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<SEC-DOCUMENT>0000950152-07-008696.txt : 20071107
<SEC-HEADER>0000950152-07-008696.hdr.sgml : 20071107
<ACCEPTANCE-DATETIME>20071107164318
ACCESSION NUMBER:		0000950152-07-008696
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20070929
FILED AS OF DATE:		20071107
DATE AS OF CHANGE:		20071107

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ULTRALIFE BATTERIES INC
		CENTRAL INDEX KEY:			0000875657
		STANDARD INDUSTRIAL CLASSIFICATION:	MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690]
		IRS NUMBER:				161387013
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-20852
		FILM NUMBER:		071222047

	BUSINESS ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
		BUSINESS PHONE:		3153327100

	MAIL ADDRESS:	
		STREET 1:		2000 TECHNOLOGY PARKWAY
		CITY:			NEWARK
		STATE:			NY
		ZIP:			14513
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>l28689ae10vq.htm
<DESCRIPTION>ULTRALIFE BATTERIES, INC.   10-Q
<TEXT>
<HTML>
<HEAD>
<TITLE>Ultralife Batteries, Inc.   10-Q</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 1pt solid black; font-size: 1pt">&nbsp;</DIV>




<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES<BR>
SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>FORM 10-Q</B>
</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#254;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>For the quarterly period ended <U>September&nbsp;29, 2007 </U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt">or</DIV>

<DIV align="center">
<TABLE cellspacing="0" border="0" cellpadding="0" width="100%" style="font-size: 12pt">
<TR style="font-size: 6pt">
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR valign="top">
    <TD align="center"><FONT face="Wingdings">&#111;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD><B>Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934</B></TD>
</TR>
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B>for
the transition period from <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> to <U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U>
</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission file number <U>0-20852</U></B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B><FONT style="border-bottom: 1px solid #000000">ULTRALIFE BATTERIES, INC.</FONT></B>
</DIV>

<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top">Delaware
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">16-1387013</TD>
</TR>
<TR style="font-size: 1px">
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">(State or other jurisdiction
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(I.R.S. Employer Identification No.)</TD>
</TR>
<TR valign="bottom">
    <TD align="center" valign="top">of incorporation or organization)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><U>2000 Technology Parkway, Newark, New York 14513</U><BR>
(Address of principal executive offices)<BR>
(Zip Code)</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt">(315)&nbsp;332-7100<BR>
<DIV align="center"><DIV style="font-size: 3pt; margin-top: 1pt; width: 26%; border-top: 1px solid #000000">&nbsp;</DIV></DIV>
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 0pt">(Registrant&#146;s telephone number, including area code)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><DIV style="width: 100%; border-bottom: 1px solid #000000; font-size: 1px">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt">(Former name, former address and former fiscal year, if changed since last report)</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant (1)&nbsp;has filed all reports required to be filed by
Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or for
such shorter period that the registrant was required to file such reports), and (2)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days Yes  <FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated filer&#148; in
Rule&nbsp;12b-2 of the Exchange Act. (Check One):
</DIV>

<DIV align="center" style="font-size: 10pt">Large Accelerated Filer <FONT face="Wingdings">&#111;</FONT> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accelerated Filer <FONT face="Wingdings">&#254;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated filer <FONT face="Wingdings">&#111;</FONT></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate by check mark whether the registrant is a shell company (as defined by Rule&nbsp;12b-2 of the
Exchange Act). Yes <FONT face="Wingdings">&#111;</FONT>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; No <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indicate the number of shares outstanding of each of the issuer&#146;s classes of common stock, as of
the latest practicable date.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Common stock, $.10 par value &#150; 15,278,212 shares of common stock outstanding, net of 727,250
treasury shares, as of November&nbsp;3, 2007.
</DIV>

<DIV style="width: 100%; border-bottom: 1pt solid black; margin-top: 10pt; font-size: 1pt">&nbsp;</DIV>
<DIV style="width: 100%; border-bottom: 2pt solid black; font-size: 1pt">&nbsp;</DIV>





<P align="center" style="font-size: 10pt"><!-- Folio --><!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<!-- TOC -->
</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.<BR>
INDEX
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Page</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I&nbsp;FINANCIAL INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1. Financial Statements (Unaudited)</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#103">Condensed Consolidated Balance Sheets -
September&nbsp;29, 2007 and December&nbsp;31, 2006 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#104">Condensed Consolidated Statements of Operations -
Three- and nine-month periods ended September&nbsp;29, 2007
and September&nbsp;30, 2006 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#105">Condensed Consolidated Statements of Cash Flows -
Nine-month periods ended September&nbsp;29, 2007 and September&nbsp;30, 2006 </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><A href="#106">Notes to Condensed Consolidated Financial Statements </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;2. Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;3. Quantitative and Qualitative Disclosures
About Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;4. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">PART II&nbsp;OTHER INFORMATION</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;1. Legal Proceedings</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;6. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Signatures </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Index to Exhibits </A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l28689aexv10w1.htm">EX-10.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l28689aexv31w1.htm">EX-31.1</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l28689aexv31w2.htm">EX-31.2</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="l28689aexv32.htm">EX-32</A></FONT></TD></TR>
</TABLE>
</DIV>

<DIV align="left">
<!-- /TOC -->
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->2<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">PART I FINANCIAL INFORMATION
</DIV>

<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 0pt">Item&nbsp;1. Financial Statements

</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.
</DIV>

<DIV align="left">
<A name="103"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">CONDENSED CONSOLIDATED BALANCE SHEETS</DIV>


<DIV align="center" style="font-size: 10pt">(Dollars in Thousands, Except Per Share Amounts)</DIV>


<DIV align="center" style="font-size: 10pt">(unaudited)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">December 31,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:105px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Trade accounts receivable (less allowance for doubtful accounts
of $457 at September&nbsp;29, 2007 and $447 at December&nbsp;31, 2006)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,794</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,197</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,931</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,360</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Due from insurance company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">148</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">780</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Deferred tax asset &#151; current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,975</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,748</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,880</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Property, plant and equipment, net</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,623</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,396</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other assets:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Security deposit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,798</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,482</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">99,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="center"><DIV style="margin-left:90px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Current liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Current portion of debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,789</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12,246</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,925</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,639</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,810</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Long-term liabilities:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,043</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:60px; text-indent:-15px">Total long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,359</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Commitments and contingencies (Note 11)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Shareholders&#146; equity:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Preferred stock, par value $0.10 per share, authorized 1,000,000 shares;
none issued and outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Common stock, par value $0.10 per share, authorized 40,000,000 shares;
issued - 15,991,687 at September&nbsp;29, 2007 and 15,853,306 at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,591</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Capital in excess of par value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">136,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,736</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated other comprehensive income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">154</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(321</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Accumulated deficit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(92,892</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(94,026</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,967</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Less &#151;Treasury stock, at cost &#151; 727,250 shares outstanding</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,378</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:75px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,589</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Liabilities and Shareholders&#146; Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">99,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,758</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->3<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.
</DIV>

