrender of the Certificates held by them.

          (d) After the Effective Time, the stock books of the Company shall be closed and, thereafter, there shall be no further registrations or transfers on the stock transfer books of the Company of the Shares which were outstanding immediately prior to the Effective Time. From and after the Effective Time, the holders of the Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided herein or by applicable Law.

     Section 3.03 Withholding Rights . Each of the Surviving Corporation and Purchaser, as applicable, shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of Shares pursuant to this Article III such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of federal, state, local

or foreign tax Law. If the Surviving Corporation or Purchaser, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares in respect of which the Surviving Corporation or Purchaser, as the case may be, made such deduction and withholding.

     Section 3.04 No Liability . None of Parent, Purchaser, the Surviving Corporation or the Exchange Agent shall be liable to any person in respect of any Merger Consideration properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate has not been surrendered prior to six years after the Effective Time (or immediately prior to such earlier date on which the Merger Consideration in respect of such Certificate would otherwise escheat to or become the property of any governmental entity), any such shares, cash, dividends or distributions in respect of such Certificate shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto.

ARTICLE IV — REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     Except (i) as set forth in, and reasonably apparent on the face of the disclosure contained in any reports filed by the Company with the SEC since January 1, 2007 and prior to the date of this Agreement (excluding, in each case, any disclosures therein that do not relate to historical or existing facts or conditions and any disclosures set forth in any risk factors or in any section relating to forward-looking statements to the extent they are cautionary, predictive or forward-looking in nature); provided that in no event shall any disclosure in any such document qualify or limit the representations and warranties of the Company set forth in Sections 4.02, 4.03, 4.11(n) and (o) and 4.19, or (ii) as set forth in the letter delivered by the Company to Parent and Purchaser concurrently with the execution of this Agreement (the “ Company Letter ”), which letter shall identify any exceptions to the representations, warranties and covenants contained in this Agreement (it being agreed that disclosure of any item with respect to any Section of this Article IV shall be deemed disclosure with respect to the representations and warranties set forth in this Article IV other than the Section to which such disclosure specifically relates if the relevance of such item thereto is reasonably apparent on its face), the Company hereby represents and warrants to Parent and Purchaser as follows:

     Section 4.01 Organization . (a) The Company is a corporation duly incorporated, validly existing and in good corporate standing under the Laws of the State of Minnesota. The Company has all requisite corporate power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted. The Company is duly licensed or qualified to do business and is in good corporate standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in good corporate standing has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect. The articles of incorporation and bylaws of the Company, copies of which have previously been made available to Parent, are true, complete and correct copies of such documents as currently in effect.

          (b) Each of the Company’s subsidiaries is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization. Each of the subsidiaries has all requisite power and authority to own, lease or operate all of its properties and assets and to carry on its business as it is now being conducted. Each of the subsidiaries is duly licensed or qualified to do business in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased, or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in good corporate standing has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect. The articles of incorporation and bylaws or equivalent organizational documents of each of the Company’s subsidiaries, copies of which have previously been made available to Parent, are true, correct and complete copies of such documents as currently in effect.

          (c) All of the issued and outstanding shares of capital stock or other ownership interests of each of the subsidiaries of the Company are owned by the Company, directly or indirectly, free and clear of any claim, Lien or agreement with respect thereto and, in the case of corporations, such shares of capital stock are validly issued, fully paid and nonassessable. No subsidiary of the Company owns any capital stock of the Company. There are no obligations, contingent or otherwise, of the Company or any subsidiary of the Company to provide funds to or make an investment (in the form of a loan, capital contribution or otherwise) in any other Person.

          (d) No subsidiary of the Company is party to any Contract obligating such subsidiary, directly or indirectly, to issue any additional equity or other securities. No subsidiary of the Company has outstanding any bonds, debentures, notes or other obligations or debt securities the holders of which have the right to vote (or convertible into, or exercisable or exchangeable for, securities having the right to vote) on any matter, any stock appreciation rights, “phantom” stock rights, performance units, rights to receive securities on a deferred basis or other rights that are linked to the value of such subsidiary or any part thereof and no subsidiary of the Company is a party to, or bound by, any Contract with respect thereto.

