ASSET PURCHASE AGREEMENT

Exhibit 10.35

ASSET PURCHASE AGREEMENT

by and among

U.S. POWER SERVICES, INC.,

KEN COTTON, SHAWN O’CONNELL,
SIMON BAITLER

And

ULTRALIFE CORPORATION

and

STATIONARY POWER SERVICES, INC.

October 31, 2008

ASSET PURCHASE AGREEMENT

      THIS AGREEMENT is made as of October 31, 2008 by and among U.S. Power Services, Inc., a California corporation (“ Seller ”), Ken Cotton, Shawn O’Connell and Simon Baitler (together the “ Selling Shareholders ”) and Ultralife Corporation, a Delaware corporation (“ Buyer ”) and Stationary Power Services, Inc., a Florida corporation (“ Acquisition Sub ”). Buyer, Seller, the Selling Shareholders and Acquisition Sub are referred to collectively herein as the “ Parties .”

Recitals

     Seller is engaged in the business of designing, developing, installing and maintaining backup power systems for sale to a variety of commercial customers (the “ Business ” ).

     The parties desire that Seller sell, transfer, assign and license certain assets to Acquisition Sub, and that Acquisition Sub purchase, license and assume from Seller certain specified liabilities related to the Business, all as more specifically provided herein.

     NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties, covenants and undertakings contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

ARTICLE I. DEFINITIONS

      Section 1.1 Certain Definitions.

     The following terms will, when used in this Agreement, have the following respective meanings:

     “ Acquisition Sub ” has the meaning set forth in the Preface above.

     “ Affiliate ” means, with respect to a Person, any other Person directly or indirectly controlling, controlled by, or under common control with, such Person at any time during the period for which the determination of affiliation is being made. For purposes of this definition, the term “ control ” means, with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through the ownership of voting securities or by contract.

     “ Agreement ” means this Asset Purchase Agreement, as the same may be amended or supplemented from time to time in accordance with the terms hereof, together with the exhibits and schedules thereto.

     “ Applicable Employees ” has the meaning set forth in Section 5.15(a)(ii) of this Agreement.

     “ Approvals ” means, collectively, the consents, approvals, waivers, authorizations, novations, notices and filings required in connection with the consummation of the Agreement and the Transaction (or any portion of the Transaction), which are listed on Schedule 1.1 .

     “ Assumed Contracts ” has the meaning set forth in Section 2.1(e) of this Agreement.

     “ Assumed Liabilities ” has the meaning set forth in Section 2.5 of this Agreement.

     “ Assumed License Agreements ” has the meaning set forth in Section 2.1(e)(i)of this Agreement.

     “ Benefit Plans ” has the meaning set forth in Section 3.21(a) of this Agreement.

     “ Books and Records ” means books, ledgers, files (including personnel files), reports, operating records, accounting records, price lists, correspondence and other forms of information, in any form or medium, relating in any manner to the Business, operations or financial or statistical history of Seller.

     “ Business ” has the meaning set forth in the Recitals above.

     “ Buyer ” has the meaning set forth in the Preface above.

     “ Buyer Indemnified Parties ” has the meaning set forth in Section 7.1 of this Agreement.

     “ Buyer Losses ” has the meaning set forth in Section 7.1 of this Agreement.

     “ Claim ” means any pending or threatened contest, claim, charge, demand, assessment, action, cause of action, complaint, litigation, proceeding, hearing or notice involving Seller.

     “ Claim Notice ” has the meaning set forth in Section 7.4(b) of this Agreement.

     “ Closing ” means the closing and consummation of the Transaction.

     “ Closing Date ” has the meaning set forth in Section 2.7 of this Agreement.

     “ Closing Documents ” means: (a) with respect to Seller, all agreements, documents and instruments required to be delivered by Seller at Closing, as set forth in Section 6.2; and (b) with respect to Buyer and Acquisition Sub, all agreements, documents and instruments required to be delivered by Buyer and Acquisition Sub at Closing, as set forth in Section 6.3.

     “ Code ” means the Internal Revenue Code of 1986, as amended and all Treasury Regulations promulgated thereunder.

     “ Confidentiality Agreement ” means that certain Confidentiality, Non-Compete and Non-Disparagement Agreement by and between Buyer and the Selling Shareholders.

     “ Confidential Information ” means any information concerning the businesses and affairs of the Seller or Buyer, as the context requires, or any of their Affiliates, that is not already generally available to the public.

     “ Copyrights ” has the meaning set forth in Section 2.1(c)(iv) of this Agreement.

     “ Disclosing Party ” has the meaning set forth in Section 5.6(a) of this Agreement.

     “ Employment Laws ” has the meaning set forth in Section 3.20 of this Agreement.

     “ Encumbrances ” means liens, charges, encumbrances, security interests, options or any other restrictions or third party rights.

     “ Environmental Law ” means, collectively, all federal, state and local statutes, common law, authorizations, regulations, ordinances, codes, published guidelines and policies, directives, judgments, injunctions, decrees and orders (including all amendments thereto) pertaining to environmental matters including but not limited to: (A) the protection, investigation or restoration of the environment, health, safety or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance, or (C) air, indoor air, noise, employee exposure, water vapor, surface water, groundwater, soil, natural resources, chemical use, health, safety and sanitation, or threat of injury to persons or property relating to any Hazardous Substance. Without limiting the generality of the foregoing, “ Environmental Laws ” include the Comprehensive Environmental Response, Compensation and Liability Act, the Medical Waste Tracking Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Safe Water Drinking Act, the Toxic Substance Control Act and the Occupational Safety and Health Act.

