Exhibit Number

Description

2.2

Membership Interest Purchase Agreement dated September 1, 2009 by and among Applied Signal Technology, Inc., Pyxis Engineering LLC and Eric Bennett as the Initial Seller

99.1

Press Release dated September 1, 2009 announcing acquisition of Pyxis Engineering LLC

Subject to the foregoing provisions, the calculation of Final Closing Working Capital shall be conclusive and binding on all of the Parties, no further adjustments shall be made thereto and neither Purchaser nor Seller shall have any further right to challenge such calculation of the Final Closing Working Capital; provided, however, that nothing in this Section 2.2(e) shall limit in any manner (whether by time, amount, procedure or otherwise) any remedy at law or in equity to which any Party may be entitled against another Party as a result of actual fraud by such other Party.

If, pursuant to the terms of this Section 2.2, it is determined that the Final Closing Working Capital is less than the Estimated Closing Working Capital, then Seller and any Additional Sellers shall pay their pro rata portion amount equal to the Working Capital Adjustment Amount, if any, in immediately available funds to Purchaser within five (5) business days of the determination of the Final Closing Working Capital.

By delivery at the Closing to the Seller and any Additional Seller of a wire transfer of immediately available funds of an amount equal to such Seller’s or Additional Seller’s pro rata portion of the Closing Payment, less (i) amounts to be distributed into the Escrow Fund as set forth in Section 2.3(b) below, and less (ii) the amount to be deposited with the Company pursuant to Section 2.3(c) below;

By delivery at the Closing of a wire transfer of immediately available funds in an aggregate amount equal to One Million Six Hundred Twenty-Five Thousand Dollars ($1,625,000) (such amount, and any interest or earnings thereon, the “Escrow Fund”) to a bank account to be established with Wells Fargo Bank (the “Escrow Agent”); and

By delivery at the Closing to the Company of a wire transfer of immediately available funds on behalf of any Additional Seller of such amount as is certified to Purchaser by Seller for the federal, state and/or local income and employment tax withholding that is owed by the respective Additional Sellers with respect to (i) the exercise of such Additional Seller’s Membership Options in accordance with Section 7.16(a) and (ii) the payment of the obligations of the Company under the Change in Control Bonus Agreement in accordance with Section 7.16(c). The delivery to the Company of such tax withholding shall be treated for purposes of this Agreement as payment of a portion of the consideration due to the respective Additional Sellers under the Agreement.

That portion of any Earn-Out Distribution Amount payable to Seller shall be paid in shares of Common Stock of Purchaser rather than in cash and that portion of any Earn-Out Distribution Amount payable to any Additional Seller shall be paid in cash. The number of shares of Common Stock payable to Seller as his portion of any Earn-Out Distribution Amount shall be determined by dividing the amount of the Earn-Out Distribution Amount payable to Seller by the average closing price of Purchaser’s Common Stock as reported on the NASDAQ Stock Market, Inc. for the twenty trading day period ending three trading days prior to the date on which the Earn-Out Distribution Amount becomes due and payable. Notwithstanding the foregoing, if Purchaser is subject to a Change of Control prior to payment of the Earn-Out Distribution Amount, or if Purchaser’s shares of Common Stock are no longer listed on a national securities exchange at the time of payment of the Earn-Out Distribution Amount, the Earn-Out Distribution Amount payable to Seller hereunder shall be paid in cash rather than in shares of Common Stock of Purchaser.

Operation of the Company:

If Seller timely delivers an Earn-Out Dispute Notice, Purchaser’s Chief Financial Officer or his or her designee shall promptly meet with Seller and attempt in good faith to reach a resolution of such disagreement. Any dispute with respect to the Earn-Out Certification that is not resolved by Purchaser and Seller and their respective accountants within 30 days after delivery of the Earn-Out Dispute Notice, upon written request by either Purchaser or Seller delivered to the other Party, shall be submitted for final resolution to an independent certified public accounting firm of national reputation as may be agreed upon by Purchaser and Seller or, in the absence of such agreement, as may be selected jointly by Purchaser’s independent certified public accountants and an independent certified public accounting firm designated by Seller. Each Party shall, within 10 business days after submission of such dispute, deliver to such accounting firm the information such Party wishes to have considered by such accounting firm in making its determination. Each Party shall also provide such accounting firm with access to such Party’s books and records as such firm shall reasonably request and that shall be relevant to the resolution of such dispute. Such accounting firm shall be instructed to complete its determination and resolution of any dispute and deliver notice thereof to Purchaser and Seller within 30 business days after submission of such dispute to the firm. Such accounting firm shall (i) act in its capacity as an expert and not as an arbitrator, (ii) consider only those matters as to which there is a dispute between the Parties, and (iii) apply the Purchaser Accounting Rules in reaching its decision. In the event that Purchaser and Seller submit any dispute to such an accounting firm, each such Party may submit a “position paper” to such accounting firm setting forth the position of such Party with respect to such dispute, to be considered by such accounting firm as it deems fit. The determination and resolution of any such dispute by such accounting firm shall be binding and conclusive on Purchaser and Seller for all purposes of this Agreement. Each Party shall bear its own expenses incurred in connection with the resolution of any such dispute. The Party whose position with respect to the calculation of Target Revenues, as last proposed during the meeting(s) held initially to try to resolve the dispute, is furthest from the amount determined by the accounting firm, shall be deemed to be the non-prevailing Party and shall bear the fees and expenses of the accounting firm.

Closing. Subject to the satisfaction or waiver of all conditions to the Closing set forth in this Agreement, the consummation of the purchase and sale of the Interests (the “Closing”) shall take place on the close of business on September 1, 2009 or as soon as practicable thereafter (but no later than two (2) business days after such date and the satisfaction or waiver of each of the conditions set forth in Section 8 hereof), at the offices of DLA Piper LLP (US), 2000 University Avenue, East Palo Alto, California or on such other date and at such other place or time as the parties hereto may agree upon in writing (the date on which the Closing occurs is referred to herein as the “Closing Date”).

Title to Interests. Seller and each Additional Seller has good and marketable title to his Interests, beneficially and of record, free and clear of any and all Encumbrances, and has the sole right to transfer the Interests to Purchaser. Seller and each such Additional Seller represents that other than with respect to this Agreement and the Company’s Articles of Organization and the Operating Agreement of the Company (the “Organizational Documents”), Seller, and such Additional Seller, is not a party to, or bound by, any agreement, instrument or understanding restricting the transfer of any of the Interests held by Seller or such Additional Seller or governing the voting of the Interests held by Seller or such Additional Seller.

With respect to each Government Contract, Company Government Subcontract or Government Bid: except as set forth in Section 5.13(b) of the Disclosure Schedule, (i) the Company has complied with all material terms and conditions of contracts and requirements of applicable statutes, rules and regulations; (ii) no written allegation that the Company is in breach or violation of any statutory, regulatory or contractual requirement has been made to the Company and not withdrawn, addressed in writing and disclosed to the Purchaser during due diligence or otherwise resolved; (iii) all representations and certificates of the Company were current, accurate and complete when made, and the Company has fully complied in all material respects with all such representations and certificates; (iv) neither any Governmental Entity nor any prime contractor, subcontractor or other Person has notified the Company, either in writing or orally, that the Company has breached or violated any applicable law, certification, representation, clause, provision or requirement pertaining to such Government Contract or Government Bid, which breach or violation has not been addressed in writing and disclosed to the Purchaser during due diligence prior to the date hereof or otherwise resolved; (v) no termination for convenience, termination for default, cure notice or show cause notice has been issued and not withdrawn, addressed in writing and disclosed to the Purchaser during due diligence or otherwise resolved; (vi) no material cost incurred by the Company or its subcontractors has been questioned (outside of customary cost and pricing negotiations and related submissions) or disallowed except in connection with audits conducted in the ordinary course of business and disclosed to the Purchaser during due diligence prior to the date hereof or otherwise resolved; and (vii) no material sum of money due to the Company has been (or has been threatened to be) withheld or set off, nor has any claim been made to withhold or set off money. Except for Government Contract and Company Government Subcontracts which have been finally billed and closed, each Government Contract and Company Government Subcontract is valid and enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws relating to creditors’ rights and general principles of equity.

Neither the Company, nor to the Company’s or Seller’s Knowledge, any of its Representatives, is or has been (except as to routine security investigations) under administrative, civil or criminal investigation, indictment or information by any Governmental Entity. To the Knowledge of the Company or the Seller, there is no pending proceeding by any Governmental Entity against the Business or any employee of the Company with respect to any alleged irregularity, misstatement or omission arising under or relating to a Government Contract, Company Government Subcontract or Government Bid. Except for routine investigations and audits conducted in the ordinary course of business, the Company has not initiated any internal investigation or made a voluntary disclosure with respect to any alleged irregularity, misstatement or omission arising under or relating to a Government Contract, Company Government Subcontract or Government Bid or regarding any export or import matter. The Company has not made any misstatement or omission and there exists no irregularity in connection with any such voluntary disclosure that has led or is expected to lead, either before or after the Closing Date, to any of the consequences set forth in the first two sentences of this paragraph or any other material damage, penalty assessment, recoupment of payment or disallowance of cost.

Except as set forth on Section 5.13(d) of the Disclosure Schedule, there are (i) no outstanding claims against the Company by a Governmental Entity or by any prime contractor, subcontractor, vendor or other third-party arising under any Government Contract, Company Government Subcontract or Government Bid with respect to the Business and (ii) no outstanding disputes between a Governmental Entity and the Company under the Contract Disputes Act of 1978, as amended (41 U.S.C. 601 et seq.) or any other federal statute or between the Company and any prime contractor, subcontractor, vendor or other third-party arising under or relating to any such Government Contract, Company Government Subcontract or Government Bid with respect to the Business. The Company does not have an interest in any pending or potential claim against any prime contractor, subcontractor, vendor or other third-party arising under or relating to any Government Contract, Company Government Subcontract or Government Bid.

Neither the Company, nor to the Company’s or Seller’s Knowledge, any of its Representatives, nor any of its operations is, or has been, suspended or debarred from doing business with a Governmental Entity or is, or was, the subject of a finding of non-responsibility or ineligibility for U.S. government contracting. There exist no facts or circumstances that would warrant the institution of suspension or debarment proceedings or the finding of nonresponsibility or ineligibility on the part of the Company or any director or officer of the Company. With respect to each Government Contract and Company Government Subcontract, the Company’s cost accounting and procurement systems and the associated entries reflected in the Company’s financial statements are in compliance with all applicable legal requirements.