     Section 4.02 Capitalization . (a) The authorized capital stock of the Company consists of 100,000,000 shares, par value $.40 per share, 20,000,000 shares of which are designated Company Common Stock and 1,000,000 shares of which are designated Series A Junior Preferred Stock (the “ Company Preferred Stock ”). As of February 8, 2008, there were 17,034,157 shares of Company Common Stock issued and outstanding (of which 53,757 were Company Restricted Shares), and no shares of Company Preferred Stock issued and outstanding. In addition, as of such date, (i) there were 3,935,651 shares of Company Common Stock reserved and available for issuance under the Company Stock Plans, of which 3,527,134 were subject to Company Stock Options outstanding and which Company Stock Options have a weighted average exercise price of approximately $11.03 per share, and (ii) the only shares of Company Preferred Stock reserved for issuance are those shares of Company Preferred Stock reserved for issuance pursuant to the Rights Plan. The Company has no shares of Company Common Stock or Company Preferred Stock reserved for issuance other than as described above. All issued and outstanding shares of Company Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights.

          (b) Other than as set forth in Section 4.02(a), there are (i) no outstanding shares of Company Common Stock or Company Preferred Stock or any other shares of capital stock of, or equity or voting interests in, the Company, (ii) no Company Stock Options or other securities convertible into, exchangeable or exercisable for or representing the right to subscribe for, purchase or otherwise receive any shares of Company Common Stock or Company Preferred Stock or any other share of capital stock of, or equity or voting interests in, the Company and (iii) no stock appreciation rights, “phantom” stock rights, performance units, rights to receive shares of Company Common Stock on a deferred basis or other rights that are linked to the value of the Company Common Stock or the value of the Company or any part thereof (the securities described in clauses (i), (ii) and (iii), collectively, “ Company Equity Interests ”). Except for Company Stock Options set forth in Section 4.02(a), the Company does not have and is not bound by any Contract of any character calling for the Company to issue, deliver or sell, or cause to be issued, granted, delivered or sold any Company Equity Interests or obligating the Company to grant, extend or enter into any Contract with respect to any Company Equity Interests. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company. All Company Stock Options and Company Restricted Shares may, by their terms, be treated in accordance with Section 2.08 . The board of directors of the Company (or applicable committee thereof) has taken such actions as are required to provide that, with respect to the Company’s employee stock purchase plan, (i) participants may not increase their payroll deductions or purchase elections from those in effect on the date hereof and (ii) cause the employee stock purchase plan to be suspended so that no further contributions are made thereto effective as of February 11, 2007. Such suspension shall cause the “offering period” in effect on the date hereof to be the final “offering period” and subject to consummation of the Offer and the Merger, the employee stock purchase plan shall terminate immediately prior to the Effective Time.

          (c) Each Company Stock Option has an exercise price at least equal to the average of the high and low prices of a Share on the NASDAQ on the grant date of such option and complies with Section 409A of the Code. Section 4.02(c) of the Company Letter contains a correct and complete list of outstanding Company Stock Options, including the holder, date of grant, number of Shares and the exercise price.

          (d) There are no shareholders’ agreements, voting trusts or other Contracts to which the Company is a party or by which it is bound relating to the voting or disposition of any shares of capital stock of the Company or any preemptive rights with respect thereto.

     Section 4.03 Authority; No Violation . (a) The Company has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby, including the Offer and the Merger, and to comply with the provisions of this Agreement, subject, in the case of the Merger, to the Company Shareholder Approval. The approval, adoption, execution and delivery of this Agreement, the consummation by the Company of the transactions contemplated hereby and the compliance by the Company with the provisions of this Agreement have been duly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement, to comply with the terms of this Agreement or to consummate the transactions contemplated hereby, subject, in the case of the Merger and the Plan of Merger, to the Company Shareholder Approval. The board of directors of the Company,