<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 0pt">CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 0pt">(In Thousands, Except Per Share Amounts)
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 0pt">(unaudited)
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Three-Month Periods Ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Nine-Month Periods Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Revenues</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,291</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,437</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Cost of products sold</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,767</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,109</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Gross margin</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,922</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,328</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating expenses:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development (including $255, $278, $764
and $278, respectively, of amortization of
intangible assets)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,517</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,361</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general, and administrative (including $294,
$234, $866
and $234, respectively, of amortization of
intangible assets)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,177</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,601</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,685</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,415</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Total operating expenses</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,724</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,534</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,776</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Operating income (loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,137</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,506</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,448</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Other income (expense):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(509</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(451</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,770</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(863</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on insurance settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">191</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income (loss)&nbsp;before income taxes</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,530</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,830</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision (benefit)-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax provision (benefit)-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(828</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(401</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Total income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(832</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Net income (loss)</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Earnings (loss)&nbsp;per share &#151; basic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Earnings (loss)&nbsp;per share &#151; diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average shares outstanding &#151; basic</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Weighted average shares outstanding &#151; diluted</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
</DIV>




<P align="center" style="font-size: 10pt"><!-- Folio -->4<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.
</DIV>

<DIV align="left">
<A name="105"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS</DIV>


<DIV align="center" style="font-size: 10pt">(Dollars in Thousands)</DIV>


<DIV align="center" style="font-size: 10pt">(unaudited)</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Nine-Month Periods Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">OPERATING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income (loss)
to net cash provided by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization of financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on asset disposal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on insurance settlement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(191</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign exchange (gain)&nbsp;loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(295</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-cash stock-based compensation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(401</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Changes in operating assets and liabilities, net of effects from acquisitions:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,147</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,394</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,743</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">816</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">304</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Insurance receivable relating to fires</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">602</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable and other liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,671</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,355</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,007</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">INVESTING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase of property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,706</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,030</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Payments for acquired companies, net of cash acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,457</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,008</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,163</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,038</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">FINANCING ACTIVITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net change in revolving credit facilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,475</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Proceeds from issuance of common stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,076</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Principal payments on debt and capital lease obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,849</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,510</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by (used in) in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,869</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,214</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">927</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,345</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SUPPLEMENTAL CASH FLOW INFORMATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,683</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">626</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Noncash investing and financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of common stock and stock warrants for purchase of ABLE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Issuance of convertible note payable for purchase of McDowell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property and equipment via capital lease payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">410</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of
these statements.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->5<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt">ULTRALIFE BATTERIES, INC.
</DIV>

<DIV align="left">
<A name="106"></A>
</DIV>
<DIV align="center" style="font-size: 10pt">NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS</DIV>


<DIV align="center" style="font-size: 10pt">(Dollar Amounts in Thousands &#150; Except Share and Per Share Amounts)</DIV>