All cost and pricing data submitted in connection with each Government Contract, Company Government Subcontract, or modification thereof, or a Government Bid was current, accurate and complete when the price thereof was negotiated and as of the date of any certificate of current cost or pricing data submitted by the Company for such Government Bid, Government Contract or Company Government Subcontract, and, to the Knowledge of the Company or the Seller, none of the Government Contracts or Company Government Subcontracts is, or was negotiated, in violation of any “truth-in-negotiations” or “defective pricing” laws, rules or regulations to which it is subject, including, but not limited to, the Federal Property and Administrative Services Act, the Armed Services Procurement Act, the Truth in Negotiations Act, the False Claims Act and the Federal Acquisition Regulation.

To the Company’s Knowledge, except as set forth on Section 5.13(g) of the Disclosure Schedule, there exists no Government Contract or Company Government Subcontract as to which the Company’s current estimated cost at completion exceeds the aggregate contract revenue recorded or to be recorded under such contract through completion.

Except as set forth on Section 5.13(h) of the Disclosure Schedule, the Company has no fixed-price development contracts governed by DFARS Part 235.

The Company has complied in all material respects with applicable facilities and personnel security clearance requirements of the United States, including any set forth in the Industrial Security Regulation (DOD 5220.22-R) and the National Industrial Security Program Operating Manual (DOD 5220.22-M) relating to the Business.

The Company has complied in all material respects with all applicable cost accounting standards and cost principles and has not received written notice from the sponsoring United States Government Agency Administrative Contracting Officer and/or auditors of any intent to suspend, disapprove or disallow any material costs.

To the Company’s Knowledge, except as described on Section 5.13(k) of the Disclosure Schedule, none of the rates or rate schedules submitted to Governmental Entities with respect to the Government Contracts or Company Government Subcontracts relating to the Business have been closed.

To the Company’s Knowledge, all U.S. government personnel that have been employed or retained by the Company are, and the Company is, in compliance in all material respects with all legal requirements governing post-government employment.

The Company is in compliance with any warranties of technical data which it may have provided to the U.S. government under Government Contracts or Company Government Subcontracts.

Except for the contracts set forth on Section 5.13(n) of the Disclosure Schedule, (i) there are no change of control or similar provisions or any obligations arising under any Government Contract, Company Government Subcontract or Government Bid which are created, accelerated or triggered by the execution and delivery of this Agreement and the transactions contemplated hereby; (ii) the transactions contemplated hereby will not constitute a “change of control,” and will not require the consent from or the giving of notice to any Person, permit any Person to terminate, grant any repayment rights to any Person or create any other detriment under the terms, conditions or provisions of any Government Contract, Company Government Subcontract or Government Bid; and (iii) to the Company’s Knowledge, none of the other parties to any Government Contract, Company Government Subcontract or Government Bid intends to terminate or cancel any of the such contracts or bids as a result of the execution, delivery and performance of this Agreement or the consummation of the transactions contemplated hereby.

Except as set forth on Section 5.13(p) of the Disclosure Schedule, all Government Contracts have been finally billed, paid and closed.

Export Control Laws; Encryption and Other Restricted Technology. The Company has, since its inception, materially complied with all U.S. export control Laws regarding any export of its products or technology, including the Export Administration Regulations (“EAR”) maintained by the U.S. Department of Commerce and the International Traffic in Arms Regulations (“ITAR”) maintained by the Department of State. To the Knowledge of the Company and Seller, the Business as currently conducted does not require the Company to obtain a license from the United States Departments of Commerce or State or an authorized body thereof under ITAR or EAR or other legislation regulating the development, commercialization or export of technology. The Company has not, since its inception, received any correspondence from the export control authorities in any country, including the U.S. Departments of Commerce or State, regarding any pre-penalty notice, notice of penalty, subpoena or request for documents, or notice of audit, investigation or inquiry by a special agent or other export control agent or official.

For purposes of this Agreement, the term “Intellectual Property Rights” means copyright rights (including, without limitation, the right to use, reproduce, modify, distribute, publicly display and publicly perform the copyrighted work), trademark rights (including, without limitation, trade names, trademarks, service marks, and trade dress), patent rights (including, without limitation, the right to make, use and sell), trade secrets (but, with respect to the Company, only those trade secrets that are material to the Company), moral rights, right of publicity (but only to the extent such a right is recognized under applicable law), right of privacy, authors’ rights, contract and licensing rights, goodwill embodied in any of the foregoing and the right to sue for part infringement of any of the foregoing, as may exist now and/or hereafter come into existence and all renewals and extensions thereof, regardless of whether such rights arise under the law of the United States or any other state, country or jurisdiction throughout the world.

Except as would not, individually or in the aggregate, have a Material Adverse Effect on the Company, the Company is not, nor will it be, as a result of the execution and delivery of this Agreement or the performance of its obligations hereunder, in violation of any licenses, sublicenses or other agreements to which the Company is a party and pursuant to which the Company is authorized to use any third-party Intellectual Property (“Third-Party Intellectual Property Rights”). The Company will continue to own all right, title and interest in, or to have a license to use all Intellectual Property Rights material to its business and operations on terms and conditions identical in all respects to those enjoyed by Company immediately prior to the Closing. No claims with respect to the Intellectual Property Rights owned by Company (the “Company Intellectual Property Rights”), or any Third-Party Intellectual Property Rights to the extent arising out of any use, sale of, reproduction or distribution of such Third-Party Intellectual Property Rights by or through the Company, are currently pending or, to the Knowledge of Seller or Company, threatened by any Person. Neither Seller nor the Company knows of any valid grounds for any bona fide claims (i) to the effect that the manufacture, sale, licensing or use of any Intellectual Property Rights as now used, sold or licensed by the Company, infringes on the intellectual property rights of any third-party; (ii) against the use by the Company of any Intellectual Property Rights used in the Business as currently conducted; (iii) challenging the ownership, validity or effectiveness of any of the Company Intellectual Property Rights; or (iv) challenging the license or legally enforceable right to use of any Third-Party Intellectual Property Rights by Company.

Section 5.15 of the Disclosure Schedule sets forth a true, accurate and complete list of all registered Company Intellectual Property and a brief description of all material, unregistered Company Intellectual Property Rights (other than trade secret rights), and all Internet addresses for websites owned and/or operated by or for the Company (collectively, the “Proprietary Rights”). The Company owns or possesses sufficient legal rights to all Intellectual Property Rights necessary for the operation of the Company’s business as now conducted without any known conflict with, or infringement upon, the rights of others. The Company is the sole owner of all right, title and interest in and to all of the Proprietary Rights, free and clear of all Encumbrances and restrictions whatsoever, except for rights that may have been granted to any Governmental Entity or any prime contractor, subcontractor, vendor or other third party arising under or relating to any Government Contract.

None of the Proprietary Rights, now or in the past, infringes upon any Intellectual Property Rights of any other Person, and the Company has not received any notice of any such infringement. To the Knowledge of the Company and Seller, no employee of the Company is in violation of any term of any Contract relating to the protection of the Intellectual Property Rights of any previous employer.

All current and former employees of the Company who are or were involved in, or who have contributed to, the creation or development of any Proprietary Rights have executed and delivered to the Company an agreement (containing no exceptions to or exclusions from the scope of its coverage) that is substantially identical to the form of Confidential Information and Invention Assignment Agreement previously delivered by the Company to Purchaser.

All current and former consultants and independent contractors to the Company who are or were involved in, or who have contributed to, the creation or development of any Proprietary Rights have executed and delivered to the Company an agreement (containing no exceptions to or exclusions from the scope of its coverage) that is substantially identical to the form of Consultant Confidential Information and Invention Assignment Agreement previously delivered to Purchaser. No current or former employee, member, consultant or independent contractor to the Company has any right, claim or interest in or with respect to any Company Proprietary Rights.

The Company has provided to Purchaser a true and correct copy of all Material Contracts and a written summary of all oral Material Contracts. All Material Contracts of the Company are listed in Section 5.17 of the Disclosure Schedule, with each oral Material Contract separately identified as such in Section 5.17 of the Disclosure Schedule.

With respect to each Material Contract: (i) the Material Contract is legal, valid, binding and enforceable and in full force and effect with respect to the Company and, to the Knowledge of the Company and the Seller, is legal, valid, binding, enforceable and in full force and effect with respect to each other party thereto, in either case subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and except as the availability of equitable remedies may be limited by general principles of equity; (ii) the Material Contract will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with its terms as in effect prior to the Closing, subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and except as the availability of equitable remedies may be limited by general principles of equity; and (iii) neither the Company nor, to the Knowledge of the Company or the Seller, any other party is in breach or default, and no event has occurred that with notice or lapse of time would constitute a breach or default by the Company or, to the Knowledge of the Company or the Seller, by any such other party, or permit termination, modification or acceleration, under such Material Contract.

Except as provided in Section 5.18 of the Disclosure Schedule, there are no claims, legal actions, decrees, judgments, orders, settlement agreements, arbitration or other proceeding, suit or governmental investigation pending or, to the Knowledge of the Company or the Seller, threatened against the Company. The Company has not been charged with nor is it in violation of, or in default with respect to, any Order.

There are no claims, legal actions, decrees, judgments, orders, settlement agreements, arbitration or other proceeding, suit or governmental investigation pending or, to the Knowledge of the Seller or each Additional Seller, threatened against the Seller or any Additional Seller which could reasonably be expected to adversely affect Seller and any Additional Seller’s ability to consummate the transactions contemplated by this Agreement. The Seller and each Additional Seller have not been charged with nor is in violation of, or in default with respect to, any Order which could reasonably be expected to adversely affect Seller and any Additional Seller’s ability to consummate the transactions contemplated by this Agreement.

With respect to environmental matters, (i) to the Knowledge of the Company, the Company has not generated, used, transported, treated, stored, released or disposed of, and has not knowingly suffered or permitted any other Person to generate, use, transport, treat, store, release or dispose of any hazardous substance in violation of any laws, (ii) to the Knowledge of the Company, there has not been any generation, use, transportation, treatment, storage, release or disposal of any hazardous substance by the Company in connection with the operation of their business or the use of any property or facility which has created or might reasonably be expected to create any material liability under any laws or which would require reporting to or notification of any governmental entity, (iii) to the Knowledge of the Company, there has not been any generation, use, transportation, treatment, storage, release or disposal of any hazardous substance in connection with the operation of any former property or facility of the Company, which has created or might reasonably be expected to create any material liability under any laws or which would require reporting to or notification of any governmental entity, (iv) to the Knowledge of the Company, no asbestos or polychlorinated biphenyl or underground storage tank is contained in or located at any property or facility of the Company and (v) to the knowledge of the Company, any hazardous substance handled or dealt with in any way in connection with the Company has been and is being handled or dealt with in all respects in material compliance with applicable laws.