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

     “ Excluded Assets ” has the meaning set forth in Section 2.2 of this Agreement.

     “ Excluded Liabilities ” has the meaning set forth in Section 2.3 of this Agreement.

     “ Financial Statements ” has the meaning set forth in Section 3.6 of this Agreement.

     “ GAAP ” means generally accepted accounting principles, methods and practices set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, and statements and pronouncements of the Financial Accounting Standards Board, the Securities and Exchange Commission or of such other Person as may be approved by a significant segment of the U.S. accounting profession, in each case as of the date or period at issue, and as applied in the U.S. to U.S. companies.

     “ Governmental Authorizations ” means all licenses, permits, certificates and other authorizations and approvals of any Governmental Entity required under any Law to carry on the Business as currently conducted or anticipated in the Ordinary Course.

     “ Governmental Entity ” means any U.S. or non-U.S. local, state, federal or other government, including each of their respective branches, departments, agencies, courts, instrumentalities or other subdivisions.

     “ Hazardous Substance ” means and includes: (a) any hazardous materials, hazardous wastes, hazardous substances and toxic substances as those or similar items are defined under any Environmental Law; (b) any asbestos or any material that contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophylite and/or actinolite, whether friable or non-friable; (c) any polychlorinated biphenyls or polychlorinated biphenyl-containing materials or fluids; (d) radon; (e) any other hazardous, explosive, flammable, infectious, carcinogenic, mutagenic,

radioactive, toxic or noxious substance, material, pollutant, contaminant or solid, liquid or gaseous waste; (f) any petroleum, petroleum hydrocarbons, petroleum products, crude oil or any fractions thereof, natural gas or synthetic gas; and (h) any substance that, whether by its nature or its use, is or becomes subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or Governmental Entity requires or will require environmental investigation, monitoring or remediation.

     “ Hired Employees ” is defined in Section 5.15(a)(ii) of this Agreement.

     “ Holdback Amount ” has the meaning set forth in Section 2.6(a)(ii) of this Agreement.

     “ Improvements ” has the meaning set forth in Section 3.22(d) of this Agreement.

     “ Indemnified Parties ” means, as appropriate in the context, either the Buyer Indemnified Parties or the Seller Indemnified Parties, which terms are defined in Article VII.

     “ Intellectual Property ” means all of the following: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications, and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, slogans, trade names, corporate names, Internet domain names and rights in telephone numbers, together with all translations, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith, (c) all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, (d) all mask works and all applications, registrations, and renewals in connection therewith, (e) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information, and business and marketing plans and proposals), (f) all computer software (including source code, executable code, data, databases, and related documentation), (g) all advertising and promotional materials, (h) all other proprietary rights, and (i) all copies and tangible embodiments thereof (in whatever form or medium).

     “ Inventory ” has the meaning set forth in Section 2.1(j) of this Agreement.

     “ Knowledge ” means (i) with respect to any natural person, the actual knowledge, of such person, or (ii) with respect to any corporation or entity, the actual knowledge of such party’s officers provided that such persons shall have made due and diligent inquiry of those employees and directors of such party whom such officers reasonably believe would have actual knowledge of the matters represented.

     “ Law ” means any applicable law (including common law), statute, ordinance, rule, regulation, code, order, judgment, injunction, decree or judicial or administrative doctrine that is promulgated or issued by any Governmental Entity.

     “ Leases ” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties, and other agreements with respect

thereto, pursuant to which Seller holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of Seller thereunder.

     “ Leased Real Property ” has the meaning set forth in Section 2.1(a) of this Agreement.

     “ Leased Real Property Permits ” has the meaning set forth in Section 3.22(g) of this Agreement.

     “ Liability ” means any direct or indirect indebtedness, liability, Claim, damage, deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise.

     “ Losses ” means Liabilities, losses, interest, penalties and reasonable costs and expenses associated therewith (including attorneys’ fees, litigation costs, fines, penalties and expenses of investigation), whether asserted by a party to this Agreement or by a third party, but in no event includes incidental or consequential damages .

     “ Material Adverse Effect ” means a material adverse effect on the condition (financial or otherwise), results of operations or assets of the Business or on Seller’s ability to perform its obligations under this Agreement.

     “ Most Recent Fiscal Year End ” has the meaning set forth in Section 3.6 of this Agreement.

     “ No Shop Period ” has the meaning set forth in Section 5.5(a) of this Agreement.

     “ Ordinary Course ” means the ordinary course of business of the Business, consistent with past practices.

     “ Patents ” has the meaning set forth in Section 2.1(c)(ii) of this Agreement.

     “ Parties ” has the meaning set forth in the Preface of this Agreement.

     “ Permitted Encumbrances ” means Encumbrances that secure or constitute an Assumed Liability that is recorded on the Books and Records of Seller as of the Closing Date.

     “ Person ” means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization.

     “ Personal Property ” has the meaning set forth in Section 2.1(b) of this Agreement.

     “ Plans ” has the meaning set forth in Section 3.21(a) of this Agreement.

     “ Products ” has the meaning set forth in Section 2.1(d) of this Agreement.

     “ Purchase Price ” has the meaning set forth in Section 2.6(a) of this Agreement.

     “ Purchase Transaction ” has the meaning set forth in Section 5.5(b) of this Agreement.

     “ Receiving Party ” has the meaning set forth in Section 5.6(a) of this Agreement.

     “ Seller ” has the meaning set forth in the Preface above.

     “ Seller Indemnified Parties ” has the meaning set forth in Section 7.2 of this Agreement.

     “ Seller Losses ” has the meaning set forth in Section 7.2 of this Agreement.