<DIV align="center" style="font-size: 10pt">(unaudited)</DIV>



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>BASIS OF PRESENTATION</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The accompanying unaudited condensed consolidated financial statements of Ultralife
Batteries, Inc. and our subsidiaries have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the instructions to Article&nbsp;10
of Regulation&nbsp;S-X. Accordingly, they do not include all of the information and footnotes for
complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals and adjustments) considered necessary for a fair presentation of the
condensed consolidated financial statements have been included. Results for interim periods
should not be considered indicative of results to be expected for a full year. Reference should
be made to the consolidated financial statements contained in our Form 10-K for the twelve-month
period ended December&nbsp;31, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The year-end condensed balance sheet data was derived from audited financial statements,
but does not include all disclosures required by accounting principles generally accepted in the
United States of America.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Our monthly closing schedule is a weekly-based cycle as opposed to a calendar month-based
cycle. While the actual dates for the quarter-ends will change slightly each year, we believe
that there are not any material differences when making quarterly comparisons.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Certain items previously reported in specific financial statement captions have been
reclassified to conform to the current presentation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ACQUISITIONS</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; We have accounted for the following acquisitions in accordance with the purchase method of
accounting provisions of Statement of Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;141, &#147;Business
Combinations,&#148; whereby the purchase price paid to effect an acquisition is allocated to the
acquired tangible and intangible assets and liabilities at fair value.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>2007 Acquisitions</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Innovative Solutions Consulting, Inc.</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On September&nbsp;28, 2007, we finalized the acquisition of all of the issued and outstanding shares of common stock of Innovative Solutions Consulting, Inc. (&#147;ISC&#148;), a provider of a full
range of engineering and technical services for communication electronic systems to government
agencies and prime contractors.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The initial cash purchase price was $943 (net of $57 in cash acquired), with up to $2,000
in additional cash consideration contingent on the achievement of certain sales milestones. The
additional cash consideration is payable in up to three annual payments and subject to possible
adjustments as set forth in the Stock Purchase Agreement. The contingent payments will be
recorded as an addition to the purchase price when the performance milestones are attained. The
initial $943 cash payment was financed through a combination of cash on hand and borrowings
through the revolver component of our credit facility with our primary lending banks. We
incurred $13 in acquisition related costs, which are included in the initial cost of the
investment of $956, with a potential total cost of the investment of $2,956 assuming the
earn-out of all contingent consideration.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->6<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The results of operations of ISC and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and
intangible assets acquired of $271 (including $57 in cash) was recorded as goodwill in the
amount of $742. We are in the process of completing the valuations of certain tangible and
intangible assets acquired with the new business. The final allocation of the excess of the
purchase price over the net assets acquired is subject to revision based upon our final review
of valuation assumptions. The acquired goodwill will be assigned to the communications
accessories segment and is expected to be fully deductible for income tax purposes.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The following table represents the preliminary allocation of the purchase price to assets
acquired and liabilities assumed at the acquisition date:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">535</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">175</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">884</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">787</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,413</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">720</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,212</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,013</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the unaudited pro forma financial information for the
periods indicated as if the ISC acquisition had occurred at the beginning of the period being
presented. The pro forma information contains the actual combined results of ISC and us, with
the results prior to the acquisition date including pro forma impact of: the impact on interest
expense in connection with funding the cash portion of the acquisition purchase price. These
pro forma amounts do not purport to be indicative of the results that would have actually been
obtained if the acquisition occurred as of the beginning of each of the periods presented or
that may be obtained in the future.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->7<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Three-Month Periods Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">Nine-Month Periods Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">(in thousands, except per</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 30,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;share data)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2006</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">34,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">24,468</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">102,909</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">65,999</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (Loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(107</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(1,925</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">784</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(3,126</TD>
    <TD>)</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings (Loss) per
share &#151; Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.01</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.13</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.21</TD>
    <TD>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings (Loss) per
share &#151; Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.01</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.13</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$&nbsp;</TD>
    <TD colspan="1" align="right">(0.21</TD>
    <TD>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>2006 Acquisitions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>ABLE New Energy Co., Ltd.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;19, 2006, we acquired 100% of the equity securities of ABLE New Energy Co., Ltd.
(&#147;ABLE&#148;), an established manufacturer of lithium batteries located in Shenzhen, China. With
more than 50 products, including a wide range of lithium-thionyl chloride and lithium-manganese
dioxide batteries and coin cells, this acquisition broadens our expanding portfolio of
high-energy power sources, enabling us to further penetrate large and emerging markets such as
remote meter reading, RFID (Radio Frequency Identification) and other markets that will benefit
from these chemistries. We expect this acquisition will strengthen our global presence,
facilitate our entry into the rapidly growing Chinese market, and improve our access to lower
material and manufacturing costs.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total consideration given for ABLE was a combination of cash and equity. The initial
cash purchase price was $1,896 (net of $104 in cash acquired), with an additional $500 cash
payment contingent on the achievement of certain performance milestones, payable in separate
$250 increments, when cumulative ABLE revenues from the date of acquisition attain $5,000 and
$10,000, respectively. The contingent payments will be recorded as an addition to the purchase
price when the performance milestones are attained. In August&nbsp;2007, the $5,000 cumulative
revenues milestone was attained, and as such, we have recorded the first $250 contingent cash
payment, which resulted in an increase in goodwill of $250. The equity portion of the purchase
price consisted of 96,247 shares of our common stock valued at $1,000, based on the closing
price of the stock on the closing date of the acquisition, and 100,000 stock warrants valued at
$526, for a total equity consideration of $1,526. The fair value of the stock warrants was
estimated using the Black-Scholes option-pricing model with the following weighted-average
assumptions as of May&nbsp;19, 2006 (the date of acquisition):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">4.31</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility factor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">61.25</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.50</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have incurred $59 in acquisition related costs, which are included in the total
potential cost of the investment of $3,981.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of ABLE and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and
intangible assets acquired of $2,268 (including $104 in cash) was recorded as goodwill in the
amount of $1,567. The acquired goodwill
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->8<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">has been assigned to the Non-Rechargeable Products segment and is not expected to be
deductible for income tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the final allocation of the purchase price to assets
acquired and liabilities assumed at the acquisition date:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">104</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other current expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,232</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,567</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">390</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">820</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,179</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,085</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,835</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trademarks intangible asset has an indefinite life and is not being amortized. The
intangible assets related to patents and technology, customer relationships and distributor
relationships are being amortized as the economic benefits of the intangible assets are being
utilized over their weighted-average estimated useful life of eleven years. The non-compete
agreements intangible asset is being amortized on a straight-line basis over its estimated
useful life of three years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%"><B>McDowell Research, Ltd.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2006, we finalized the acquisition of substantially all of the assets of
McDowell Research, Ltd. (&#147;McDowell&#148;), a manufacturer of military communications accessories
located in Waco, Texas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the terms of the acquisition agreement, the purchase price of approximately $25,000
consisted of $5,000 in cash and a $20,000 non-transferable, subordinated convertible promissory
note to be held by the sellers. The purchase price is subject to a post-closing adjustment based
on a final valuation of trade accounts receivable, inventory and trade accounts payable that
were acquired or assumed on the date of the closing, using a base value of $3,000. The final
net value of these assets, under our contractual obligation under the acquisition agreement, was
$6,389, resulting in a revised
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->9<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">purchase price of approximately $28,448. A cash payment of $1,500 was made to the sellers
during the first quarter of 2007 and as of September&nbsp;29, 2007, we have accrued $1,889 for the
remaining final post-closing adjustment of $3,389. As of December&nbsp;31, 2006, we had accrued
$3,000 for the post-closing adjustment. The respective accruals for the post-closing adjustment
are included in the Other Current Liabilities line on our Consolidated Balance Sheet.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The initial $5,000 cash portion was financed through a combination of cash on hand and
borrowing through the revolver component of our credit facility with our primary lending banks,
which was amended to accommodate the acquisition of McDowell. The $20,000 convertible note
carries a five-year term, an annual interest rate of 4% and is convertible at $15 per share into
1.33&nbsp;million shares of our common stock, with a forced conversion feature, at our option, at any
time after the 30-day average closing price of our common stock exceeds $17.50 per share. The
conversion price is subject to adjustment as defined in the subordinated convertible promissory
note. Interest is payable quarterly in arrears, with all unpaid accrued interest and
outstanding principal due in full on July&nbsp;3, 2011. In April&nbsp;2007, in connection with its
dissolution, McDowell distributed the convertible note to its members in proportion to their
membership interests, resulting in six separate convertible notes aggregating $20,000. We have
incurred $59 in acquisition related costs, which are included in the approximate total cost of
the investment of $28,448.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On October&nbsp;5, 2007, we announced a settlement agreement with the sellers of McDowell, which
reduced the overall purchase price by approximately $7,900, by reducing the principal amount on
the convertible note from $20,000 to $14,000, and eliminating a $1,889 liability related to the
purchase price adjustment. In addition, the interest rate on the convertible notes was
increased from 4% to 5%. The settlement agreement, including the reduction in the purchase
price and related interest rate increase, is subject to termination retroactively by the sellers
of McDowell, if we do not make prepayments totaling $3,500 on the convertible notes on or before
November&nbsp;18, 2007. Upon payment of the $3,500, we anticipate that we will report a one-time,
non-operating gain of approximately $7,500 to account for the purchase price reduction, net of
certain adjustments related to the change in the interest rate on the convertible notes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The results of operations of McDowell and the estimated fair value of assets acquired and
liabilities assumed are included in our consolidated financial statements beginning on the
acquisition date. The estimated excess of the purchase price over the net tangible and
intangible assets acquired of $15,373 was recorded as goodwill in the amount of $13,075. The
acquired goodwill has been assigned to the Rechargeable Products and the Communications
Accessories segments and is expected to be fully deductible for income tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table represents the final allocation of the purchase price to assets
acquired and liabilities assumed at the acquisition date:
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->10<!-- /Folio -->
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">ASSETS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trade accounts receivables, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,532</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid inventory and other current expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,697</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,075</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,201</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,990</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,526</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LIABILITIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,787</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Other current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">208</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,041</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total liabilities assumed</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,078</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:30px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total Purchase Price</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">28,448</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The trademarks intangible asset has an indefinite life and is not being amortized. The
intangible assets related to patents and technology and customer relationships are being
amortized as the economic benefits of the intangible assets are being utilized over their
weighted-average estimated useful life of thirteen years. The non-compete agreements intangible
asset is being amortized on a straight-line basis over its estimated useful life of two years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In connection with the McDowell acquisition, we entered into an operating lease agreement
for real property in Waco, Texas with a partnership that is 50% owned by Thomas Hauke, who
joined us as an executive officer following the completion of the McDowell acquisition. The
lease term was for one year, with annual rent of $227, payable in monthly installments. In June
2007, this lease was extended through September&nbsp;2007. In September&nbsp;2007, this lease was
extended through October&nbsp;2007. On November&nbsp;1, 2007, we entered into a new operating lease
agreement on a month-to-month basis for $10 per month, due to a reduction in total square feet
being utilized. During the first quarter of 2007, Mr.&nbsp;Hauke resigned from his position.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->11<!-- /Folio -->
</DIV>