The Company has not (i) received notice that it is a potentially responsible party for a federal or state environmental cleanup site or for corrective action under the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Sections 9601, et seq., and the regulations promulgated thereunder (“CERCLA”) or any other applicable Law, (ii) submitted or been required to submit any notice pursuant to Section 103(c) of CERCLA, (iii) received any written request for information in connection with any federal or state environmental cleanup site or (iv) been required to undertake any prospective or remedial action or clean-up action of any kind at the request of any governmental entity, or at the request of any other Person relating to any applicable environmental law. The Company has conducted their business in material compliance, with all applicable federal, state and local environmental laws.

Employees.

The Company is in material compliance with all applicable federal, state and local laws, rules and regulations relating to discrimination, unpaid wages, the Family and Medical Leave Act, wrongful discharge, unfair labor practices, and occupational safety and health laws.

Except as set forth in Section 5.21 of the Disclosure Schedule, there is no litigation, administrative proceeding or arbitration against the Company involving any matter related to employment including, but not limited to, claims of discrimination, claims of unpaid wages, claims of violations of the Family and Medical Leave Act, claims of wrongful discharge, claims of unfair labor practices, and claims related to occupational safety and health laws. The Company is not obligated to pay any fees or expenses to any employee or former employee that is not related to payroll, other than reimbursement for business expenses.

Neither the Company, any ERISA Affiliate nor any predecessor thereof sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any Employee Plan subject to Title IV of ERISA.

Neither the Company, any ERISA Affiliate nor any predecessor thereof contributes to, or has in the past contributed to, any multiemployer plan, as defined in Section 3(37) of ERISA.

Nothing has occurred that would reasonably be expected to cause any Employee Plan that is intended to be qualified under Section 401(a) not to be so qualified. The Company has provided to Purchaser copies of the most recent IRS determination, advisory and/or opinion letters with respect to each such Employee Plan.

The Company does not have any current or projected liability in respect of post-employment or post-retirement health or medical or life insurance benefits with respect to current or former employees, directors or consultants, except as required to avoid excise tax under Section 4980B of the Code or comply with similar state law.

Except as set forth in Section 5.22(f) of the Disclosure Schedule, no current or former employee, director or consultant of the Company will become entitled to any bonus, retirement, severance, job security or similar benefit or any accelerated or enhanced payment or benefit as a result of the transactions contemplated by this Agreement.

There have been no prohibited transactions (within the meaning of Section 406 of ERISA or 4975 of the Code) with respect to any Employee Plan. No fiduciary (within the meaning of Section 3(21) of ERISA) has any material liability for breach of fiduciary duty or for any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Plan. There have been no acts or omissions by any Person with respect to any Employee Plan that have given rise to, or could reasonably be expected to give rise, to any material liability under Section 502 of ERISA.

Except as set forth in Section 5.22(h) of the Disclosure Schedule, the Company does not maintain or otherwise have any liability with respect to any deferred compensation, excess benefit or other non-qualified supplemental retirement plan, program or arrangements. No Employee Plan provides to any “service provider” (within the meaning of Section 409A of the Code) any compensation, benefits or payments which could subject such service provider to gross income inclusion or tax pursuant to Section 409A(a)(1) of the Code. No “leased employee” (within the meaning of Section 414(n) of the Code), performs any material services for the Company. The Company does not have any material liability, whether absolute or contingent, including any obligations under any Employee Plan, with respect to any misclassification of a person performing services for the Company as an independent contractor rather than as an employee.

Brokers’ and Finders’ Fees. The Company is not obligated to pay any fees or expenses of any broker, finder or employee of the Company in connection with the origin, negotiation, or execution of this Agreement or in connection with any transactions contemplated hereby.

Indebtedness. Section 5.24 of the Disclosure Schedule sets forth a list of all agreements and other instruments under which the Company is indebted for borrowed money. Except as set forth on Section 5.24 of the Disclosure Schedule, the Company is not in default that would allow any lenders to accelerate and make immediately payable any payments due under any of the agreements or other instruments listed on Section 5.24 of the Disclosure Schedule, nor is the Company aware of any event that, with the passage of time, or notice, or both, reasonably could be expected to result in an event of material default thereunder.

Fair Labor Standards Act. Section 5.26 of the Disclosure Schedule is a complete and accurate list of all of the employees of the Company as of December 31, 2008. Each such employee is correctly categorized on Section 5.26 of the Disclosure Schedule as either “exempt” or “non-exempt” under the Fair Labor Standards Act and is paid in conformance with the requirements of applicable federal and state law.

Representations and Warranties of Purchaser. Purchaser represents and warrants to Seller and the Company that the statements contained in this Section 6 are true and correct.

Organization and Qualification. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of California, and Purchaser has the requisite corporate power and authority and is in possession of all Approvals necessary to own, lease and operate the properties it purports to own, operate or lease and to carry on its business as it is now being conducted, except where the failure to be so organized, existing and in good standing or to have such power, authority and Approvals would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser. Purchaser is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its activities makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, individually or in the aggregate, have a Material Adverse Effect on Purchaser.

Financing. Purchaser has financing sufficient for the consummation of the transactions contemplated by this Agreement, and will have on the Closing Date sufficient cash to pay the Closing Payment. Purchaser acknowledges that obtaining sufficient financing shall not be a condition to consummate the transactions contemplated by this Agreement or to any of its other obligations under this Agreement.

Conduct of Company Pending Closing. Seller and the Company covenant and agree that, except (i) as expressly required by this Agreement or as reasonably required in order to complete the transactions contemplated by this Agreement or for the Company to perform its obligations under this Agreement and the Transaction Documents, or (ii) with the prior written consent of Purchaser (such consent not to be unreasonably withheld, delayed or conditioned), after the date hereof and prior to the Closing Date or the termination of this Agreement:

the Business shall be conducted only in the ordinary course of business consistent with past practice;

the Company will not amend its Organizational Documents;

the Company shall not (i) declare, set aside or pay any dividend or other distribution payable in cash, equity or property with respect to the Interests; (ii) issue or sell any additional interests in, or securities convertible into or exchangeable for interests in, or options, warrants, calls, commitments or rights of any kind to acquire any interests in, the Company or (iii) redeem, purchase or otherwise acquire directly or indirectly any interests in the Company; provided, however, that notwithstanding the foregoing, the Company may acquire, or make payments in termination of, the Change-Of-Control Bonus Agreement and the outstanding Membership Options under the Option Plan or any Interests in the Company issued pursuant to such Membership Options, the Change-Of-Control Bonus Agreement and such other payments (whether in cash or Interest) as the Company deems reasonably necessary to cause the Company to be in compliance with Section 7.14 and 7.16 hereof;

the Company shall not (i) adopt any new employee benefit plan (including any stock option, stock benefit or stock purchase plan) or amend any existing employee benefit plan, except as may be required by applicable Law or (ii) increase any compensation of or enter into or amend any employment, severance, termination or similar agreement with any of its present or future officers or directors, except for normal increases in the ordinary course of business and the payment of cash bonuses to employees pursuant to and consistent with existing plans, practices or programs;

the Company shall not, except in the ordinary course of business consistent with past practice, acquire, sell, lease or dispose of any assets of Company;

the Company shall not: (i) incur or assume any long-term or short-term debt for borrowed money or issue any debt securities, except for borrowings under existing lines of credit in the ordinary course of business; (ii) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the material obligations of any other Person; (iii) make any loans, advances or capital contributions to, or investments in, any other Person other than employee expense advances in the ordinary course of business, or (iv) mortgage or pledge any of its assets, tangible or intangible, or create any Encumbrance with respect to any such asset;

the Company shall not enter into any Government Contract which is expected to result in a loss;

the Company shall not acquire (by merger, consolidation or acquisition of stock or assets) any Person or division thereof or any equity interest therein;

the Company shall not adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or other reorganization;

the Company shall not change any of the accounting methods used by it unless required by GAAP or applicable Law;

the Company shall not terminate, modify or amend any Material Contract, or enter into any new Material Contract after the date hereof, other than Government Contracts in the ordinary course of business consistent with past practices, and that are not expected to result in a loss to the Company;

the Company shall not make any capital expenditures, capital additions or capital improvements, in excess of $25,000 in the aggregate;

the Company shall not terminate or expressly waive any material right of the Company, other than in the ordinary course of business consistent with past practice;

the Company will not initiate any litigation or arbitration proceeding;

the Company will not revoke the Company’s election to be taxed as an S corporation within the meaning of Code Sections 1361 and 1362 or take or allow any action, other than the transactions contemplated by this Agreement, that would result in the termination of the Company as a validly electing S corporation within the meaning of Code Sections 1361 and 1362; and

the Company will not authorize or enter into an agreement to do any of the foregoing.

Escrow Agreement. On or before the Closing Date, Purchaser, the Company and the Seller will execute the Escrow Agreement.

Employment Agreements. In addition to the provisions of Section 7.3 above, prior to the Closing Date and as a condition to Purchaser’s obligations under this Agreement, Messrs. Eric Bennett, Mark Shadle and Michael Wagner (the “Key Employees”), will have accepted employment with Purchaser effective immediately following the Closing, and shall have executed an offer letter in substantially the form attached hereto as Exhibit B (the “Key Employee Employment Agreements”).

Non-Competition/Non-Solicitation. Seller shall, prior to and effective upon the Closing, enter into a Noncompetition and Non-Solicitation Agreement in the form attached hereto as Exhibit C-1 (the “Bennett Noncompetition Agreement”). Mark Shadle and Michael Wagner shall, prior to and effective upon the Closing, enter into Noncompetition and Non-Solicitation Agreements in the form attached hereto as Exhibit C-2 (the “Shadle/Wagner Noncompetition Agreements” and together with the Bennett Noncompetition Agreement, the “Noncompetition Agreements”).