     “ Selling Shareholders ” has the meaning set forth in the Preface above.

     “ Software ” has the meaning set forth in Section 2.1(c)(i) of this Agreement.

     “ Subsidiary ” means any Person, fifty percent (50%) or more of the outstanding equity interests of which are owned, directly or indirectly, by Seller.

     “ Taxes ” means all taxes levied or imposed by any Governmental Entity, including income, gross receipts, windfall profits, value added, severance, production, sales, use, license, excise, franchise, employment, environmental, real property, personal property, transfer, alternative minimum, estimated, withholding or other taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties, whether or not disputed or contested.

     “ Tax Returns ” means all U.S. and non-U.S. reports and returns required to be filed with respect to Taxes, including all attachments thereto.

     “ Technical Documentation ” means all technical and descriptive materials in all media (other than Inventory) relating to the acquisition, design, development, use or maintenance of Intellectual Property or the Products, including any compilers, tools, libraries, debuggers and higher level or proprietary language .

     “ Trademarks ” has the meaning set forth in Section 2.1(c)(iii) of this Agreement.

     “ Transaction ” means, collectively, the purchase and sale of the Transferred Assets, the assumption of the Assumed Liabilities and the execution and delivery of the Closing Documents and the other transactions, all as herein provided.

     “ Transferred Assets ” has the meaning set forth in Section 2.1 of this Agreement.

     “ Transferred Intellectual Property ” has the meaning set forth in Section 2.1(c) of this Agreement.

      Section 1.2 Interpretation.

     In this Agreement, unless the express context otherwise requires:

           (a) the words “ herein ,” “ hereof ” and “ hereunder ” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement;

           (b) references to “ Article ” or “ Section ” are to the respective Articles and Sections of this Agreement, and references to “ Exhibit ” or “ Schedule ” are to the respective Exhibits and Schedules annexed hereto;

           (c) references to a “ party ” mean a party to this Agreement and include references to such party’s permitted successors and permitted assigns;

           (d) references to a “ third party ” mean a Person not a party to this Agreement;

           (e) the terms “ dollars ” and “ $ ”means U.S. dollars;

           (f) terms defined in the singular have a comparable meaning when used in the plural, and vice versa;

           (g) the masculine pronoun includes the feminine and the neuter, and vice versa, as appropriate in the context; and

           (h) wherever the word “ include ,” “ includes ” or “ including ” is used in this Agreement, it will be deemed to be followed by the words “without limitation.”

      Section 1.3 Accounting Conventions.

     Except as expressly provided otherwise herein, all references in this Agreement to financial terms will be deemed to refer to such terms as they are defined under GAAP, consistently applied.

ARTICLE II. PURCHASE AND SALE

      Section 2.1 Purchase and Sale of Assets.

     On the terms and subject to the conditions set forth herein, at Closing, Seller will sell, convey, transfer, assign and deliver to Acquisition Sub, and Acquisition Sub will purchase from Seller, all of Seller’s right, title and interest in and to the following listed assets owned by Seller at the Closing Date that are used or useful in, related to or arise out of the Business (except for those assets that are defined in Section 2.2 as Excluded Assets), in each case free and clear of all liens, mortgages, pledges, encumbrances, security interests, charges or other interests of other persons of every kind whatsoever, except for Permitted Encumbrances (collectively, the “ Transferred Assets ” ):

           (a) all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures, or other interest in real property held by Seller, which are listed on Schedule 2.1(a) (collectively, the “ Leased Real Property ”);

           (b) all tangible personal property, whether owned or leased by Seller, including all machinery, equipment, inventories of raw materials and supplies, manufactured and purchased parts, goods in process and finished goods, furniture, automobiles, trucks, tractors, trailers and tools, including all such personal property listed on Schedule 2.1(b) (collectively, the “ Personal Property ”);

           (c) all Intellectual Property, including the following (collectively, the “ Transferred Intellectual Property ” )

                (i)  all source code, object code, design documentation and procedures for product generation and testing of all computer software and firmware, including that listed on

Schedule 2.1(c)(i) and including the software rules and algorithms, flowcharts, trade secrets, know-how, inventions, patents, copyrights, designs, technical processes, works of authorship, Technical Documentation, included in or relating to the same (collectively, the “ Software ”);

                (ii)  all patents and patent applications, including those listed on Schedule 2.1(c)(ii) , together with any division, continuation, continuation-in-part, continuing prosecution application, continued examination application, reinstatement, reexamination, revival, reissue, extension or substitution of any thereof, and corresponding foreign applications, patents and rights thereto, including, in all cases, the right to sue for past infringement thereof and to collect any past or future royalties or other payments in connection therewith (collectively, the “ Patents ”);

                (iii)  all trademarks, service marks, trade names, all corporate names, trade dress, product names, slogans and logos, including those listed on Schedule 2.1(c)(iii) , and corresponding foreign applications, marks and rights thereto, including, in all cases, the right to sue for past infringement thereof and to collect any past or future royalties or other payments in connection therewith (collectively, the “ Trademarks ”);

                (iv)  all copyrightable works, all copyrights, and all applications, registrations, and renewals in connection therewith, including those listed on Schedule 2.1(c)(iv) , and foreign applications, in all cases, the right to sue for past infringement thereof and to collect any past or future royalties or other payments in connection therewith (collectively, the “ Copyrights ”);

                (v)  all product development projects , including those listed on Schedule 2.1(d) ;

                (vi)  all Internet, intranet and World Wide Web content, sites, domain names and pages, and all HTML and other code related thereto, including those listed on Schedule 2.1(c)(vi) ; and