<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">3. GOODWILL AND OTHER INTANGIBLE ASSETS
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.&nbsp;Goodwill
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the goodwill activity by segment for the nine months ended
September&nbsp;29, 2007:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,684</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,344</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of ISC</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">742</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to purchase price
allocation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">328</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">194</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">776</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,298</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of foreign currency
translations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,657</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,615</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11,202</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,474</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the goodwill activity by segment for the nine months ended
September&nbsp;30, 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of ABLE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">516</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Acquisition of McDowell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,279</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to purchase price
allocation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;30, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,513</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.&nbsp;Other Intangible Assets
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The composition of intangible assets was:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="5" style="border-bottom: 0px solid #000000"><B>September 29, 2007</B></TD>
 <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>



</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Gross Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,096</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,225</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,865</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,629</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,107</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,856</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,251</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->12<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="9" style="border-bottom: 0px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>December 31, 2006</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Gross Assets</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Amortization</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Net</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trademarks</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,090</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patents and technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">619</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,118</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Customer relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,940</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,464</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Distributor relationships</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">245</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Non-compete agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">155</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10,271</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,072</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense for intangible assets was $549 and $512 for the three-month periods
ended September&nbsp;29, 2007 and September&nbsp;30, 2006, respectively. Amortization expense for
intangible assets was $1,630 and $512 for the nine-month periods ended September&nbsp;29, 2007 and
September&nbsp;30, 2006, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The change in the cost value of total intangible assets is a result of changes in the final
valuation of intangible assets in connection with the 2006 acquisitions and the effect of
foreign currency translations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">4. EARNINGS PER SHARE
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share are calculated by dividing net income by the weighted average
number of common shares outstanding during the period. Diluted earnings per share are
calculated by dividing net income by potentially dilutive common shares, which include stock
options and warrants.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net loss per share is calculated by dividing net loss by the weighted average number of
common shares outstanding during the period. The impact of conversion of dilutive securities,
such as stock options and warrants, is not considered where a net loss is reported as the
inclusion of such securities would be anti-dilutive. As a result, basic loss per share is the
same as diluted loss per share.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The computation of basic and diluted earnings per share is summarized as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Three-Month Periods</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Nine-Month Periods</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net Income (a)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Shares Outstanding &#151; Basic (b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of Dilutive Securities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Stock Options / Warrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">215</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Restricted Stock</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Convertible Note Payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Average Shares Outstanding &#151; Diluted (c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,160</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,987</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,346</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,867</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPS &#151; Basic (a/b)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">EPS &#151; Diluted (a/c)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.01</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">(0.11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(0.10</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had options and warrants outstanding to purchase 1,590,600 and 1,858,771 shares of
common stock at September&nbsp;29, 2007 and September&nbsp;30, 2006, respectively, which were not included
in the computation of diluted EPS because these securities were anti-dilutive. We also had
1,333,333 and
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->13<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 4%">1,333,333 shares of common stock at September&nbsp;29, 2007 and September&nbsp;30, 2006,
respectively, reserved under a convertible note payable, which were also not included in the
computation of diluted EPS because these securities were anti-dilutive. The anti-dilutive
securities were due to the exercise and/or conversion prices being greater than the average
market price of the common shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">5. STOCK-BASED COMPENSATION
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">a. General
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have various stock-based employee compensation plans. Effective January&nbsp;1, 2006, we
adopted the provisions of SFAS No.&nbsp;123 (revised 2004), &#147;Share-Based Payment&#148; (&#147;SFAS 123R&#148;)
requiring that compensation cost relating to share-based payment transactions be recognized in
the financial statements. The cost is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employee&#146;s requisite service period
(generally the vesting period of the equity award). We adopted SFAS 123R using the modified
prospective method and, accordingly, did not restate prior periods to reflect the fair value
method of recognizing compensation cost. Under the modified prospective approach, SFAS 123R
applies to new awards, awards that were unvested as of January&nbsp;1, 2006 and to awards that were
outstanding on January&nbsp;1, 2006 that are subsequently modified, repurchased or cancelled.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders have approved various equity-based plans that permit the grant of options,
restricted stock and other equity-based awards. In addition, our shareholders have approved the
grant of options outside of these plans.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our shareholders approved a 1992 stock option plan for grants to key employees, directors
and consultants of ours. The shareholders approved reservation of 1,150,000 shares of Common
Stock for grant under the plan. During 1997, the Board of Directors and shareholders approved an
amendment to the plan increasing the number of shares of Common Stock reserved by 500,000 to
1,650,000. Options granted under the 1992 plan are either Incentive Stock Options (&#147;ISOs&#148;) or
Non-Qualified Stock Options (&#147;NQSOs&#148;). Key employees are eligible to receive ISOs and NQSOs;
however, directors and consultants are eligible to receive only NQSOs. All ISOs vest at twenty
percent per year for five years and expire on the sixth anniversary of the grant date. The
NQSOs vest immediately and expire on the sixth anniversary of the grant date. On October&nbsp;13,
2002, this plan expired and as a result, there are no more shares available for grant under this
plan. As of September&nbsp;29, 2007, there were 40,700 stock options outstanding under this plan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective December&nbsp;2000, we established the 2000 stock option plan which is substantially
the same as the 1992 stock option plan. The shareholders approved reservation of 500,000 shares
of Common Stock for grant under the plan. In December&nbsp;2002, the shareholders approved an
amendment to the plan increasing the number of shares of Common Stock reserved by 500,000, to a
total of 1,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2004, the shareholders adopted the Ultralife Batteries, Inc. 2004 Long-Term
Incentive Plan (&#147;LTIP&#148;) pursuant to which we were authorized to issue up to 750,000 shares of
Common Stock and grant stock options, restricted stock awards, stock appreciation rights and
other stock-based awards. In June&nbsp;2006, the shareholders approved an amendment to the LTIP,
increasing the number of shares of Common Stock by an additional 750,000, bringing the total
shares authorized under the LTIP to 1,500,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Options granted under the amended 2000 stock option plan and the LTIP are either ISOs or
NQSOs. Key employees are eligible to receive ISOs and NQSOs; however, directors and consultants
are eligible to receive only NQSOs. Most ISOs vest over a three or five year period and expire
on the sixth or seventh anniversary of the grant date. All NQSOs issued to non-employee
directors vest immediately and expire on either the sixth or seventh anniversary of the grant
date. Some NQSOs
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->14<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">issued to non-employees vest immediately and expire within three years; others have the
same vesting characteristics as options given to employees. As of September&nbsp;29, 2007, there were
1,764,038 stock options outstanding under the amended 2000 stock option plan and the LTIP.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;19, 2005, we granted the current CEO an option to purchase shares of Common