at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (i) determining and declaring that this Agreement, the Offer and the Merger and the other transactions contemplated hereby are advisable, fair and in the best interest of the Company and its shareholders, (ii) approving the Offer, the Merger and the Plan of Merger in accordance with the MBCA and approving the Offer as a “Permitted Offer” within the meaning of the Rights Plan, (iii) approving this Agreement, (iv) recommending that the Company Shareholders accept the Offer, tender their Shares into the Offer, approve the Merger and adopt this Agreement and the Plan of Merger (subject to its right to withdraw, modify or amend its recommendation solely as set forth in, and in accordance with the terms of, Section 6.02 of this Agreement) and (v) determining that each member of the Company Compensation Committee approving any plan, program, agreement, arrangement, payment or benefit as an Employment Compensation Arrangement in order to satisfy the non-exclusive safe harbor under Rule14d-10(d)(2) is an “independent director” within the meaning of Rule 4200(a)(15) of The NASDAQ Stock Market LLC (an “ Independent Director ”), which resolutions have not been rescinded, modified or withdrawn in any way. This Agreement has been duly and validly executed and delivered by the Company and (assuming due authorization, execution and delivery by Parent and Purchaser) constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors’ rights generally or by general principles of equity (regardless of whether considered at law or in equity).

          (b) Assuming that all consents, authorizations, permits, waivers and approvals referred to in Section 4.03(c) below or in Section 4.03(c) of the Company Letter have been obtained and all registrations, declarations, filings and notifications described in Section 4.03(c) below or in Section 4.03(c) of the Company Letter have been made and any waiting periods thereunder have terminated or expired, neither the execution and delivery of this Agreement by the Company nor the consummation by the Company of the transactions contemplated hereby, including the Offer and the Merger, nor the compliance by the Company with the provisions of this Agreement, do or will (i) conflict with or violate any provision of the articles of incorporation or other organizational document of like nature or the bylaws of the Company or any of its subsidiaries, (ii) conflict with or violate any Law or Order applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected or (iii) result in any violation or breach of or any loss of any benefit under, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give to others any right of termination, vesting, amendment, acceleration or cancellation of, result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries pursuant to, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under, any Contract to which the Company or any of its subsidiaries is a party, or by which they or any of their respective properties or assets may be bound or affected, except, with respect to (ii) or (iii) above, for any such conflicts, violations, breaches, defaults, rights, Liens or entitlements which have not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect.

          (c) No consents, authorizations, orders, waivers or approvals of, or filings, declarations or registrations with, or notifications to any Governmental Entity are necessary in connection with (i) the execution and delivery by the Company of this Agreement, or (ii) the consummation by the Company of the transactions contemplated hereby, including the Offer and the Merger, or the compliance by the Company with the provisions of this Agreement, except (A) in connection with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) and Other Antitrust Laws, (B) registration of the Offer pursuant to Section 80B.03 of the Minnesota Statutes, (C) pursuant to the Exchange Act or the rules and requirements of The NASDAQ Stock Market LLC, (D) in the case of the Merger, the Company Shareholder Approval, (E) the filing of the Articles of Merger pursuant to the MBCA and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (F) such consents, authorizations, orders, waivers, approvals, filings, declarations, notices and registrations the failure of which to obtain or make would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect.

     Section 4.04 Financial Statements; Reports .

          (a) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company SEC Reports (the “ Company Financial Statements ”) was prepared in accordance with United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and each presents fairly, in all material respects, the consolidated financial position, results of operations and cash flows of the Company and its consolidated subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring year end adjustments which would not reasonably be expected to be, either individually or in the aggregate, material to the Company and its subsidiaries taken as a whole). The most recent unaudited balance sheet of the Company contained in the Company SEC Reports as of October 31, 2007 is hereinafter referred to as the “ Company Balance Sheet ” and the date thereof is hereinafter referred to as the “ Company Balance Sheet Date .”