                (vii)  all schematics, engineering drawings, specifications, and process work instructions in whatever form or medium;

           (d) all products related to or incorporating any Intellectual Property, including those listed on Schedule 2.1(d) and including all proposed or unimplemented developments or improvements thereof, and the trade secrets, know-how, inventions, patents, copyrights, mask works, designs, technical processes, works of authorship and technical data included in or relating to the same (the “ Products ”);

           (e) only the following contracts and instruments, and no others (collectively, the “ Assumed Contracts ”):

                (i)  those contracts, agreements, licenses (whether granted to or by a third party) and other commitments and arrangements, oral or written, with any Person respecting the ownership, license, acquisition, design, development, distribution, marketing, use, maintenance, support or enhancement of Intellectual Property, related technical or user documentation or databases (including royalty, work-for-hire, consulting, employment, dealership and franchise agreements), which are listed on Schedule 2.1(e)(i) (the “ Assumed License Agreements ”);

                (ii)  those other agreements, contracts, subcontracts, leases and subleases of personal property, arrangements, commitments, licenses and sublicenses, with customers, suppliers, resellers, distributors, current, former or prospective employees, employee groups, or other third parties, which are listed on Schedule 2.1(e)(ii) ; and

                (iii)  all leases involving the Leased Real Property.

           (f) all customer lists and documentation (in all media) relating to the customers of the Business;

           (g) all Books and Records, and all proprietary and non-proprietary business information, including marketing and sales materials and publications, product literature, reports, plans, records, pricing, cost and other manuals, advertising materials, catalogues, sales, service and maintenance records, and training materials;

           (h) to the extent their transfer is permitted by Law, all Governmental Authorizations which are required for the conduct of the Business, and all applications therefore, including those that are listed on Schedule 2.1(h) ;

           (i) all Claims that Seller may have against any Person relating to or arising out of any Transferred Asset or any Hired Employee, including rights to recover damages, settlements, rights to refunds, Claims for compensation or benefits, insurance Claims, Claims of infringement or past infringement of any Intellectual Property rights and royalty or similar rights related to any Transferred Intellectual Property, including those that are listed on Schedule 2.1(i) ;

           (j) all inventories of (i) Products; (ii) computer program code (in all media) and materials; (iii) program documentation, including user materials; and (iv) raw materials and supplies, manufactured and purchased parts, goods in process, and finished goods, including the inventory listed on Schedule 2.1(j) (the “ Inventory ”);

           (k) any other assets, if any, that are listed on Schedule 2.1(k) ; and

           (l) all goodwill of the Business associated with the foregoing enumerated Transferred Assets.

      Section 2.2 Excluded Assets.

     Notwithstanding anything herein to the contrary, from and after Closing, Seller will retain all of its existing right, title and interest in and to, and there will be excluded from the sale, conveyance, assignment or transfer to Acquisition Sub hereunder, and the Transferred Assets will not include, the following, in each case as the same exists on the Closing Date (collectively, the “ Excluded Assets ”):

           (a) all other agreements, instruments, contracts, subcontracts, leases, subleases, arrangements, commitments, licenses, sublicenses and independent contractor agreements, written or oral, and sales representative agreements, written or oral, that are not Assumed Contracts;

           (b) all employee compensation, retirement, pension, severance, deferred compensation, health, welfare or benefit plans and programs, and all funds and accounts held thereunder;

           (c) all real property, including land, buildings, structures and improvements thereon, appurtenances thereto and interests therein and all fixtures constituting part of such real property;

           (d) all accounts receivable;

           (e) all notes receivable;

           (f) all cash and cash equivalents, including amount on deposits in bank accounts;

           (g) all refunds, overpayments and prepayments of Taxes and duties paid by Seller,

           (h) all Tax Returns of Seller and all other Books and Records related thereto;

           (i) all corporate minute books and stock records of Seller and all other Books and Records related thereto;

           (j) the capital stock of any Subsidiary; and

           (k) the assets, if any, that are set forth on Schedule 2.2(k) .

      Section 2.3 Inability to Assign Assumed Contracts.

           (a) Notwithstanding anything to the contrary contained in this Agreement or in any Closing Document, to the extent that the assignment or attempted assignment to Acquisition Sub of any Assumed Contract, or any Claim, right or benefit arising thereunder or resulting therefrom, is prohibited by any Law, or would require any consent, approval, waiver, authorization or novation by a Governmental Entity or a Person and such consent, approval, waiver, authorization or novation has not been obtained prior to Closing and in a form acceptable to Acquisition Sub in its sole discretion, or with respect to which any attempted assignment would be ineffective or would materially adversely affect the rights of Seller or Acquisition Sub thereunder, then this Agreement will not constitute an assignment or attempted assignment thereof, and the same will not be assigned at Closing.

           (b) Both prior and subsequent to Closing, the parties will use commercially reasonable efforts, and cooperate with each other, to obtain promptly all consents, approvals, waivers, authorizations or novations, including all Approvals, for the Assumed Contracts on terms acceptable to Buyer and Acquisition Sub in its sole discretion. Buyer will bear and pay the cost of all filing, recordation and similar fees and Taxes incurred after the date hereof and payable to Governmental Entities in connection with assignment of the Assumed Contracts, and any additional fees or charges (howsoever denominated) required by any Persons in connection with the assignment of any Assumed Contract or obtaining any consent, approval, waiver, authorization or novation, including any Approval.