Public Announcements. Purchaser and Seller, acting on behalf of the Company, shall consult with each other before issuing any press release with respect to this Agreement, the other Transaction Documents and the transactions contemplated hereby and shall not issue any such press release or make any such public statement, except as required by Law or any listing agreement with any applicable national securities exchange, without the prior consent of the other Party, which shall not be unreasonably withheld, delayed or conditioned. From and after the Closing Date, any press release or public statements with respect to the transactions contemplated by this Agreement and the other Transaction Documents shall be made solely at the discretion of the Purchaser, and no other Party shall issue any press release or make any public statements about such transactions without the prior written consent of the Purchaser.

The Seller shall prepare, or cause to be prepared, and file, or cause to be filed, all Tax Returns of the Company for all periods ending on or prior to the Closing Date which are filed after the Closing Date. The Seller shall permit Purchaser to review and comment on each such Tax Return described in the preceding sentence at least ten (10) days prior to filing and shall not file any such Tax Return without the written consent of Purchaser, which consent shall not be unreasonably withheld, delayed, or conditioned. The Seller (and, if applicable, the Additional Sellers) shall include any income, gain, loss, deduction, or other Tax item resulting from the Section 338(h)(10) Election (as described in Section 7.13) on such Tax Returns to the extent required by applicable law. The Seller (and, if applicable, the Additional Sellers) shall also pay any Tax imposed on the Company attributable to the making of the Section 338(h)(10) Election, but shall be reimbursed to the extent of any Section 338(h)(10) Tax Adjustment, as provided in Section 7.13 hereof. The Seller shall not file or cause to be filed any amended Tax Return or claim for Tax refund for any Tax period ending on or before the Closing Date without the written consent of the Purchaser, to the extent that such action would reasonably be expected to change the Tax liability of the Purchaser or the Company for any Tax period after the Closing Date.

Purchaser shall prepare and file, or cause to be prepared and filed, on a timely basis, all Tax Returns with respect to the Company which are due following the Closing Date, other than the Tax Returns described in Section 7.11(a)(i) above. Such Tax Returns shall be prepared, to the extent permitted by law, in a manner consistent with the prior practice of the Company. At least ten (10) days prior to the filing of any Tax Return with respect to any Tax period beginning prior to the Closing Date but ending after the Closing Date, Purchaser shall submit copies of such Tax Returns, in draft form, to Seller, for written approval by Seller, which approval shall not be unreasonably delayed, withheld or conditioned.

Any Tax refunds that are received by the Company, and any Tax credits that reduce the Company’s obligations to make Tax payments after the Closing Date, shall be for the account of the Seller to the extent that such refunds or credits relate to Pre-Closing Tax Periods (as defined in Section 7.11(b) hereof), and the Company shall pay over to the Seller any such refund or the amount of any such credit within ten (10) days after receipt or use thereof to the extent not included as an asset in the Adjusted Closing Working Capital.

Proceedings and Cooperation.

Purchaser shall communicate with Seller regarding the status of any proceedings (“Proceeding”) related to Taxes of the Company for any taxable period ending on or prior to the Closing Date and the portion through the end of the Closing Date of any taxable period that includes but does not end on the Closing Date (“Pre-Closing Tax Periods”). Seller shall have the right to control the conduct and resolution of any Proceeding related to Tax matters for Pre-Closing Tax Periods; provided, however, that if any of the issues raised in such Proceeding could reasonably be expected to have an effect on the Tax liability of the Purchaser or the Company for any taxable period beginning after the Closing Date (the “Post-Closing Tax Period”), then Seller shall not settle any such Proceeding with respect to such issues without Purchaser’s written consent, which shall not be unreasonably withheld, delayed or conditioned. If Seller has the right to control the conduct and resolution of such Proceeding but elects in writing not to do so, then Purchaser shall have the right to control the conduct and resolution of such Proceeding, provided that Purchaser shall keep the Seller informed of all developments on a timely basis and Purchaser shall not resolve such Proceeding in a manner that could reasonably be expected to have an adverse effect on the Seller without the advance written consent of Seller, which shall be timely and shall not be unreasonably withheld, conditioned or delayed. Each party shall bear its own costs for participating in such Proceeding.

Purchaser, the Company and the Seller shall cooperate fully, as and to the extent reasonably requested by any other party, in connection with the filing of Tax Returns and any audit, litigation or other Proceeding with respect to Taxes. Such cooperation shall include the retention and (upon any other party’s request) the provision of records and information that are reasonably relevant to any such Tax Return filing, audit, litigation or other Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and Purchaser agree (i) to retain all books and records with respect to Taxes pertinent to the Company relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent reasonably notified by Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) to give the other parties reasonable written notice prior to transferring, destroying or discarding any such books and records and, if any other party so requests, to allow such other party to take possession of such books and records.

Purchaser, the Company and the Seller further agree, upon request, to use their best efforts to obtain any certificate or other document from any Governmental Entity or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including without limitation any Tax with respect to the transactions contemplated hereby).

Purchaser, the Company and Seller further agree, upon request, to provide the other party with all information that either party may be required to report pursuant to Section 6043 of the Code, and all Treasury Regulations promulgated thereunder.

During the period from the date of this Agreement until the earlier of (i) the termination of this Agreement, or (ii) the Closing Date, neither Seller nor the Company shall, directly or indirectly, through any officer, director, employee, affiliate, representative or agent (each a “Representative”), take any action to (a) solicit, initiate, encourage, induce, facilitate or support any inquiries or proposals that constitute, or could reasonably be expected to lead to, a proposal or offer for a merger, consolidation, business combination, sale of assets, sale of interests (including without limitation by way of a tender offer) or similar transactions involving the Company, other than the transactions contemplated by this Agreement (any of the foregoing inquiries or proposals being referred to in this Agreement as an “Acquisition Proposal”), (b) furnish any information regarding the Company to any Person in connection with or in response to any Acquisition Proposal or any inquiry that could reasonably be expected to lead to any Acquisition Proposal, (d) engage or participate in negotiations or discussions with any Person concerning any Acquisition Proposal, or (d) agree to, approve or recommend any Acquisition Proposal.

During the period from the date of this Agreement until the earlier of (i) the termination of this Agreement, or (ii) the Closing Date, Seller shall promptly, and in no event later than forty-eight (48) hours after receipt by Seller, the Company or any of their Representatives of any Acquisition Proposal or any request for nonpublic information in connection with an Acquisition Proposal or for access to the properties, books or records of Company by any Person or entity that informs the Company that it is considering making, or has made, an Acquisition Proposal, notify Purchaser of such Acquisition Proposal or request for such information or for access to the Company’s properties, books or records. Such notice shall be made orally and in writing and shall indicate in reasonable detail the terms and conditions of such proposal, inquiry or contact. The Company shall keep Purchaser fully informed with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto.

Seller and every Additional Seller agrees to join with Purchaser in making an election under Code Section 338(h)(10) (and any corresponding elections under state, local, or foreign Tax law) (collectively, a “Section 338(h)(10) Election”) with respect to the purchase and sale of the Interests of the Company hereunder, including executing and filing IRS Form 8023 and all other forms, returns, elections, schedules, and documents required to effect the Section 338(h)(10) Election. Seller and every Additional Seller will pay any Tax, including any liability of Company for Tax, attributable to the making of the Section 338(h)(10) Election and Seller will indemnify the Purchaser and Company against any Losses arising out of any failure to pay such Tax, but shall be reimbursed to the extent of any Section 338(h)(10) Tax Adjustment, as provided hereinafter in this Section 7.13. The Purchase Price and the liabilities of the Company (plus any other relevant items) shall be allocated to the assets of the Company for all purposes (including Tax and financial accounting purposes) in a manner consistent with the assets respective fair market values, as set forth on the allocation schedule (the “Allocation Schedule”). Purchaser shall deliver the Allocation Schedule to the Seller within forty-five (45) days of the Closing Date. The Seller shall have the right to review and raise any objections in writing to the Allocation Schedule for fifteen (15) days after the receipt thereof. If the Seller disagrees with respect to any material item in the Allocation Schedule, the parties shall negotiate in good faith to resolve the dispute. If the Purchaser and the Seller are unable, within fifteen (15) calendar days after receipt by the Purchaser of such notice of objections, to resolve the disputed items, such disputed items will be referred to an Independent Accounting Firm pursuant to Section 2.2(d). The Independent Accounting Firm shall, within thirty (30) calendar days following its selection, deliver to Purchaser and the Seller a written report setting forth its determination as to such disputed items (and only such disputed items), and its determinations will be conclusive and binding upon the parties thereto for purposes of the Allocation Schedule. The fees and disbursements of the Independent Accounting Firm shall be borne equally by each party. Purchaser, Company, Seller and the Additional Sellers agree to be bound by the Allocation Schedule and act, or cause their respective Affiliates to act, in accordance with the Allocation Schedule in all federal, state and local Tax Returns (including, without limitation, Form 8883).

The Seller shall deliver to the Purchaser, within sixty (60) days after the Closing Date, a detailed computation of the Section 338(h)(10) Tax Adjustment and the Gross Up Payments and such other schedules and information that may be relevant to such computation (the “Section 338 Tax Notice”). The Seller shall prepare the Section 338 Tax Adjustment in a manner consistent with the Allocation Schedule. The “Section 338(h)(10) Tax Adjustment” is equal to the amount, if any, of any additional cash consideration that is necessary to be paid to the Seller and each Additional Seller to make the Seller and each Additional Seller whole, on an after-Tax basis, for the Company and the Seller’s and each Additional Seller’s additional Taxes attributable to the Section 338(h)(10) Election, but shall not include any Tax imposed on the Company attributable to the making of the Section 338(h)(10) Election which are imposed under Section 1374. The Section 338(h)(10) Tax Adjustment shall equal the sum of (x) the positive excess, if any, of (i) the net after-Tax proceeds that the Seller and each Additional Seller would have received and retained had the Seller and the Additional Sellers sold 100% of the Shares without a Section 338(h)(10) Election over (ii) the net after-Tax proceeds that the Seller and each Additional Seller is expected to receive and retain by selling 100% of the Shares pursuant to the terms of this Agreement with the Section 338(h)(10) Election excluding any Taxes imposed under Section 1374, plus (y) the Gross Up Payment. The Section 338(h)(10) Tax Adjustment shall be determined taking into account all appropriate federal, state, and local Tax implications (including taxes imposed on the receipt of any Gross Up Payments) in a transaction in which the installment sale method does not apply; provided, however, that in determining the net after-Tax proceeds that the Seller and each Additional Seller would have received and retained had the Seller and each Additional Seller sold 100% of the Shares without a Section 338(h)(10) Election, it shall be assumed that all deductible payments made by the Company on the Closing Date were made the day before the Closing Date. A “Gross Up Payment” shall mean, with respect to the Seller and each Additional Seller, a payment by Purchaser to Seller and each Additional Seller of an additional amount such that, after paying all federal, state and local income Taxes attributable to the receipt of amounts pursuant to this Section 7.13, the Seller and each Additional Seller have received a net after Tax amount equal to the Section 338(h)(10) Adjustment.