Stock at $12.96 per share outside of any of our equity-based compensation plans, subject to
shareholder approval. Shareholder approval was obtained on June&nbsp;8, 2006. The option to
purchase 48,000 shares of Common Stock becomes exercisable in annual increments of 16,000 shares
over a three-year period commencing December&nbsp;9, 2006. The option expires on June&nbsp;8, 2013.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">b. Stock Options
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with SFAS 123R, we recorded compensation cost related to stock options of
$366 and $1,179 for the three- and nine-month periods ended September&nbsp;29, 2007, respectively,
and $332 and $898 for the three- and nine-month periods ended September&nbsp;30, 2006, respectively.
As of September&nbsp;29, 2007, there was $1,984 of total unrecognized compensation costs related to
outstanding stock options, which is expected to be recognized over a weighted average period of
1.44&nbsp;years.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use the Black-Scholes option-pricing model to estimate fair value of stock-based awards.
The following weighted average assumptions were used to value options granted during the
nine-month periods ended September&nbsp;29, 2007 and September&nbsp;30, 2006:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Nine-Month</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Nine-Month</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Period Ended</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Period Ended</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 30,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.63</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.91</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Volatility factor</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">57.17</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">60.20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.00</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average expected life (years)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.64</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We calculate expected volatility for stock options by taking an average of historical
volatility over the past five years and a computation of implied volatility. The computation of
expected term was determined based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards and vesting schedules. The
interest rate for periods within the contractual life of the award is based on the U.S. Treasury
yield in effect at the time of grant.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock option activity for the first nine months of 2007 is summarized as follows (in
thousands, except shares and per share amounts):
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->15<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Weighted</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Remaining</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Exercise Price</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Intrinsic</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>of Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Term</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 0px solid #000000"><B>Value</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option at January&nbsp;1, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,815,471</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.03</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(109,433</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(78,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options expired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(16,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares under option at September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,852,738</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.45 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,489</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Vested and expected to vest as of
September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,778,963</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">4.39 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,333</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Options exercisable at September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,093,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">3.56 years</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,731</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total intrinsic value of options (which is the amount by which the stock price exceeded
the exercise price of the options on the date of exercise) exercised during the nine-month
period ended September&nbsp;29, 2007 was $660.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to adopting SFAS 123R, all tax benefits resulting from the exercise of stock options
were presented as operating cash flows in the Condensed Statement of Cash Flows. SFAS 123R
requires cash flows from excess tax benefits to be classified as a part of cash flows from
financing activities. Excess tax benefits are realized tax benefits from tax deductions for
exercised options in excess of the deferred tax asset attributable to stock compensation costs
for such options. We did not record any excess tax benefits in the first nine months of 2007
and 2006. Cash received from option exercises under our stock-based compensation plans for the
nine-month periods ended September&nbsp;29, 2007 and September&nbsp;30, 2006 was $470 and $572,
respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">c. Restricted Stock Awards
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Restricted stock grants were awarded during the nine-month periods ended September&nbsp;29, 2007
and September&nbsp;30, 2006 with the following values:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Nine-Month Period</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Nine-Month Period</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">September 29, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">September 30, 2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Number of shares awarded</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,668</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average fair value per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.30</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Aggregate total value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">305,980</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">274,787</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The activity of restricted stock grants of common stock for the first nine months of 2007
is summarized as follows (dollars in thousands, except per share amounts):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted Average</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Number of Shares</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">Grant Date Fair Value</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Vested</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,571</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Forfeited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unvested at September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,711</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">10.56</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->16<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We recorded compensation cost related to restricted stock grants of $135 and $353 for the
three- and nine-month periods ended September&nbsp;29, 2007, respectively, and $77 and $77 for the
three- and nine-month periods ended September&nbsp;30, 2006, respectively. As of September&nbsp;29, 2007,
we had $690 of total unrecognized compensation expense related to restricted stock grants, which
is expected to be recognized over the remaining weighted average period of approximately 1.11
years. The total fair value of these grants that vested during the nine-month period ended
September&nbsp;29, 2007 was $216.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">6. COMPREHENSIVE INCOME
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The components of our total comprehensive income were:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Three-Month Periods</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">Nine-Month Periods</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Ended</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000">Ended</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 29,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">September 30,</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2">2006</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">117</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">487</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Change in fair value of derivatives, net of tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(32</TD>

    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,616</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(965</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">7. INVENTORIES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market with cost determined under the
first-in, first-
out (FIFO)&nbsp;method. The composition of inventories was:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">September 29, 2007</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31, 2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD colspan="2" align="right">19,903</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right"></TD>
    <TD align="right">14,964</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work in process</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="right">6,366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">9,061</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="RIGHT">6,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">4,541</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">32,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">28,566</TD>
</TR><TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Reserve for obsolescence</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">2,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"></TD>
    <TD align="right">1,206</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right"></TD>
    <TD align="right">29,931</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right"></TD>
    <TD align="right">27,360</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
<TR style="font-size:12pt">
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>8. PROPERTY, PLANT AND EQUIPMENT
</TD>
</TR>


<TR style="font-size:6pt">
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="9">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Major classes of property, plant and equipment consisted of the following:
</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">September 29, 2007</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">December 31, 2006</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>

    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD>&nbsp;</TD>
    <TD align="right">123</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Buildings and leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,019</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,336</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,485</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">982</TD>

</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Computer hardware and software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,358</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,127</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,735</TD>

    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>

</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">52,613</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="right">49,353</TD>