           (c) If any consent, approval, waiver, authorization or novation, including any Approval, which is necessary for the effective assignment to Acquisition Sub of any Assumed Contract, cannot be obtained or made and, as a result, the full benefits of use of such Assumed Contract cannot be provided to Acquisition Sub following Closing otherwise in accordance with this Agreement, then Seller will use its best efforts to provide Acquisition Sub the economic and operational equivalent, to the extent permitted, of obtaining or making such consent, approval, waiver, authorization or novation, as the case may be, and to permit Acquisition Sub to perform Seller’s obligations and enforce Seller’s rights under such Assumed Contract as if such Assumed Contracts had been sold, conveyed, assigned and delivered to Acquisition Sub, including (i) enforcing, at the Acquisition Sub’s request and at the expense of Seller, any rights of Seller arising with respect thereto, including the right to terminate in accordance with the terms thereof upon the advice of Acquisition Sub and (ii) permitting Acquisition Sub to enforce any rights arising with respect thereto. Seller will pay to Acquisition Sub, when received, all income, proceeds and other monies received by Seller from third parties to the extent related to Acquisition Sub’s intended rights under any Assumed Contract, as contemplated by this Section 2.3(c). Once any such consent, approval, waiver, authorization or novation is obtained or made in a form acceptable to Acquisition Sub in its sole discretion, Seller will assign such Assumed Contract to Acquisition Sub at no additional cost. Any expenses incurred by Seller, and any reasonable expenses incurred by Acquisition Sub, in connection with the arrangements contemplated by this Section 2.3(c) will be borne by Seller.

           (d) The provisions of this Section 2.3 shall not affect the right of the Buyer and Acquisition Sub to elect not to consummate the Transaction contemplated by this Agreement if the conditions to its obligations hereunder contained in Article VI hereof have not been otherwise fulfilled.

      Section 2.4 Excluded Liabilities.

     It is expressly understood and agreed that neither Buyer or Acquisition Sub, nor any of their Affiliates, will assume, nor will any of them be liable for, any Liability of Seller, any Seller Subsidiary, any Affiliate of Seller or the Business, of any kind or nature, at any time existing or asserted, howsoever arising, whether or not accrued, whether fixed, contingent or otherwise, whether known or unknown, liquidated or unliquidated, due or to become due, and whether or not recorded on the Books and Records of Seller, unless such Liability is expressly within the definition of Assumed Liabilities under Section 2.5. All Liabilities that are not expressly within the definition of Assumed Liabilities under Section 2.5 are referred to collectively as the “ Excluded Liabilities .”

      Section 2.5 Assumption of Certain Liabilities.

     On the terms and subject to the conditions set forth herein, Acquisition Sub will assume and agree to satisfy and discharge or perform when due only the following Liabilities of Seller (and no others) (collectively, the “ Assumed Liabilities ”):

           (a) all Liabilities identified on Schedule 2.5(a) , including the amount of such Liabilities as of the Closing Date, arising under the Assumed Contracts, excluding all warranty obligations of Seller under the Assumed Contracts for products sold and services rendered prior to

Closing, to the extent that the rights and benefits of Seller thereunder are effectively transferred or assigned to Acquisition Sub, or novated for the benefit of Acquisition Sub; and

           (b) all Liabilities identified on Schedule 2.5(b) , including the amount of such Liabilities as of the Closing Date, that arise out of or relate to the Transferred Assets (other that the Assumed Contracts) to the extent such Liabilities are attributable to occurrences and circumstances arising after Closing.

      Section 2.6 Purchase Price.

           (a) On the terms and subject to the conditions set forth in this Agreement, and subject to adjustment, if any, as provided by Section 2.6(a)(ii), the purchase price for the Transferred Assets that Buyer will pay to Seller is One Million Eight Hundred Sixty Thousand Dollars ($1,860,000) (the “ Purchase Price ”). The Purchase Price will be paid as follows:

                (i)  On the terms and subject to the conditions set forth in this Agreement, at Closing, Buyer shall pay to Seller by wire transfer of immediately-available funds in the amount of One Million Eight Hundred Ten Thousand and no/100 Dollars ($1,810,000);

                (ii)  On the terms and subject to the conditions set forth in this Agreement, including Buyer’s right of offset pursuant to Section 7.3, and following the notice and cure provisions of Section 7.4, six months from the Closing Date Buyer shall pay to Seller by wire transfer of immediately-available funds in the amount of Fifty Thousand and no/100 Dollars ($50,000) (the “ Holdback Amount ”) provided that the Seller and no Selling Shareholder has violated any material terms of this Agreement or the Closing Documents and further provided that Buyer does not have the right to offset the Holdback Amount pursuant to Section 7.3. Subject to the notice and cure provisions of Section 7.4, if the Buyer in good faith determines that Seller or any of the Selling Shareholders has violated any material terms of this Agreement, then Buyer will not have to pay Seller the Holdback Amount portion of the Purchase Price.

      Section 2.7 Closing.

     The closing of the transactions contemplated by this Agreement (the “ Closing ”) shall take place at the offices of Harter Secrest & Emery LLP, in Rochester, New York, commencing at 10:00 a.m. local time on the second business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby (other than conditions with respect to actions the respective Parties will take at the Closing itself) or such other date as Buyer and Seller may mutually determine (the “ Closing Date ”); provided , however , that the Closing Date shall be no later than November 12, 2008. The required deliveries at Closing are set forth in Article VII.

ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLING SHAREHOLDERS

     As of the date hereof and (except as otherwise expressly stated herein) as of the Closing, each of the Seller, and each Selling Shareholder, jointly and severally, represents and warrants to Buyer as follows:

      Section 3.1 Organization and Power; Stock Ownership.

     Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of California. Seller has all requisite corporate power and authority to enter into this Agreement and the Closing Documents, to perform its obligations hereunder and thereunder, to own, lease, operate and transfer the Transferred Assets, and to carry on the Business as now being conducted. Seller is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where its ownership or operation of the Transferred Assets or its conduct of the Business requires such qualification, which jurisdictions are listed on Schedule 3.1 .

      Section 3.2 Authorization.

     Seller has full corporate power and authority to execute and deliver this Agreement and each Closing Document and to perform its obligations hereunder and thereunder. The execution, delivery and performance by Seller of this Agreement and each Closing Document have been duly and validly authorized by Seller’s board of directors and, if necessary, its shareholders.

      Section 3.3 Approvals.

     Except for the Approvals, no consent, approval, waiver, authorization or novation is required to be obtained by Seller and no notice or filing is required to be given by Seller to, or made by Seller with, any Governmental Entity or other Person in connection with the execution, delivery and performance by Seller of this Agreement and each Closing Document and the consummation of the Transaction.

      Section 3.4 Non-Contravention.

     The execution, delivery and performance by Seller of this Agreement and each Closing Document, and the consummation of the Transaction, do not and will not: (a) violate any provision of the certificate of incorporation, bylaws, or other organizational documents of Seller; (b) assuming the receipt or making of all Approvals, conflict with, or result in the breach of, or constitute a default under, or result in the termination, cancellation or acceleration (whether after the filing of notice or the lapse of time or both) of any right or obligation of Seller under, or a loss of any benefit to which Seller is entitled under, any Assumed Contract or any contract to which Seller is a party, or result in the creation of any Encumbrance (other than a Permitted Encumbrance) upon any of the Transferred Assets; or (c) assuming the receipt or making of all Approvals, violate or result in a breach of or constitute a default under any Law, judgment, injunction, order, decree or other restriction of any Governmental Entity to which Seller is subject.

      Section 3.5 Binding Effect.

     This Agreement and each Closing Document, when executed and delivered by Buyer, Acquisition Sub and Seller, will constitute valid and legally binding obligations of Seller, enforceable against it in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

      Section 3.6 Financial Statements.

     Attached as Schedule 3.6 are the following financial statements (collectively the “ Financial Statements ”): an unaudited balance sheet and profit and loss statement as of and for the fiscal year ended June 30, 2008 (the “ Most Recent Fiscal Year End ”) for Seller. The Financial Statements are true, correct and complete in all material respects, are consistent with Seller’s Books and Records (which Books and Records are correct and complete) applied on a consistent basis throughout the periods covered thereby, present fairly the financial condition of Seller as of such dates and the results of operations of Seller for such periods.

      Section 3.7 Title.

     With respect to all of the Transferred Assets, Seller has and will have at Closing: (i) good title to all tangible property included in the Transferred Assets, free and clear of all Encumbrances except for Permitted Encumbrances; and (ii) all right, title and interest in and to all intangible property included in the Transferred Assets, free and clear of all Encumbrances except for Permitted Encumbrances and, in the case of the Assumed Contracts, subject to the rights of third parties thereunder. Seller will effectively transfer such title to all of the Transferred Assets to Buyer at Closing.

      Section 3.8 Transferred Assets.

           (a) The Transferred Assets, when taken together with the Excluded Assets, constitute all properties, assets and leasehold estates, real, personal and mixed, tangible and intangible, comprising, used or useful in the operation of the Business on the date hereof and immediately prior to Closing.

           (b) Except as set forth in Schedule 3.8(b) , those Transferred Assets that are tangible and are presently being used by Seller for manufacturing Products, are free from defects (patent and latent), have been maintained in accordance with normal industry practice, are in good operating condition and repair (subject to normal wear and tear), and are suitable for the purposes for which they are presently used and proposed to be used.

           (c) All of the Inventory is good and marketable and, except as set forth in Schedule 3.8(c) , all of the Software and Products included in the Inventory are the respective current versions thereof.

      Section 3.9 Compliance With Laws.

           (a) The Business has been and is being conducted in compliance with all Laws, except for any non-compliance that would not, individually or in the aggregate have a Material Adverse Effect. The Seller has all Governmental Authorizations necessary for the conduct of the Business as currently conducted, except for those Governmental Authorizations the absence of which would not, individually or in the aggregate, have a Material Adverse Effect.

           (b) To Seller’s Knowledge, each of the premises of the Business conforms to and complies with all covenants, conditions, restrictions, reservations, land use, zoning, health, fire, water and building codes and other similar Laws, and no such Laws prohibit or limit or condition the

use or operation of such premises as currently used and operated. There is no pending, or to Seller’s Knowledge, contemplated, threatened or anticipated change in the zoning classification of any of such premises. To Seller’s Knowledge, Seller has operated and maintained such premises in accordance with applicable Laws.

      Section 3.10 Litigation and Claims.

     Except as set forth on Schedule 3.10 : (a) there is no civil, criminal or administrative Claim or investigation pending or, to Seller’s Knowledge, threatened, against Seller or any Seller Affiliate with respect to or relating to the Business, any of the Transferred Assets or Assumed Liabilities; and (b) neither the Business, nor any of the Transferred Assets nor any Assumed Liability is subject to any order, writ, judgment, award, injunction or decree of any Governmental Entity or of any arbitrator.

      Section 3.11 Undisclosed Liabilities.

     Except as set forth on Schedule 3.11 , Seller has no Liability (and to Seller’s Knowledge there is no basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against any of them giving rise to any Liability), except for (i) Liabilities set forth on the face of the Financial Statements and (ii) Liabilities which have arisen after the Most Recent Fiscal Year End in the Ordinary Course (none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, infringement, or violation of law).