If the Purchaser disagrees with any item or amount set forth in the Section 338 Tax Notice, then the Purchaser shall have thirty (30) days following its receipt of the Section 338 Tax Notice (the “Tax Payment Objection Period”) to deliver written notice to the Seller (the “Tax Payment Objection Notice”) of such disagreement, which Tax Payment Objection Notice shall include an explanation of such disagreement. During the Tax Payment Objection Period, the Purchaser and its accountants will be permitted to examine the work papers and other materials used or generated by the Seller and his Tax advisors in connection with the preparation of the Section 338 Tax Notice and such other documents as the Purchaser may reasonably request in connection with its review of the Section 338 Tax Notice.

If the Purchaser provides written notice to the Seller of Purchaser’s approval of the Section 338 Tax Notice, or if the Purchaser does not timely deliver a Tax Payment Objection Notice before the expiration of the Tax Payment Objection Period with respect to the Section 338 Tax Notice, then the Section 338 Tax Notice shall be deemed to have been accepted and approved by the Purchaser and shall thereafter be final and binding upon the parties to this Agreement for purposes of this Section 7.13. If the Purchaser does timely deliver a Tax Payment Objection Notice with respect to the Section 338 Tax Notice before the expiration of the Tax Payment Objection Period, then the Section 338 Tax Notice shall not be final and binding until such objections are resolved. In resolving such objections, Purchaser and Seller if unable, within fifteen (15) calendar days after receipt by the Seller of the Tax Payment Objection Notice, to resolve the disputed items, such disputed items will be referred to an Independent Accounting Firm pursuant to Section 2.2(d). The Independent Accounting Firm shall, within thirty (30) calendar days following its selection, deliver to Purchaser and Seller a written report setting forth its determination as to such disputed items (and only such disputed items), and its determinations will be conclusive and binding upon the parties thereto for the purposes of the amount of the Section 338(h)(10) Tax Adjustment. The fees and disbursements of the Independent Accounting Firm shall be borne equally by each party.

If the Section 338 Tax Notice, as finally determined pursuant to Section 7.13(d) above, shows the Section 338(h)(10) Tax Adjustment of greater than $0.00, then the Purchaser will pay, or cause to be paid, to the Seller (on behalf of the Seller and the Additional Sellers) the amount of such Section 338(h)(10) Tax Adjustment; provided, however, that amounts payable by Purchaser as a Section 338(h)(10) Tax Adjustment shall be limited to a maximum amount of $200,000. Any Section 338(h)(10) Tax Adjustment payable by the Purchaser to the Seller pursuant to this Section 7.13 shall be paid by the Purchaser to the Seller (on behalf of the Seller and the Additional Sellers) by wire transfer of immediately available funds within five (5) business days of the final determination thereof to a bank account designated in writing by the Seller no later than one (1) business day prior to the payment date.

Company Options and Warrants. Prior to the Closing, each option, warrant, performance share or other right to acquire an interest in the Company or in any other securities, assets or operations of the Company, whether vested or unvested, will be terminated and cancelled, unless exercised prior to Closing, and shall not be assumed by Purchaser. The Company shall take all necessary and appropriate action to cause the termination of any and all such options, warrants, performance shares or other rights to acquire an interest in the Company or in any other securities, assets, or operations of the Company that are not exercised prior to Closing. If the Membership Options are exercised prior to Closing by the Grantees and such Grantees acquire an Interest in the Company, the Company shall take all steps necessary to have such Grantees become a party to this Agreement as Additional Sellers.

Financial Audit. Prior to Closing, the Company shall deliver an audit of the Company’s financial results for the twelve months ended December 31, 2008, and for the interim period through May 31, 2009 (the “Audited Financial Statements”). The Audited Financial Statements shall not reflect any material adjustments to the unaudited financial statements for the same periods previously deliver to Purchaser by the Company.

Membership Options; Option Fee Agreement; Change in Control Agreement.

The Option Fee Agreement dated as of May 2, 2008 between the Company and Steven Peterson shall have been fulfilled in its entirety prior to the Closing Date and all obligations of the Company to Steven Peterson under such agreement shall have been paid and satisfied in full prior to the Closing Date.

The Change in Control Bonus Agreement between the Company and Anne Smith dated June 1, 2009 (the “Change-in-Control Bonus Agreement”) shall have been terminated prior to the Closing Date and all obligations of the Company to Anne Smith under such agreement shall have been paid and satisfied in full prior to the Closing Date. Should Anne Smith become a party to the Payment and Cancellation Agreement attached hereto as Exhibit E, and pursuant thereto, Anne Smith acquires an Interest in the Company, Anne Smith shall become a Party to this Agreement together with and as an Additional Seller and shall share in all of the rights and obligations of a Seller hereunder.

Prior to Closing, the Seller will give prompt written notice to the Purchaser of any material adverse development causing a breach of any of the Seller’s or Company’s representations and warranties in Section 4 or 5 (as modified by the Disclosure Schedules), and the Purchaser will give prompt written notice to the Seller of (i) any material adverse development causing a breach of any of its representations and warranties in Section 6. No disclosure by any Party pursuant to this Section 7.17, however, shall be deemed to amend or supplement the Disclosure Schedules or to prevent or cure any inaccuracy in or breach of any representation or warranty made by any Party on the date hereof.

Prior to the Closing Date, and with sufficient time for Purchaser to review the provisions thereof, the Seller may amend or supplement the Disclosure Schedules to reflect any matter that arises after the date hereof that, if existing or known on the date hereof, would have been required to be disclosed in such Disclosure Schedules (the “Updated Disclosure Schedules”); provided, however, that no such amendment or supplement shall prevent or cure any breach or inaccuracy of any representation or warranty made by the Seller on the date of this Agreement, and the Purchaser shall have all rights hereunder by reason of such breach (including all rights to terminate this Agreement by reason of any such amendment or supplement without liability of any nature to Seller as a result of such termination; provided, however, that should Purchaser elect to consummate the transactions contemplated by this Agreement following delivery of the Updated Disclosure Schedules, the Updated Disclosure Schedules shall be deemed an amendment of or supplement to, as the case may be, the Disclosure Schedule, and to qualify such representations and warranties of Seller and the Company hereunder as provided in Section 5 hereof).

Continuing Employees. Seller hereby agrees that in the event that on the date that is the 12 month anniversary of the Closing Date, at least 50% of the aggregate number of direct charged engineers that are employed by the Company on the Closing Date (the “Minimum Direct Charge Engineers”) are no longer employed by the Post-Closing Company Business or the Purchaser, Seller will pay, as liquidated damages, to the Purchaser the full amount of funds in the Escrow Fund on such date (the “Damages Relating to Minimum Direct Charge Engineers”), so long as Purchaser has not materially breached any of the Earn-Out Operating Restrictions; provided, that the failure to retain the Minimum Direct Charge Engineers shall proportionately reduce Purchaser’s obligations to make investments in capital expenditures as provided in Section 2.6(e)(ii)(e) above. The Parties acknowledge and agree that the Damages Relating to Minimum Direct Charge Engineers is reasonable in light of the actual damages that would be incurred by the Purchaser in connection with a failure to retain employment of the Minimum Direct Charge Engineers and further acknowledge and agree that such actual damages may be difficult to determine with exactness. Payment of the Damages Relating to Minimum Direct Charge Engineers as provided in this Section 7.18, shall constitute and be deemed to be the Purchaser’s sole remedy hereunder for breach of this Section. In the event of a breach of this covenant, the remaining Escrow Fund will be immediately paid and delivered to Purchaser as provided in this subsection.

a certificate, dated as of the Closing Date, of an officer of the Company and Seller, certifying that each of the conditions specified in Section 8.3(a)-(c) have been satisfied in all respects;

an interest assignment agreement in the form attached hereto as Exhibit F, evidencing the transfer of all of the issued and outstanding Interests;

written resignations by each of the officers and directors of the Company in office immediately prior to the Closing Date;

a certificate, dated as of the Closing Date, of an officer of the Company evidencing all necessary or appropriate corporate action to enable Company to comply with the terms of this Agreement;

a certificate of good standing for the Company issued by the Maryland Secretary of State and dated within a reasonable period prior to the Closing;

the opinion of Seller’s and the Company’s counsel substantially in the form of Exhibit G attached hereto and otherwise satisfactory to Purchaser and its counsel;

the Escrow Agreement, duly executed by Company and the Seller;

the Key Employee Employment Agreements and Noncompetition Agreements, duly executed on behalf of the employees specified therein; and

such other documents as Purchaser or its counsel may reasonably require.

Purchaser’s Closing Deliveries. At the Closing, Purchaser shall deliver or cause to be delivered to Seller:

a certificate, dated as of the Closing Date, of an officer of Purchaser certifying that each of the conditions specified in Section 8.4(a)-(b) have been satisfied in all respects;

the Escrow Agreement, duly executed by Purchaser;

the Closing Payment;

the Key Employee Employment Agreements, Noncompetition Agreements, and Retention Agreement, duly executed on behalf of the Purchaser; and

such other documents as Seller or its counsel may reasonably require.

Compliance by Seller and the Company. Seller, any Additional Seller and the Company shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Seller and Company, as applicable, prior to or on the Closing Date, including, but not limited to the delivery by Seller and Company of the items set forth in Section 8.1 hereof.

Accuracy of Representations of Seller, any Additional Seller and the Company. The representations and warranties of the Seller, any Additional Seller and the Company set forth in Sections 4 and 5 hereof (as modified by the Disclosure Schedules) shall be true and correct in all material respects at and as of the Closing Date (it being understood that, for purposes of determining the accuracy of such representations and warranties as of the Closing Date, any inaccuracy that results from or relates to the taking of any action contemplated or permitted by this Agreement will be disregarded.