          (b) Since August 1, 2005, the Company has filed, and subsequent to the date hereof, will timely file, all reports, registrations and statements, together with any amendments required to be made with respect thereto, that were and are required to be filed with the SEC, including Forms 10-K, Forms 10-Q and Forms 8-K (collectively, the “ Company SEC Reports ”). As of their respective dates, the Company SEC Reports complied and, with respect to filings made after the date of this Agreement, will at the date of filing comply, in all material respects, with the Securities Act or the Exchange Act, as the case may be, and did not contain and, with respect to filings made after the date of this Agreement, will not at the date of filing contain, any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except that no representation is made by the Company with respect to information supplied by Parent, Purchaser or their respective subsidiaries for inclusion in the Company SEC Reports. None of the Company’s subsidiaries is or has been required to file any form, report or other document with the SEC or any state securities authority. The Company has

made all certifications and statements required by Sections 302 and 906 of the Sarbanes Oxley Act of 2002 and the related rules and regulations promulgated thereunder with respect to the Company’s filings pursuant to the Exchange Act.

          (c) The Company (i) has established and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that material information relating to the Company, including its consolidated subsidiaries, that is required to be disclosed by the Company in the reports it files under the Exchange Act is made known to its principal executive officer and principal financial officer or other appropriate members of management as appropriate to allow timely decisions regarding required disclosure; (ii) has established and maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is designed to be sufficient to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP; (iii) with the participation of the Company’s principal executive and financial officers, completed an assessment of the effectiveness of the Company’s internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act for the year ended July 31, 2007, and such assessment concluded that such internal controls were effective using the framework specified in the Company’s Annual Report on Form 10-K for such year; and (iv) to the extent required by applicable Laws, disclosed in such report or in any amendment thereto any change in the Company’s internal control over financial reporting that occurred during the period covered by such report or amendment that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

          (d) The Company has disclosed, based on the most recent quarterly evaluation of internal control over financial reporting, to the Company’s auditors and audit committee of the Company’s board of directors (i) any significant deficiency or material weakness within the knowledge of the Company in the design or operation of internal control over financial reporting that is reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information, and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

          (e) There are no pending (i) formal or, to the knowledge of the Company, informal investigations of the Company by the SEC, (ii) to the knowledge of the Company, inspections of an audit of the Company’s financial statements by the Public Company Accounting Oversight Board or (iii) investigations by the audit committee of the Company’s board of directors regarding any complaint, allegation, assertion or claim that the Company or any of its subsidiaries has engaged in improper or illegal accounting or auditing practices or maintains improper or inadequate internal accounting controls.

          (f) Except as has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect, neither the Company nor any of its subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract (including any Contract relating to any transaction or relationship between or among the Company and any of its subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or

limited purpose entity or Person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K under the Exchange Act)), where the result, purpose or effect of such Contract is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of its subsidiaries in the Company’s or any of its subsidiaries published financial statements or other Company SEC Reports.

          (g) The Company has good and marketable title to the marketable securities that are included as current assets in the unaudited balance sheet of the Company as of October 31, 2007 free and clear of all Liens. Such marketable securities are stated at their fair market value in accordance with GAAP. As of the date of this Agreement, the Company has not disposed of (other than in the ordinary course of business), nor there has been any material decrease in the aggregate fair market value of, such marketable securities since such date.

     Section 4.05 Absence of Certain Changes or Events . Since the Company Balance Sheet Date, (a) the Company and each of its subsidiaries have conducted its respective business in all material respects in the ordinary course consistent with their past practices, and (b) there has not been any change, circumstance or event (including any event involving prospective change) which has had, or would reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect.

     Section 4.06 Legal Proceedings . There is no claim, suit, action, proceeding or investigation of any nature (each, a “ Proceeding ”) pending or, to the knowledge of the Company, threatened, against the Company or any of its subsidiaries or challenging the validity or propriety of the transactions contemplated by this Agreement which if adversely determined would, either individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any subsidiary nor any property or asset of the Company or any subsidiary is subject to any continuing Order which, either individually or in the aggregate, has had or would reasonably be expected to have a Company Material Adverse Effect.

     Section 4.07 Broker’s Fees . Neither the Company nor any of its officers, directors, employees, or agents has employed any broker, finder or financial advisor or incurred any liability for any fees or commissions in connection with any of the transactions contemplated by this Agreement, except for fees and commissions incurred in connection with the engagement of Greene Holcomb & Fisher LLC (the “ Company Financial Advisor ”) as set forth in Section 4.07 of the Company Letter and for legal, accounting and other professional fees payable in connection with the transactions contemplated hereby.