      Section 3.12 Intellectual Property.

           (a) Seller owns or has the right to use pursuant to written license, sublicense, agreements or permission all of the Transferred Intellectual Property. Each item of Transferred Intellectual Property and Seller’s rights under the Assumed License Agreement will be owned or available for use by right by Buyer immediately upon Closing, without the payment of any additional amounts to any third party, other than applicable Assumed Liabilities. Upon Closing, all available patent rights as to any of the Transferred Intellectual Property or any of the Products may be pursued exclusively by Buyer.

           (b) Seller owns and Buyer will receive at Closing, free and clear of all Encumbrances (except for Permitted Encumbrances), all Intellectual Property and other proprietary information, processes and formulae used in, related to or arising from the Business or otherwise necessary for the ownership, maintenance and use of the Transferred Assets and the conduct of the Business.

           (c) To Seller’s Knowledge, Seller has not interfered with, infringed upon, misappropriated or otherwise violated (whether through the use of the Transferred Intellectual Property or otherwise) any Intellectual Property rights of any third party, and no Claim has been asserted by any Person as to the use of the Transferred Intellectual Property or alleging any such interference, infringement, misappropriation or violation (including any Claim that Seller must license or refrain from using any Intellectual Property rights of any third party), and Seller does not know of any valid basis for any such Claim. To Seller’s Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise violated any rights of Seller with respect to the

Transferred Intellectual Property. Seller has made available to Buyer all infringement studies, including opinions of counsel, prepared by or on behalf of Seller.

           (d) Schedule 2.1(c)(i) identifies all Software of Seller. Seller has made available to Buyer correct and complete copies of all Software that is Transferred Intellectual Property, as amended to date, and has made available to Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item of Software. Except as set forth in Schedule 3.12(d) , with respect to each such item of Software:

                (i)  the Software is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge nor, to Seller’s Knowledge, is any of the foregoing threatened;

                (ii)  no Claim or investigation is pending or, to Seller’s Knowledge, threatened, which challenges the legality, validity, enforceability, use or ownership of the Software; and

                (iii)  Seller has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other violation with respect to the Software.

           (e) Schedule 2.1(c)(ii) , Schedule 2.1(c)(iii) and Schedule 2.1(c)(iv) identify each Patent, Trademark and Copyright of Seller. Seller has made available to Buyer correct and complete copies of all Patents, Trademarks and Copyrights related to such Transferred Intellectual Property, as amended to date, and has made available to Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such Patent, Trademark or Copyright, including all applications, registrations and prosecution materials. Except as set forth in Schedule 3.12(e) , with respect to each such Patent, Trademark and Copyright:

                (i)  the Patent, Trademark or Copyright is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge nor, to Seller’s Knowledge, is any of the foregoing threatened;

                (ii)  no Claim or investigation is pending or, to Seller’s Knowledge, threatened, which challenges the legality, validity, enforceability, use or ownership of the Patent, Trademark or Copyright;

                (iii)  Seller has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other violation with respect to the Patent, Trademark or Copyright; and

                (iv)  Seller has not taken, nor does it know of, any actions, including a sale or offer for sale, the disclosure of which could lead to the invalidity of any resulting Patent, Trademark or Copyright.

           (f) Schedule 2.1(e) identifies each Product and Seller has made available to Buyer correct and complete copies of all items related to the same, as amended to date, and has made available to Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such Product, including all applications,

registrations and prosecution materials. Except as set forth in Schedule 3.12(f) , with respect to each Product:

                (i)  the Product is not subject to any outstanding injunction, judgment, order, decree, ruling, or charge nor, to Seller’s Knowledge, is any of the foregoing threatened;

                (ii)  no Claim or investigation is pending or, to Seller’s Knowledge, threatened, which challenges the legality, validity, enforceability, use or ownership of the Product;

                (iii)  Seller has not agreed to indemnify any Person for or against any interference, infringement, misappropriation or other violation with respect to the Product.

           (g) With respect to each Assumed License Agreement:

                (i)  the Assumed License Agreement is legal, valid, binding, enforceable and in full force and effect with respect to Seller and, to Seller’s Knowledge, any other party thereto;

                (ii)  the Assumed License Agreement will continue to be legal, valid, binding, enforceable and in full force and effect with respect to Buyer and any other party thereto following the consummation of the Transaction;

                (iii)  neither Seller nor, to Seller’s Knowledge, any other party to the Assumed License Agreement is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification or acceleration thereunder;

                (iv)  neither Seller nor, to Seller’s Knowledge, any other party to the Assumed License Agreement has repudiated any material provision thereof or threatened any breach thereof;

                (v)  to the Seller’s Knowledge, (i) with respect to each Assumed License Agreement that is a sublicense of Intellectual Property owned by a third party, the representations and warranties set forth in Section 3.12(g)(i) through Section 3.12(g)(iv) are true and correct with respect to the underlying license; and (ii) no Claim or investigation is pending or threatened that challenges the legality, validity or enforceability of the Intellectual Property owned by a third party underlying the Assumed License Agreement, and there is no basis for any such Claim.

           (h) Schedule 3.12(h) sets forth the form and placement of the proprietary legends and copyright notices displayed in or on the Software. To Seller’s Knowledge, in no instance has the eligibility of the Software for protection under applicable copyright law been forfeited to the public domain by omission of any required notice or any other action.

           (i) Seller has promulgated and used its commercially reasonable efforts to enforce the trade secret protection program set forth in Schedule 3.12(i) . To Seller’s Knowledge, there has been no material violation of such program by any Person. To Seller’s Knowledge, the Transferred Intellectual Property (including any source code and system documentation relating to the Software): (i) has at all times been maintained in confidence; and (ii) has been disclosed by

Seller only to employees and consultants having a “need to know” the contents thereof in connection with the performance of their duties to Seller.