Material Adverse Effect. There shall have been no event or occurrence which has had, or is reasonably likely to have, a Material Adverse Effect on the Company, including any action taken by any Governmental Entity against the Company.

Material Contracts. There shall have been no termination, material amendment or material delay of any of the Material Contracts listed on Schedule 8.3(d).

Employment Agreements. The Key Employees shall have accepted employment with the Purchaser and entered into the Key Employee Employment Agreements.

Audited Financial Statements. The Audited Financial Statements shall have been completed and the Company shall have delivered the Audited Financial Statements to Purchaser, showing no material adjustments to the unaudited financial statements previously delivered for the same period.

Options and Warrants. All Membership Options entered into between the Company and the Grantees shall have been exercised or terminated prior to the Closing pursuant to the terms of Sections 7.14 and 7.16. Any and all options, warrants, performance shares or other rights to acquire an interest in the Company or in any other securities, assets or operations of the Company in addition to the Membership Options that are outstanding shall be terminated and cancelled prior to the Closing. The Option Fee Agreement between the Company and Steven Peterson dated May 2, 2008 shall have been fulfilled in its entirety and all obligations of the Company to Steven Peterson thereunder shall have been paid in full, and the Change in Control Bonus Agreement between the Company and Anne Smith dated June 1, 2009 shall have been terminated and all obligations of the Company to Anne Smith thereunder shall have been paid in full.

Third Party Consents. All consents or Approvals required to be obtained in connection with the transactions contemplated by this Agreement, as set forth on Schedule 8.3(h), shall have been obtained and shall be in full force and effect.

Governmental Entity Consents. All consents or approvals required to be obtained from any Governmental Entity in connection with the transactions contemplated by this Agreement as set forth on Schedule 8.3(i) shall have been obtained and shall be in full force and effect.

Litigation. No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or threatened.

No Governmental Litigation. To the Knowledge of Company and Seller, there shall not be pending or threatened any legal proceeding in which a Governmental Entity is or is threatened to become a party, and neither Purchaser nor the Company shall have received any communication from any Governmental Entity in which such Governmental Entity indicates the probability of commencing any legal proceeding or taking any other action: (i) challenging or seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement; (ii) relating to the purchase of the Interests hereunder and seeking to obtain from Purchaser or any of its Subsidiaries, or the Company or Seller, any damages or other relief that would be material to Purchaser; (iii) seeking to prohibit or limit in any material respect Purchaser’s ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the Interests; (iv) terminating or canceling any material Government Contract; or (v) that would materially and adversely affect the right of Purchaser or the Company to own the assets or operate the Business.

Compliance by Purchaser. Purchaser shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by Purchaser prior to or on the Closing Date, including, but not limited to the delivery by Purchaser of the items set forth in Section 8.2 hereof.

Accuracy of Purchaser’s Representations. The representations and warranties of the Purchaser as set forth in Sections 6 hereof shall be true and correct in all material respects at and as of the Closing Date (it being understood that, for purposes of determining the accuracy of such representations and warranties as of the Closing Date, any inaccuracy that results from or relates to the taking of any action contemplated or permitted by this Agreement will be disregarded.

Third Party Consents. All consents or Approvals required to be obtained in connection with the transactions contemplated by this Agreement as set forth on Schedule 8.3(h) shall have been obtained and shall be in full force and effect.

Governmental Entity Consents. All consents or approvals required to be obtained from any Governmental Entity in connection with the transactions contemplated by this Agreement as set forth on Schedule 8.3(i) shall have been obtained and shall be in full force and effect.

Litigation. No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or threatened.

No Governmental Litigation. There shall not be pending or threatened any legal proceeding in which a Governmental Entity is or is threatened to become a party or is otherwise involved, and neither Purchaser nor the Company shall have received any communication from any Governmental Entity in which such Governmental Entity indicates the probability of commencing any legal proceeding or taking any other action: (i) challenging or seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement; (ii) relating to the purchase of the Interests hereunder and seeking to obtain from Purchaser or any of its Subsidiaries, or the Company or Seller, any damages or other relief that would be material to Purchaser; (iii) seeking to prohibit or limit in any material respect Purchaser’s ability to vote, receive dividends with respect to or otherwise exercise ownership rights with respect to the Interests; (iv) terminating or canceling any material Government Contract; or (v) that would materially and adversely affect the right of Purchaser or the Company to own the assets or operate the Business.

All of the representations, warranties, covenants and agreements made herein by the Company and Seller shall survive the execution and delivery of this Agreement until the date that is eighteen (18) months after the Closing Date, except for (a) Section 5.9, which shall survive until the later to occur of (i) the lapse of the statute of limitations with respect to the assessment of any Taxes to which such representation and warranty relates (including any extensions or waivers thereof) and (ii) sixty (60) days after the final administrative or judicial determination of the Taxes to which such representation and warranty relates, and no claim with respect to Section 5.9 may be asserted thereafter with the exception of claims arising out of any fact, circumstance, action or proceeding to which the Party asserting such claim shall have given notice to the other Parties to this Agreement prior to the termination of such period of reasonable belief that a Tax liability will subsequently arise therefrom, and (b) Sections 4.3, 5.3 and 5.20, which shall survive until the lapse of the statute of limitations with respect thereto; provided, however, that, notwithstanding the foregoing, this Section 9 shall not limit any covenant or agreement of the Parties which by its terms contemplates performance after the Closing Date and which shall survive in accordance with its respective terms. All of the representations, warranties, covenants and agreements made herein by any Additional Seller under Sections 4.1, 4.2 or 4.3 hereunder shall survive the execution and delivery of this Agreement until the date that is eighteen (18) months after the Closing Date.

The right of any party (a “Damaged Party”) to recover any relief (including, without limitation, for any Losses)) against any other party (a “Damaging Party”) resulting from, arising out of or incurred with respect to any inaccuracy in, breach or violation of or default under any particular representation or warranty contained in this Agreement shall terminate upon, and be forever barred from and following, the termination under Section 9.1(a) of such representation or warranty; provided, however, if the Damaged Party provides to the Damaging Party in good faith written notice, prior to the day of termination of such representation or warranty, of a claim pertaining to the Damaging Party’s inaccuracy in, breach or violation of or default under such representation or warranty (which notice shall contain all information required of a Claim Notice (as defined and described in Section 9.5), then, subject to the other provisions of this Section 9, such claim of such Damaged Party shall survive termination of such representation or warranty. Except as expressly provided in this Section 9.1(b), upon termination of any particular representation or warranty contained in this Agreement, no Damaged Party shall be entitled to recover any relief (including, without limitation, for any Losses) resulting from, arising out of or incurred with respect to any inaccuracy in, breach or violation of or default under such terminated representation or warranty.

Indemnification by Seller and any Additional Seller. Except as otherwise provided in this Section 9, from and after the Closing, Seller agrees to indemnify, defend and hold harmless each of Purchaser, the Company and their Affiliates and their respective officers, directors, agents, employees, subsidiaries, partners, members and controlling Persons (each an “Indemnified Party”) to the fullest extent permitted by law from and against any and all Losses resulting from or arising out of (a) any breach of or default in connection with any representations or warranties given or made by Seller or the Company herein, (b) any failure to perform or breach of any covenants or agreements given or made by Seller or the Company herein, (c) any breach by Seller of his obligations under the Noncompetition Agreement, (d) any obligation under or liability pursuant to any car leases of the Company or Seller, (e) any liability related to or as a result of the employment of Seller’s wife by the Company, or as a result of any payment made to Seller’s wife at any time, including any liability that may be incurred for any failure to withhold any employment tax or other amounts due on any amounts paid to Seller’s wife at any time, and (f) any liability or Losses incurred by Purchaser related to the use of any real or personal property owned by any employee of the Company in the Business. Each Additional Seller agrees to indemnify, defend and hold harmless each Indemnified Party to the fullest extent permitted by law from and against any and all Losses resulting from or arising out of any breach of or default in connection with any representations or warranties given or made solely by such Additional Seller herein in Sections 4.1, 4.2 or 4.3 hereof.

Seller shall not be obligated to make any payment for indemnification pursuant to Section 9.2 until the aggregate amount of indemnification payments under such Section exceeds $250,000 (the “Threshold Amount”), whereupon Seller shall be obligated to pay in full all such amounts for Losses incurred above such Threshold Amount up to his pro rata share of the Escrow Fund. However, this Section 9.3 shall not apply to (i) Losses related to a breach of the representations and warranties contained in Sections 4.3, 5.3, 5.9 and 5.20, or (ii) any willful misrepresentation with intent to defraud or criminal activity resulting in a felony conviction for which all appeals have been exhausted, and Seller shall be liable for all Losses with respect to such breaches up to the full amount of his pro rata share of the Purchase Price, including any Earn-Out Distribution Amount paid to or earned by Seller, and provided, further, that this Section 9.3 shall not apply to the Damages Relating to Minimum Direct Charge Engineers payable to Purchaser pursuant to Section 7.18.

Except in the case of willful misrepresentation with intent to defraud or criminal activity resulting in a felony conviction for which all appeals have been exhausted by the applicable Party, the Parties hereto acknowledge and agree, the indemnification provisions in this Section 9 shall be the exclusive remedy of the Parties with respect to the transactions contemplated by this Agreement.

Maximum Indemnification Limitations. Neither Seller nor any Additional Seller shall be obligated to make any payment or payments pursuant to this Section 9 in an aggregate amount in excess of his or her pro rata portion of the Escrow Fund (the “Indemnification Cap”), provided, however, that the Indemnification Cap shall not apply to (i) any liabilities of Seller pursuant to representations or warranties in Sections 4.3, 5.3, 5.9 or 5.20, or (ii) any willful misrepresentation with intent to defraud or criminal activity resulting in a felony conviction for which all appeals have been exhausted, and Seller shall be liable for all Losses with respect to such breaches up to the amount of his pro rata share of the Purchase Price, including any Earn-Out Distribution Amount paid to or earned by Seller; provided that the right of any Indemnified Party to recover from Seller as to any Earn-Out Distribution that has been earned but not yet paid shall be limited to the right to offset such Losses against the Earn-Out Distribution that would otherwise be payable to Seller. In order to fulfill Seller’s obligations hereunder, Purchaser shall have recourse (i) first to the Escrow Fund and (ii) second by any further remedies available to Purchasers in law or in equity, provided that the aggregate maximum liability of Seller described above is not exceeded. Purchaser’s recourse against any Additional Seller shall be limited to such Additional Seller’s pro rata portion of the Escrow Fund. The provisions of this Section 9.4 shall not limit, in any manner, any remedy at law or in equity to which any Party shall be entitled against any other Party as a result of (i) willful misrepresentation with intent to defraud by such other Party or any of their respective representatives or (ii) the breach by a Party of any covenant or agreement of such Party which by its terms contemplates performance after the Closing Date and which shall survive in accordance with its respective terms.