     Section 4.08 Absence of Undisclosed Liabilities . Except for those Liabilities (A) that are fully reflected or reserved against on the Company Balance Sheet in accordance with GAAP, (B) which have been incurred in the ordinary course of business consistent with past practice since the Company Balance Sheet Date, or (C) which have not which have not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect and (ii) those Liabilities which are of a nature not required to be reflected in the consolidated financial statements of the Company and its subsidiaries prepared in accordance with GAAP consistently applied or the notes thereto, neither the Company nor any of its subsidiaries has incurred any Liability. “ Liabilities ” means liabilities, obligations or

commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise.

     Section 4.09 Compliance with Applicable Laws and Permits . (a) Since August 1, 2005 the Company and its subsidiaries have been in compliance with all applicable Laws, except where failure so to comply has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect.

          (b) The Company and each of its subsidiaries hold all permits, licenses, variances, authorizations, exemptions, orders, registrations and approvals of all Governmental Entities (“ Authorizations ”) which are required for the operation of their respective businesses (the “ Company Permits ”) and the Company and each of the subsidiaries is in compliance with the terms of the Company Permits, except where failure so to hold or comply has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect. No material investigation by any Governmental Entity with respect to the Company or any of the subsidiaries is pending or, to the Company’s knowledge, threatened.

          (c) Except as has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect, neither the Company nor any subsidiary has received written notice that the Governmental Entity or Person issuing or authorizing any Company Permit intends to terminate, refuse to renew or reissue any such Company Permit.

     Section 4.10 Taxes and Tax Returns . Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect:

          (a) Each of the Company and each of its subsidiaries (referred to for purposes of this Section 4.10 , collectively, as the “ Acquired Companies ”) has (i) timely filed with the appropriate Governmental Entities all material Tax Returns required to be filed by it (after giving effect to all timely filed and permissible extensions), and all such Tax Returns are true, correct and complete in all material respects and (ii) timely paid (or had timely paid on its behalf) all Taxes, whether or not reflected on a Tax Return, required to have been paid by it. The provision for Taxes on the Company Balance Sheet is sufficient for all accrued and unpaid Taxes, whether or not yet due and payable, of the Acquired Companies for all taxable periods and portions thereof through the Company Balance Sheet Date.

          (b) The Acquired Companies have complied in all material respects with all applicable Laws, rules and regulations relating to the payment and withholding of Taxes (including withholding of Taxes in connection with amounts paid or owing to any employee, former employee or independent contractor) and have duly and timely withheld and have paid over to the appropriate Governmental Entities all amounts required to be so withheld and paid over on or prior to the due date thereof under all applicable Laws.

          (c) No unpaid Tax deficiency has been assessed or asserted against or with respect to any of the Companies by any Governmental Entity. As of the date of this Agreement, no federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Acquired Companies, and

none of the Acquired Companies has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes.

          (d) None of the Acquired Companies has requested an extension of time within which to file any Tax Return which has not since been filed, and no currently effective waivers, extensions, or comparable consents regarding the application of the statute of limitations with respect to Taxes or Tax Returns have been given by or on behalf of any of the Acquired Companies.

          (e) None of the Acquired Companies is party to or bound by or currently has any liability under any agreement providing for the allocation, sharing or indemnification of Taxes.

          (f) None of the Acquired Companies has been included in any “consolidated,” “unitary” or “combined” Tax Return (other than Tax Returns which include only the Company and any of the other Acquired Companies) provided for under the Laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year.

          (g) None of the Acquired Companies has distributed stock of another entity, or has had its stock distributed by another entity, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code.

          (h) None of the Acquired Companies will be required to include in a Taxable period ending after the Effective Time Taxable income attributable to income that arose in a prior Taxable period but was not recognized for Tax purposes in any prior Taxable period as a result of the installment method of accounting, the completed contract method of accounting, the long-term contract method of accounting, the cash method of accounting or Section 481 of the Code or comparable provisions of any Tax Law or for any other reason (including as a result of prepaid amounts or deferred revenue received on or prior to the Effective Time).

          (i) None of the Acquired Companies has participated in any “listed transaction”, as defined in Treasury Regulation Section 1.6011-4.