           (j) To Seller’s Knowledge, all personnel, including employees, agents, consultants and contractors, who have contributed to or participated in the conception, reduction to practice or development of the Technical Documentation, Transferred Intellectual Property and Products on behalf of Seller either: (i) have been party to a “work-for-hire” arrangement or agreement with Seller, in accordance with applicable federal and state law, that has accorded Seller full, effective, exclusive and original ownership of, and all right, title and interest in and to, all tangible and intangible property thereby arising; or (ii) have executed appropriate instruments of assignment in favor of Seller as assignee that have conveyed to Seller full, effective and exclusive ownership of all right, title and interest in and to all tangible and intangible property arising thereby.

      Section 3.13 Adequacy of Technical Documentation.

     The Technical Documentation includes the source code, system documentation, statements of principles of operation and schematics for all of the Intellectual Property, as well as any pertinent commentary or explanation, including any commentary contained in any source code, that may be necessary to Seller’s Knowledge, to render such materials understandable to Buyer and, with respect to any Software, usable by a trained computer programmer.

      Section 3.14 Intellectual Property Rights Granted to Seller.

           (a) Schedule 3.14(a) lists each license, sublicense, agreement and permission by which Seller uses or has right, prospective rights to such rights or interests in any Intellectual Property owned by a third party. Seller has made available to Buyer correct and complete copies of all such licenses, sublicenses and agreements (as amended to date). The Seller has not obtained any such rights in any Intellectual Property under any oral license, sublicense, agreement or permission.

           (b) Seller has obtained the full, unrestricted and legal right and license to use, make, have made, copy, publicly display, publicly perform, modify and distribute the third-party Intellectual Property contained in the Transferred Intellectual Property and Technical Documentation pursuant to the Assumed License Agreements. Except as set forth on Schedule 3.14(b) , to Seller’s Knowledge, the Transferred Intellectual Property and the Technical Documentation contain no other programming, materials or Intellectual Property in which any third party may claim superior, joint or common ownership, including any right or license. The Transferred Intellectual Property and the Technical Documentation do not contain derivative works, reproductions or copies of any programming or materials not owned in their entirety by Seller and included in the Transferred Assets.

      Section 3.15 Third-Party Interests in Intellectual Property.

      Schedule 3.15 identifies each license, sublicense, agreement and permission by which a third-party uses or has rights, prospective rights to such rights or interests in any Intellectual Property or Technical Documentation owned by Seller. Seller has made available to Buyer correct and complete copies of all such agreements (as amended to date). The Seller has not granted any such rights in any Intellectual Property under any oral license, sublicense, agreement or permission. The licenses and sublicenses set forth on Schedule 3.15 constitute only end-user agreements, each in a standard form

previously disclosed to Buyer and each of which grants the end-user thereunder solely the non-exclusive right and license to use an identified Intellectual Property and related user documentation, for internal purposes only. There are no contracts, agreements, licenses and other commitments and arrangements in effect with respect to the marketing, distribution, licensing, or promotion of the Inventory, the Technical Documentation, the Transferred Intellectual Property or the Products by any independent sales person, distributor, sublicensor or other re-marketer or sales organization.

      Section 3.16 Major Vendors and Customers.

      Schedule 3.16 lists each third-party licensor, developer, re-marketer, distributor and supplier of property or services to, and each licensee, end-user or customer of, the Business to whom Seller paid or billed in the aggregate $10,000 (in cash, stock, services, debt or other consideration) or more since January 1, 2007, together with, in each case, the amount paid or billed during such period. The consummation of the Transaction will not result in the loss of any significant customer, potential customer or vendor of the Business.

      Section 3.17 Assumed Contracts.

           (a) Seller has made available to Buyer true and complete copies of each Assumed Contract that is in written form, and true and complete written summaries of each Assumed Contract that is oral. Each of the Assumed Contracts constitutes the valid and legally binding obligation of Seller and is enforceable in accordance with its terms. Each of the Assumed Contracts constitutes the entire agreement of the respective parties thereto relating to the subject matter thereof. All obligations required to be performed under the terms of the Assumed Contracts by the date hereof have been performed by Seller, and to Seller’s Knowledge by the other parties thereto. All obligations required to be performed under the terms of the Assumed Contracts by the Closing Date shall have been performed by Seller, and to Seller’s Knowledge by the other parties thereto. No act or omission has occurred or failed to occur which, with the giving of notice, the lapse of time or both would constitute a default under any of the Assumed Contracts or permit termination, modification or acceleration thereunder, and each of the Assumed Contracts is in full force and effect without default on the part of Seller and, to Seller’s Knowledge, of the other parties thereto.

           (b) Except for the Approvals, none of the Assumed Contracts requires consent or waiver for its assignment to and assumption by Acquisition Sub.

           (c) Except for this Agreement, the Assumed Contracts, the Plans (as defined in Section 3.21), and any agreements identified in Schedule 2.1(j) , there are no: (i) contracts or commitments affecting the use or value of the Business or any of the Transferred Assets; (ii) agreements, licenses or commitments with respect to Transferred Intellectual Property or affecting the Business or requiring future performance by Seller; (iii) collective bargaining agreements or other contracts or commitments to or with any labor unions or other employee representatives, groups of employees, works councils or the like; (iv) employment contracts or other contracts, agreements or commitments to or with individual current, former or prospective employees, consultants or agents; or (v) joint ventures or othe