</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Accumulated depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">32,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,957</TD>

</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>

    <TD>&nbsp;</TD>
    <TD align="right">19,623</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>

    <TD>&nbsp;</TD>
    <TD align="right">19,396</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation expense for property, plant and equipment was $941 and $2,796 for the three-
and nine-month periods ended September&nbsp;29, 2007, respectively, and $912 and $2,696 for the
three- and nine-month periods ended September&nbsp;30, 2006, respectively.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->17<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">9. DEBT
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary credit facility consists of both a term loan component and a revolver
component, and the facility is collateralized by essentially all of our assets, including all of
our subsidiaries. The lenders of the credit facility are JP Morgan Chase Bank and Manufacturers
and Traders Trust Company, with JP Morgan Chase Bank acting as the administrative agent. The
current revolver loan commitment is $15,000. Availability under the revolving credit component
is subject to meeting certain financial covenants. We are required to meet certain financial
covenants under the facility, as amended, including a debt to earnings ratio, a fixed charge
coverage ratio, and a current assets to total liabilities ratio. In addition, we are required
to meet certain non-financial covenants. The rate of interest, in general, is based upon either
a LIBOR rate or Prime, plus a Eurodollar spread (dependent upon a debt to earnings ratio within
a predetermined grid).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2004, we drew down the full $10,000 term loan. The term loan is being repaid
in equal monthly installments of $167 over five years. On July&nbsp;1, 2004, we entered into an
interest rate swap arrangement in the notional amount of $10,000 to be effective on August&nbsp;2,
2004, related to the $10,000 term loan, in order to take advantage of historically low interest
rates. We received a fixed rate of interest in exchange for a variable rate. The swap rate
received was 3.98% for five years. The total rate of interest paid by us is equal to the swap
rate of 3.98% plus the Eurodollar spread stipulated in the predetermined grid associated with
the term loan. On January&nbsp;1, 2006, the adjusted rate was 6.98%. On February&nbsp;14, 2007, the
adjusted rate increased to 7.23%, and on August&nbsp;15, 2007, the adjusted rate decreased to 6.98%.
Derivative instruments are accounted for in accordance with SFAS No.&nbsp;133, &#147;Accounting for
Derivative Instruments and Hedging Activities&#148;, which requires that all derivative instruments
be recognized in the financial statements at fair value. The fair value of this arrangement at
September&nbsp;29, 2007 resulted in an asset of $27, all of which was reflected as a short-term
asset.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been several amendments to the credit facility during the past few years,
including amendments to authorize acquisitions and modify financial covenants. Recently,
effective February&nbsp;14, 2007, we entered into Forbearance and Amendment Number Six to the Credit
Agreement (&#147;Forbearance and Amendment&#148;) with the banks. The
Forbearance and Amendment provided
that the banks would forbear from exercising their rights under the credit facility arising from
our failure to comply with certain financial covenants in the credit facility with respect to
the fiscal quarter ended December&nbsp;31, 2006. Specifically, we were not in compliance with the
terms of the credit facility because we failed to maintain the required debt-to-earnings and
EBIT-to-interest ratios provided for in the credit facility. The banks agreed to forbear from
exercising their respective rights and remedies under the credit facility until March&nbsp;23, 2007
(&#147;Forbearance Period&#148;), unless we breached the Forbearance and Amendment or unless another event
or condition occured that constituted a default under the credit facility. Each bank agreed to
continue to make revolving loans available to us during the Forbearance Period. Pursuant to the
Forbearance and Amendment, the aggregate amount of the banks&#146; revolving loan commitment was
reduced from $20,000 to $15,000. During the Forbearance Period, the applicable revolving
interest rate and the applicable term interest rate, in each case as set forth in the credit
agreement, both were increased by 25 basis points. In addition to a number of technical and
conforming amendments, the Forbearance and Amendment revised the definition of &#147;Change in
Control&#148; in the credit facility to provide that the acquisition of equity interests representing
more than 30% of the aggregate ordinary voting power represented by the issued and outstanding
equity interests of us shall constitute a &#147;Change in Control&#148; for purposes of the credit
facility. Previously, the equity interests threshold had been set at 20%.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;23, 2007, we entered into Extension of Forbearance and Amendment Number
Seven to Credit Agreement (&#147;Extension and Amendment&#148;) with the banks. The Extension and
Amendment provided that the banks agreed to extend the Forbearance Period until May&nbsp;18,
2007. The Extension and Amendment also acknowledged that we continued not to be in compliance
with the
financial covenants identified above for the fiscal quarter ended December&nbsp;31, 2006 and did
not contemplate being in compliance for the fiscal quarter ending March&nbsp;31, 2007.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->18<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective May&nbsp;18, 2007, we entered into Extension of Forbearance and Amendment Number Eight
to Credit Agreement (&#147;Second Extension and Amendment&#148;) with the banks. The Second Extension and
Amendment provided that the banks agreed to extend the Forbearance Period until August&nbsp;15,
2007. The Second Extension and Amendment also acknowledged that we continued not to be in
compliance with the financial covenants identified above for the fiscal quarter ended March&nbsp;31,
2007 and did not contemplate being in compliance for the fiscal quarter ending June&nbsp;30, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective August&nbsp;15, 2007, we entered in Amendment Number Nine to Credit Agreement
(&#147;Amendment Nine&#148;) with the banks. Amendment Nine effectively ended the Forbearance Period and
extended the term of the revolving credit component of the facility to January&nbsp;31, 2009 and the
term of the term loan component of the facility to July&nbsp;1, 2009. Amendment Nine also added
several definitions and modified or replaced certain covenants. As of September&nbsp;29, 2007, we
were in compliance with all of the credit facility covenants, as amended.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe relations with our lenders are good and we have received waivers as
necessary in the past, there can be no assurance that such waivers can always be obtained. In
such case, we believe we have, in the aggregate, sufficient cash, cash generation capabilities
from operations, working capital, and financing alternatives at our disposal, including but not
limited to alternative borrowing arrangements (e.g. asset secured borrowings) and other
available lenders, to fund operations in the normal course and repay the debt outstanding under
our credit facility.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;29, 2007, we had $3,667 outstanding under the term loan component of our
credit facility with our primary lending bank and $8,950 was outstanding under the revolver
component. As a result of the uncertainty of our ability to comply with the modified or
replaced financial covenants within the next year, we continued to classify all of the debt
associated with this credit facility as a current liability on the Condensed Consolidated
Balance Sheet as of September&nbsp;29, 2007. The revolver arrangement now provides for up to $15,000
of borrowing capacity, including outstanding letters of credit. At September&nbsp;29, 2007, we had
no outstanding letters of credit related to this facility, as amended August&nbsp;15, 2007, leaving
$6,050 of additional borrowing capacity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;29, 2007, our wholly-owned U.K. subsidiary, Ultralife Batteries (UK)&nbsp;Ltd.,
had $4 outstanding under its revolving credit facility with a commercial bank in the U.K. This
credit facility provides our U.K. operation with additional financing flexibility for its
working capital needs. Any borrowings against this credit facility are collateralized with that
company&#146;s outstanding accounts receivable balances. There was approximately $910 in additional
borrowing capacity under this credit facility as of September&nbsp;29, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">10. INCOME TAXES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The asset and liability method, prescribed by SFAS No.&nbsp;109, &#147;Accounting for Income Taxes&#148;,
is used in accounting for income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of assets and
liabilities, and are measured using the enacted tax rates and laws that may be in effect when
the differences are expected to reverse.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the three- and nine-month periods ended September&nbsp;29, 2007, we recorded no income tax
expense, due to the loss reported for U.S. operations during the period. The effective tax rate
for the total consolidated company was 0%. The overall effective rate is the result of the
combination of income and losses in each of our tax jurisdictions, which is particularly
influenced by the fact that we have not recognized a deferred tax asset pertaining to cumulative
historical losses for our U.S. operations and our U.K. subsidiary, as management does not
believe it is more likely than not that we
will realize the benefit of these losses. As a result, there is no provision for income
taxes for the U.S. operations or the U.K. subsidiary reflected in the Condensed Consolidated
Statements of Operations.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->19<!-- /Folio -->
</DIV>