Procedures for Indemnification.

Indemnified Party(ies) may seek indemnification from the other party (the “Indemnifying Party”) for any Losses with respect to the indemnification claim of the Indemnifying Party under this Agreement (an “Indemnification Claim”) by providing written notice (a “Claim Notice”) to the Indemnifying Party specifying in reasonable detail the Losses claimed (and a reasonable estimate thereof), the individual items of such Losses included in the amount so stated, the date each such item was paid, or properly accrued or arose, the nature of the misrepresentation, breach of warranty, covenant or Claim to which such item is related and the relevant sections of this Agreement breached and all material facts in the knowledge of such Indemnified Party pertaining to such Indemnification Claim. If such Claim Notice is delivered by an Indemnified Party that is seeking payment from the Escrow Fund for Losses described in such Claim Notice, the Indemnified Party shall deliver a copy of the Claim Notice to the Escrow Agent simultaneously with delivery to the Indemnifying Party. If the Indemnifying Party with respect to such Indemnification Claim: (i) agrees with the Indemnified Party with respect to such Indemnification Claim, a memorandum setting forth such agreement shall be prepared and signed by both parties or (ii) disputes the existence or the amount of such Indemnification Claim, the Indemnifying Party shall notify the Indemnified Party in writing (with reasonable specificity) within 20 business days following the Indemnifying Party’s receipt of the Claim Notice (the “Response Notice”) and the parties will negotiate in good faith to resolve such Indemnification Claim for up to 20 business days or such other period of time as the parties mutually agree. If the Response Notice is in response to a Claim Notice for Losses for which an Indemnified Party is seeking payment from the Escrow Fund, a copy of such Response Notice shall be delivered to the Escrow Agent simultaneously with delivery to the Indemnified Party. If the parties should then so agree with respect to such Indemnification Claim, a memorandum setting forth such agreement shall be prepared and signed by both parties and, if appropriate, delivered to the Escrow Agent.

If no Response Notice is received by the Indemnified Party within 20 business days after the Indemnifying Party’s receipt of the Claim Notice, the matter shall be deemed undisputed and the Indemnifying Party shall indemnify the Indemnified Party for the Losses (and, if applicable, the Escrow Agent shall be entitled to release the amount of the Losses from the Escrow Account). If the parties are unable to agree within the 20 business day negotiation period specified in Section 9.5(a) after the Indemnified Party’s receipt of a Response Notice, then the matter shall be immediately submitted to arbitration under the provisions of the Escrow Agreement. Any decision of the arbitrator with respect to both the existence and amount of such Indemnification Claim shall be final and binding on the parties hereto.

Definition of Loss. For purposes of this Section 9, the term “Losses” shall mean all Losses net of:

any insurance proceeds actually recovered and any indemnity, contribution or other similar payment actually received by the Indemnified Party (it being understood that the Indemnified Party shall pursue such proceeds or payments in good faith) with respect to such claim (such proceeds or payments to be paid over to the Indemnifying Party up to the amount paid by the Indemnifying Party if received after payment of the Loss by the Indemnifying Party), in each case such amounts actually received shall, for the purposes of determining the amount of a Loss, be reduced by the amount of the fees, expenses and other out-of-pocket costs incurred to collect such amounts;

an amount equal to the present value of the Tax Benefit (as defined below), if any, available to or taken by the Indemnified Party attributable to such Loss. For purposes of this subsection, “Tax Benefit” means, after utilizing all deductions, credits and losses otherwise available or reasonably anticipated to be available to it, any refund of Taxes paid or an actual reduction in the amount of Taxes (including without limitation, by deduction, reduction of income by virtue of increased tax basis or otherwise, entitled to refund, credit or otherwise) that would otherwise be required or reasonably anticipated to be required to be paid in the particular year;

any Loss to the extent (i) such Loss relates to a liability or matter with respect to which the aggrieved party has made recovery from a person or entity other than another party to this Agreement (to the extent of such recovery) pursuant to any indemnification or contribution by or indemnification agreement with or any other similar payment by any third party and actually received by the Indemnified Party or any of its affiliates with respect to such claim, or (ii) such Loss would not have arisen solely but for the voluntary act or omission after the Closing of the aggrieved party or at the request of the aggrieved party (each source named in subsections (a), (b) and (c)(i), a “Collateral Source”). The parties acknowledge and agree that no right of subrogation shall accrue or inure to the benefit of any Collateral Source hereunder. The Indemnifying Party may require an Indemnified Party to assign the rights to seek recovery pursuant to the preceding sentence; provided, however, that the Indemnifying Party will then be responsible for pursuing such recovery at its own expense. Notwithstanding any provision of this Section 9, consequential, incidental and punitive damages, or any damages to the extent attributable to a failure to mitigate damages, shall not constitute Losses.

Termination. This Agreement may be terminated at any time prior to the Closing, by written notice by the terminating Party to the other Party as follows:

by the mutual written consent of Purchaser and Seller;

by either Purchaser or the Seller, if the Closing shall not have been consummated by the end of business on the day forty-five (45) days from the date of this Agreement; provided, however, that the right to terminate this Agreement under this Section 10.1 shall not be available to any Party whose failure to fulfill any obligation under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such date;

by either Purchaser or Seller if a court of competent jurisdiction or other governmental entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Closing, unless the Party relying on such order, decree or ruling or other action has not complied in all material respects with its obligations under this Agreement; or

by Purchaser or Seller, if there has been a breach of any representation, warranty, covenant or agreement on the part of the other Party set forth in this Agreement, which breach (i) causes the conditions set forth in Section 8.3 (in the case of termination by Purchaser) or Section 8.4 (in the case of termination by the Company or the Seller) not to be satisfied and (ii) shall not have been cured within 20 business days following receipt by the breaching Party of written notice of such breach from the other Party.

Effect of Termination. Sections 7.8 and 11 shall remain in full force and effect and survive any termination of this Agreement. Except as provided in the preceding sentence, in the event of termination of this Agreement as provided in Section 10.1, this Agreement shall forthwith become void, and there shall be no liability or obligation on the part of Purchaser, the Company, Seller, any Additional Seller or their respective officers, directors or members. Notwithstanding the foregoing, where a termination results from the willful breach with intent to defraud by a Party of any of its representations, warranties or covenants set forth in this Agreement, the non-breaching Party or parties shall have such rights as may be available to such Party or Parties under applicable law.

Miscellaneous.

Waivers. Any waiver of any of the terms or conditions of this Agreement must be in writing and must be duly executed by or on behalf of the Party to be charged with such waiver. The failure of a Party to exercise any of its rights hereunder or to insist upon strict adherence to any term or condition hereof on any one occasion shall not be construed as a waiver or deprive that Party of the right thereafter to insist upon strict adherence to the terms and conditions of this Agreement at a later date. Further, no waiver of any of the terms and conditions of this Agreement shall be deemed to or shall constitute a waiver of any other term of condition hereof (whether or not similar).

If to Purchaser, to:

Applied Signal Technology, Inc.
460 West California Avenue
Sunnyvale, California 94086
Attention: Chief Financial Officer
Facsimile: (408) 738-1928

With a copy to:

DLA Piper LLP (US)
2000 University Avenue
East Palo Alto, California 94303
Attention: Sally Rau, Esq.
Facsimile: (650) 687-1189

If to the Company, to:

Pyxis Engineering LLC
6700 Purple Martin Court
Eldersburg, Maryland 21784
Attention: Eric Bennett
Facsimile: (410) 781-6625

If to Seller, to:

Eric Bennett
6700 Purple Martin Court
Eldersburg, Maryland 21784
Facsimile: (410) 781-6625

With a copy to:

Venable LLP
575 7th Street, NW
Washington, DC 20004
Attention: Thomas D. Washburne, Jr., Esq.
Fax: (202) 344-4068

Amendments. This Agreement may not be amended except by an instrument in writing signed by the Parties. Any agreement on the part of Purchaser or Seller hereto to any such extension or waiver shall be valid if set forth in an instrument in writing signed on behalf of such Parties.

Expenses. Whether or not the transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be the responsibility of, and accrued by the Party incurring such expense; provided, however, that Purchaser shall assume and pay, against invoices reasonably submitted in support thereof, the Company’s reasonable legal, accounting, financial fees and expenses, and internal out-of-pocket travel and incidental expenses of Seller and the Company (the “Transaction Expenses”) incurred in connection with this Agreement or the transactions contemplated by this Agreement up to the sum of $150,000. To the extent that Purchaser incurs any liability for payment of Transaction Expenses in excess of $150,000 (the “Excess Transaction Expenses”), including any Transaction Expenses that are not paid as of the Closing Date and that become payable by the Company or Purchaser following the Closing Date, Purchaser shall be reimbursed for such Excess Transaction Expenses from the amounts to be contributed to the Escrow Fund. Such Excess Transaction Expenses shall constitute Losses for which Purchaser shall be entitled to indemnification against Seller pursuant to Section 9, and in repayment of which Purchaser shall be entitled to payment from the Escrow Fund.

Assignment; Third-Party Beneficiaries. Neither this Agreement nor any rights or obligations under it are assignable without the prior written consent of the other. There shall be no third-party beneficiaries of this Agreement.

Headings. The headings of the Sections of this Agreement, where employed, are for convenience only and do not form a part hereof and in no way modify, interpret or construe the meanings of the Parties.

Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective only to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement.

Specific Performance. Seller, Purchaser and the Company each acknowledge that, in view of the uniqueness of the Business and the transactions contemplated by this Agreement, each Party would not have an adequate remedy at law for money damages in the event that this Agreement has not been performed in accordance with its terms, and therefore agrees that the other Party shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which it may be entitled, at law or in equity.

No Presumption Regarding Drafter. The Parties acknowledge and agree that the terms and provisions of this Agreement have been negotiated and discussed between them, and that this Agreement reflects their mutual agreement regarding the subject matter of this Agreement. Because of the nature of such negotiations and discussions, it would not be appropriate to deem either Purchaser or Seller to be the drafter of this Agreement, and therefore no presumption for or against the drafter shall be applicable in interpreting or enforcing this Agreement.