          (j) The Company and each of the other Acquired Companies has disclosed on its United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal Income Tax within the meaning of Section 6662 of the Code.

          (k) No amount or other entitlement that could be received as a result of the transactions contemplated hereby (alone or in conjunction with any other event) by any “disqualified individual” (as defined in Section 280G(c) of the Code) with respect to the Company will constitute an “excess parachute payment” (as defined in Code Section 280G(b)(1)). No current or former director, officer, employee, independent contractor or consultant of the Company or any of its subsidiaries (collectively, “ Company Personnel ”) is entitled to any gross-up, make-whole or other additional payment from the Company or any of its subsidiaries in respect of any tax (including federal, state, local and foreign income, excise

and other taxes (including taxes imposed under Code Sections 280G or 409A)) or interest or penalty related thereto.

     Section 4.11 Employee Benefit Programs . (a) Section 4.11(a) of the Company Letter sets forth an accurate list of all Company Benefit Plans. A complete copy of each Company Benefit Plan has been made available to Parent. Neither the Company nor any of its subsidiaries has any intent or commitment to create any additional Company Benefit Plan or amend any Company Benefit Plan. “ Company Benefit Plan ” means (i) any “employee benefit plan” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974 (“ ERISA ”), including (A) any nonqualified deferred compensation plan, (B) any retirement plan or other arrangement which is an Employee Pension Benefit Plan (as defined in ERISA Section 3(2) (including any Multiemployer Plan (as defined in ERISA Section 3(37)), (C) any Employee Welfare Benefit Plan (as defined in ERISA Section 3(1)) or material fringe benefit plan or program, and (ii) any stock purchase, stock option, severance pay, employment, Change in Control Arrangement, vacation pay, company awards, salary continuation, sick leave, excess benefit, bonus or other incentive compensation, life insurance, or other employee benefit plan, contract, program, policy or other arrangement, whether or not subject to ERISA, in each case which is sponsored, maintained or contributed to by the Company, any of its subsidiaries or any ERISA Affiliate, or with respect to which the Company, any of its subsidiaries or any ERISA Affiliate otherwise has any present or future Liability. “ ERISA Affiliate ” means any entity which is a member of a “controlled group of corporations” with, under “common control” with or a member of an “affiliated services group” with, the Company or any of its subsidiaries, as defined in Section 414(b), (c), (m) or (o) of the Code.

          (b) Except as has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect, each Company Benefit Plan has been and is currently administered in compliance with its constituent documents and with all reporting, disclosure and other requirements of ERISA and the Code applicable to such Company Benefit Plan. Each Company Benefit Plan that is an Employee Pension Benefit Plan (as defined in Section 3(2) of ERISA) and which is intended to be qualified under Section 401(a) of the Code (a “ Pension Plan ”), has been determined by the Internal Revenue Service to be so qualified and no condition exists that would adversely affect any such determination. No Company Benefit Plan is a “defined benefit plan” as defined in Section 3(35) of ERISA.

          (c) To the Company’s knowledge, none of the Company, any subsidiary of the Company, or any ERISA Affiliate has been or is currently engaged in any prohibited transactions as defined by Section 406 of ERISA or Section 4975 of the Code for which an exemption is not applicable which could subject the Company, any subsidiary of the Company, or any ERISA Affiliate to the tax or penalty imposed by Section 4975 of the Code or Section 502 of ERISA. No trustee of a Company Benefit Plan is an employee of the Company.

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

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

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

          (g) With respect to each Company Benefit Plan to which the Company, any subsidiary of the Company or any ERISA Affiliate is a party which constitutes a group health plan subject to Section 4980B of the Code, each such Company Benefit Plan complies, and in each case has complied, with all applicable requirements of Section 4980B of the Code, except for such noncompliance that has not had and would not reasonably be expected to have, either individually or in the aggregate, a Company Material Adverse Effect.

          (h) Full payment has been made of all amounts which the Company, any subsidiary of the Company or any ERISA Affiliate was required to have paid as a contribution to any Company Benefit Plan as of the last day of the most recent fiscal year of each of the Company Benefit Plans ended pr