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal quarter ended December&nbsp;31, 2006, we recorded a full valuation allowance
on our net deferred tax asset, due to the determination that it was more likely than not that we
would not be able to utilize these benefits in the future. At September&nbsp;29, 2007, we continue
to recognize a full valuation allowance on our net deferred tax asset, as we believe that it is
more likely than not that we will not be able to utilize these benefits in the future. We
continually monitor the assumptions and performance results to assess the realizability of the
tax benefits of the U.S. and U.K. net operating losses and other deferred tax assets.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2007, we adopted the provisions of Financial Accounting Standards Board
(&#147;FASB&#148;) Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in Income Taxes: An interpretation
of FASB Statement No.&nbsp;109&#148; (&#147;FIN 48&#148;). As a result of the adoption of FIN 48 and recognition of
the cumulative effect of adoption of a new accounting principle, we recorded no increase in the
liability for unrecognized income tax benefits, with no offsetting reduction in retained
earnings. There was no adjustment to reflect the net difference between the related balance
sheet accounts before applying FIN 48, and then as measured pursuant to FIN 48&#146;s provisions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tax years 2004 to 2006 remain open to examination by United States taxing
jurisdictions, and for our other major jurisdictions (UK and China), the tax years 2001 to 2006
and 2003 to 2006, respectively, remain open to routine examination by foreign taxing
authorities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have determined that a change in ownership as defined under Internal Revenue Code
Section&nbsp;382 occurred during the fourth quarter of 2003 and again during the third quarter of
2005. As such, the domestic net operating loss carryforward will be subject to an annual
limitation. We believe such limitation will not impact our ability to realize the deferred tax
asset. In addition, certain of our NOL carryforwards are subject to U.S. alternative minimum
tax such that carryforwards can offset only 90% of alternative minimum taxable income. This
limitation did not have an impact on income taxes determined for 2006 and 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">11. COMMITMENTS AND CONTINGENCIES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect
on our financial position, results of operations or cash flows.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of September&nbsp;29, 2007, we have made commitments to purchase
approximately $320 of
production machinery and equipment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We estimate future costs associated with expected product failure rates, material usage and
service costs in the development of our warranty obligations. Warranty reserves are based on
historical experience of warranty claims and generally will be estimated as a percentage of
sales over the warranty period. In the event the actual results of these items differ from the
estimates, an adjustment to the warranty obligation would be recorded. Changes in our product
warranty liability during the first nine months of 2007 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">522</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accruals for warranties issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">131</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Settlements made</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="right">(215)</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at September&nbsp;29, 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A retail end-user of a product manufactured by one of our customers (the &#147;Customer&#148;) made a
claim against the Customer wherein it asserted that the Customer&#146;s product, which is powered by
one of our batteries, does not operate according to the Customer&#146;s product specification. No
claim has been filed against us. However, in the interest of fostering good customer relations,
in September&nbsp;2002, we agreed
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->20<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">to lend technical support to the Customer in defense of its claim. Additionally, we
assured the Customer that we would honor our warranty by replacing any batteries that might be
determined to be defective. Subsequently, we learned that the end-user and the Customer settled
the matter. In February&nbsp;2005, we entered into a settlement agreement with the Customer. Under
the terms of the agreement, we have agreed to provide replacement batteries for product
determined to be defective, to warrant each replacement battery under our standard warranty
terms and conditions, and to provide the Customer product at a discounted price for a period of
time in recognition of the Customer&#146;s administrative costs in responding to the claim of the
retail end-user. In consideration of the above, the Customer released us from any and all
liability with respect to this matter. Consequently, we do not anticipate any further expenses
with regard to this matter other than our obligation under the settlement agreement. As of
September&nbsp;29, 2007, we no longer have an accrual in the warranty reserve related to anticipated
replacements under this agreement, due to the lack of actual claims for replacements during the
past few years. Further, we do not expect the ongoing terms of the settlement agreement to have
a material impact on our operations or financial condition.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provides us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a
Phase I and II Environmental Site Assessment, which revealed the existence of contaminated soil
and ground water around one of the buildings. We retained an engineering firm, which estimated
that the cost of remediation should be in the range of $230. Through September&nbsp;29, 2007, total
costs incurred have amounted to approximately $195, none of which has been capitalized. In
February&nbsp;1998, we entered into an agreement with a third party which provides that we and this
third party will retain an environmental consulting firm to conduct a supplemental Phase II
investigation to verify the existence of the contaminants and further delineate the nature of
the environmental concern. The third party agreed to reimburse us for fifty percent (50%) of
the cost of correcting the environmental concern on the Newark property. We have fully reserved
for our portion of the estimated liability. Test sampling was completed in the spring of 2001,
and the engineering report was submitted to the New York State Department of Environmental
Conservation (NYSDEC)&nbsp;for review. NYSDEC reviewed the report and, in January&nbsp;2002, recommended
additional testing. We responded by submitting a work plan to NYSDEC, which was approved in
April&nbsp;2002. We sought proposals from engineering firms to complete the remedial work contained
in the work plan. A firm was selected to undertake the remediation and in December&nbsp;2003 the
remediation was completed, and was overseen by the NYSDEC. The report detailing the remediation
project, which included the test results, was forwarded to NYSDEC and to the New York State
Department of Health (NYSDOH). The NYSDEC, with input from the NYSDOH, requested that we
perform additional sampling. A work plan for this portion of the project was written and
delivered to the NYSDEC and approved. In November&nbsp;2005, additional soil, sediment and surface
water samples were taken from the area outlined in the work plan, as well as groundwater samples
from the monitoring wells. We received the laboratory analysis and met with the NYSDEC in March
2006 to discuss the results. On June&nbsp;30, 2006, the Final Investigation Report was delivered to
the NYSDEC by our outside environmental consulting firm. In November&nbsp;2006, the NYSDEC completed
its review of the Final Investigation Report and requested additional groundwater, soil and
sediment sampling. A work plan to address the additional investigation was submitted to the
NYSDEC in January&nbsp;2007 and was approved in April&nbsp;2007. Additional investigation work was
performed in May&nbsp;2007. A preliminary report of results was prepared by our outside
environmental consulting firm in August&nbsp;2007 and a meeting with the NYSDEC and NYSDOH took place
in September&nbsp;2007. As a result of this meeting, NYSDEC and NYSDOH have requested additional
investigation work. A work plan to address this additional investigation is being developed.
The results of the additional investigation requested by the NYSDEC may increase the estimated