By: /s/ WILLIAM VAN VLEET III
Name: William Van Vleet III
Title: President and Chief Executive Officer

By: /s/ ERIC BENNETT
Name: Eric Bennett
Title: Managing Member, President and Chief Executive Officer

SELLER

ERIC BENNETT

/s/ ERIC BENNETT

By: /s/ MARK SHADLE

Print Name: Mark Shadle

By: /s/ MICHAEL WAGNER

Print Name: Michael Wagner

By: /s/ ANNE SMITH

Print Name: Anne Smith

1.

Purchase and Sale of the Interests

2.

Purchase Price

2.1

Consideration

2.2

Working Capital Adjustment

2.3

Closing Payment

2.4

Escrow Fund

2.5

Payment of Transfer Taxes and Fees

2.6

Earn-Out Payments

3.

Closing

4.

Representations and Warranties of the Seller and Additional Sellers

4.1

Authority Relative to this Agreement

4.2

No Conflict; Required Filings and Consents

4.3

Title to Interests

5.

Representations and Warranties of the Seller and the Company

5.1

Corporate Existence of the Company

5.2

Authority and Binding Obligation

5.3

Interests in the Company

5.4

No Conflicts

5.5

Financial Information

5.6

No Undisclosed Liabilities

5.7

Absence of Changes or Events

5.8

Subsidiaries

5.9

Taxes

5.10

Accounts Receivable

5.11

Transactions with Interested Persons

5.12

Title to Real Property

5.13

Government Contracting

5.14

Export Control Laws; Encryption and Other Restricted Technology

5.15

Patents, Trademarks, Tradenames, Service Marks and Copyrights

5.16

Insurance

5.17

Contracts and Commitments

5.18

Litigation

5.19

Compliance with Laws and Regulatory Audits

5.20

Environmental Matters

5.21

Employees

5.22

Employee Benefit Plan and Related Matters

5.23

Brokers’ and Finders’ Fees

5.24

Indebtedness

5.25

Order Backlog

5.26

Fair Labor Standards Act

6.

Representations and Warranties of Purchaser

6.1

Organization and Qualification

6.2

Authority Relative to this Agreement

6.3

No Conflict; Required Filings and Consents

6.4

Financing

6.5

Litigation

6.6

Investment Intent

7.

Additional Agreements

7.1

Conduct of Company Pending Closing

7.2

Escrow Agreement

7.3

Employees

7.4

Employment Agreements

7.5

Non-Competition/Non-Solicitation

7.6

Retention Bonus

7.7

Cooperation

7.8

Confidentiality

7.9

Public Announcements

7.10

Further Assurances

7.11

Tax Matters

7.12

No Solicitation

7.13

Section 338 Election

7.14

Company Options and Warrants

7.15

Financial Audit

7.16

Membership Options; Option Fee Agreement; Change in Control Agreement

7.17

Notice of Developments

7.18

Continuing Employees

7.19

Indemnification

8.

Deliveries at Closing; Conditions to Closing

8.1

Seller’s Closing Deliveries

8.2

Purchaser’s Closing Deliveries

8.3

Conditions to Obligations of Purchaser

8.4

Conditions to Obligations of Seller

9.

Survival and Indemnification

9.1

Survival of Representations, Warranties and Agreements

9.2

Indemnification by Seller and any Additional Seller

9.3

Limitations on Indemnification

9.4

Maximum Indemnification Limitations

9.5

Procedures for Indemnification

9.6

Third-Party Claims

9.7

Definition of Loss

10.

Termination; Remedies

10.1

Termination

10.2

Effect of Termination

11.

Miscellaneous

11.1

Waivers

11.2

Notices

11.3

Amendments

11.4

Expenses

11.5

Assignment; Third-Party Beneficiaries

11.6

Governing Law

11.7

Jurisdiction, Venue and Waiver of Jury Trial

11.8

Counterparts

11.9

No Implied Waiver

11.10

Entire Agreement

11.11

Amendments; Actual Waivers

11.12

Headings

11.13

Severability

11.14

Specific Performance

11.15

No Presumption Regarding Drafter

ANNEX A

DEFINITIONS

Exhibit A

Form of Escrow Agreement

Exhibit B

Form of Key Employee Employment Agreement

Exhibit C

Form of Noncompetition Agreement

Exhibit D

Form of Retention Agreement

Exhibit E

Form of Payment and Cancellation Agreement

Exhibit F

Form of Interest Assignment Agreement

Exhibit G

Form of Opinion of Seller and Company Counsel

Term

Section

“Accelerated Earn-Out Payment”

Section 2.6(f)

“Acquisition Proposal”

Section 7.12(a)

“Additional Seller”

Section 1

“Adjusted Closing Balance Sheet”

Section 2.2(b)

“Adjusted Closing Working Capital”

Section 2.2(b)

“Adjustment Audit”

Section 2.2(b)

“Adjustment Rules”

Section 2.2(b)

“Agreement”

Preamble

“Allocation Schedule”

Section 7.13(a)

“Audit Election Date”

Section 2.2(b)

“Audited Financial Statements”

Section 7.15

“Backlog”

Section 5.25

“Bennett Noncompetition Agreement”

Section 7.5

“Bonus Plan Participants”

Section 7.6

“CERCLA”

Section 5.20(b)

“Change-in-Control Bonus Agreement”

Section 7.16(c)

“Claim Notice”

Section 9.5(a)

“Closing”

Section 3

“Closing Date”

Section 3

“Closing Payment”

Section 2.1

“Closing Working Capital”

Section 2.2(a)

“Code”

Section 5.9(i)

“Collateral Source”

Section 9.7

“Company”

Preamble

“Company Accounting Rules”

Section 2.2(a)

“Company Intellectual Property Rights”

Section 5.15(b)

“Company Government Subcontracts”

Section 5.13(a)

“Confidentiality Agreement”

Section 7.8

“Continuing Employees”

Section 7.3

“Damaged Party”

Section 9.1(b)

“Damages Relating to Minimum Direct-Charge Engineers”

Section 7.18

“Damaging Party”

Section 9.1(b)

“Disclosure Schedule”

Section 4

“EAR”

Section 5.14

“Earn-Out Certification”

Section 2.6(c)

“Earn-Out Certification Date”

Section 2.6(c)

“Earn-Out Dispute Notice”

Section 2.6(c)

“Earn-Out Distribution Amount”

Section 2.6

“Earn-Out Period”

Section 2.6

“Earn-Out Operating Restrictions”

Section 2.6(e)(ii)

“Employee Plans”

Section 5.22(a)

“ERISA”

Section 5.22(a)

“ERISA Affiliate”

Section 5.22(a)

“Escrow Agent”

Section 2.3(b)

“Escrow Agreement”

Section 2.4

“Escrow Fund”

Section 2.3(b)

“Estimated Closing Balance Sheet”

Section 2.2(a)

“Estimated Closing Working Capital

Section 2.2(a)

“Estimated Working Capital Deficit

Section 2.2(a)

“Estimated Working Capital Surplus”

Section 2.2(a)

“Evaluation Materials”

Section 7.8

“Excess Transaction Expenses”

Section 11.4

“Final Closing Working Capital”

Section 2.2(e)

“Financial Statements”

Section 5.5(a)

“Government Bids”

Section 5.13(a)

“Gross-Up Payment”

Section 7.13(b)

“Grantees”

Section 7.16(a)

“Indemnification Cap”

Section 9.4

“Indemnification Claim”

Section 9.5(a)

“Indemnified Party”

Section 9.2

“Indemnifying Party”

Section 9.5(a)

“Independent Accounting Firm”

Section 2.2(d)

“Intellectual Property Rights”

Section 5.15(a)

“Interests”

Preamble

“ITAR”

Section 5.14

“Key Employees”

Section 7.4

“Key Employees Employment Agreements”

Section 7.4

“Losses”

Section 9.7

“Maximum Earn-Out Distribution Amount”

Section 2.6(b)

“Membership Interests”

Preamble

“Membership Options”

Section 5.3

“Minimum Direct-Charge Engineers”

Section 7.18

“Most Recent Balance Sheet Date”

Section 5.5(a)

“Noncompetition Agreements”

Section 7.5

“Notice of Objection”

Section 2.2(c)

“Option Plan”

Section 7.16(a)

“Organizational Documents”

Section 4.3

“Parties”

Section 1

“Party”

Section 1

“Post-Closing Company Business”

Section 2.6(a)

“Post-Closing Tax Periods”

Section 7.11(b)(i)

“Pre-Closing Tax Periods”

Section 7.11(b)(i)

“Proceeding”

Section 7.11(b)(i)

“Proprietary Rights”

Section 5.15(c)

“Purchase Price”

Section 2.1

“Purchaser”

Preamble

“Purchaser Accounting Rules”

Section 2.6(a)

“Purchaser Audit Election Notice”

Section 2.2(b)

“Purchaser Elected Audit”

Section 2.2(b)

“Purchaser Services Business”

Section 2.6(a)

“Pyxis 401(k) Plan”

Section 7.3

“Representative”

Section 7.12(a)

“Response Notice”

Section 9.5(a)

“Retention Agreement”

Section 7.6

“Section 338 Tax Notice”

Section 7.13(b)

“Section 338(h)(10) Election”

Section 7.13(a)

“Section 338(h)(10) Tax Adjustment”

Section 7.13(b)

“Seller”

Preamble

“Seller Audit Election Notice”

Section 2.2(b)

“Seller Requested Audit”

Section 2.2(b)

“Service Providers”

Section 5.21(a)

“Shadle/Wagner Noncompetition Agreements”

Section 7.5

“Target Revenues”

Section 2.6(a)

“Target Working Capital”

Section 2.2(a)

“Tax Benefit”

Section 9.7(b)

“Tax Payment Objection Notice”

Section 7.13(c)

“Tax Payment Objection Period”

Section 7.13(c)

“Third Party Intellectual Property Rights”

Section 5.15(b)

“Threshold Amount”

Section 9.3(a)

“Threshold Target Revenues”

Section 2.6(b)

“Transaction Expenses”

Section 11.4

“Updated Disclosure Schedules”

Section 7.17(b)

“Working Capital Adjustment Amount”

Section 2.2(g)

“Working Capital Adjustment Cap”

Section 2.2(a)