remediation costs modestly. At September&nbsp;29, 2007 and December&nbsp;31, 2006, we had $45 and $35,
respectively, reserved for this matter.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have had certain &#147;exigent&#148;, non-bid contracts with the government, which have been
subject to an audit and final price adjustment, which have resulted in decreased margins
compared with the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->21<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">original terms of the contracts. As of September&nbsp;29, 2007, there were no outstanding
exigent contracts with the government. As part of its due diligence, the government has
conducted post-audits of the completed exigent contracts to ensure that information used in
supporting the pricing of exigent contracts did not differ materially from actual results. In
September&nbsp;2005, the Defense Contracting Audit Agency (&#147;DCAA&#148;) presented its findings related to
the audits of three of the exigent contracts, suggesting a potential pricing adjustment of
approximately $1,400 related to reductions in the cost of materials that occurred prior to the
final negotiation of these contracts. We have reviewed these audit reports, have submitted our
response to these audits and believe, taken as a whole, the proposed audit adjustments can be
offset with the consideration of other compensating cost increases that occurred prior to the
final negotiation of the contracts. While we believe that potential exposure exists relating to
any final negotiation of these proposed adjustments, we cannot reasonably estimate what, if any,
adjustment may result when finalized. In addition, we have received a request from the Office
of Inspector General of the Department of Defense (&#147;DoD IG&#148;) seeking certain information and
documents relating to our business with the Department of Defense. We are cooperating with the
DoD IG inquiry and are furnishing the requested information and documents. At this time we have
no basis for assessing whether we might face any penalties or liabilities on account of the DoD
IG inquiry. The aforementioned DCAA-related adjustments could reduce margins and, along with
the aforementioned DoD IG inquiry, could have an adverse effect on our business, financial
condition and results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have been able to obtain certain grants/loans from government agencies to assist with
various funding needs. In November&nbsp;2001, we received approval for a $300 grant/loan from New
York State. The grant/loan was to fund capital expansion plans that we expected would lead to
job creation. In this case, we were to be reimbursed after the full completion of the
particular project. This grant/loan also required us to meet and maintain certain levels of
employment. During 2002, since we did not meet the initial employment threshold, it appeared
unlikely at that time that we would be able to gain access to these funds. However, during
2006, our employment levels had increased to a level that exceeded the minimum threshold, and we
received these funds in April&nbsp;2007. As this grant/loan requires us to not only meet, but
maintain, our employment levels for a pre-determined time period, we currently reflect the funds
that we received as a current liability, in the Other Current Liabilities line on our
Consolidated Balance Sheet. In the event our employment levels are not maintained at the
specified levels at December&nbsp;31, 2007 and 2008, we may be required to pay back these funds.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From August&nbsp;2002 through August&nbsp;2006, we participated in a self-insured trust to manage our
workers&#146; compensation activity for our employees in New York State. All members of this trust
have, by design, joint and several liability during the time they participate in the trust. In
August&nbsp;2006, we left the self-insured trust and have obtained alternative coverage for our
workers&#146; compensation program through a third-party insurer. In the third quarter of 2006, we
confirmed that the trust was in an underfunded position (i.e. the assets of the trust were
insufficient to cover the actuarially projected liabilities associated with the members in the
trust). In the third quarter of 2006, we recorded a liability and an associated expense of $350
as an estimate of our potential future cost related to the trust&#146;s underfunded status. It is
likely, however, that the final amount may be more or less, depending upon the ultimate
settlement of claims that remain in the trust for the period of time we were a member. It is
likely to take several years before resolution of outstanding workers&#146; compensation claims are
finally settled. We will continue to review this liability periodically and make adjustments
accordingly as new information is collected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">12. BUSINESS SEGMENT INFORMATION
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report our results in four operating segments: Non-Rechargeable Products, Rechargeable
Products, Communications Accessories, and Technology Contracts. The Non-Rechargeable Products
segment includes: lithium 9-volt, cylindrical and various other non-rechargeable batteries,
including seawater-activated. The Rechargeable Products segment includes: our lithium ion and
lithium polymer rechargeable batteries and charging systems and accessories, such as cables. In
2006, as a result of the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->22<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">acquisition of McDowell Research, we formed a new segment, Communications Accessories. The
Communications Accessories segment includes: power supplies, cables and connector assemblies, RF
amplifiers, amplified speakers, equipment mounts, case equipment and integrated communication
systems kits. In addition, the Communications Accessories segment includes our engineering and
technical services for communication and electronic systems. The Technology Contracts segment
includes: revenues and related costs associated with various development contracts. We look at
our segment performance at the gross margin level, and we do not allocate research and
development or selling, general and administrative costs against the segments. All other items
that do not specifically relate to these four segments and are not considered in the performance
of the segments are considered to be Corporate charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Three-Month Period Ended September&nbsp;29, 2007</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,819</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6,733</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">487</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">33,291</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,637</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,724</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">198</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(497</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(497</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">171</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD nowrap align="right">50,725</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD nowrap align="right">17,770</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD nowrap align="right">26,440</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD nowrap align="right">88</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">4,265</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">99,288</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><u>Three-Month Period Ended September&nbsp;30, 2006</u></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">16,998</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,463</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">218</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,725</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,400</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">397</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,118</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,137</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(432</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(432</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,232</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Nine-Month Period Ended September&nbsp;29, 2007</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,785</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">13,342</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">22,912</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100,807</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,109</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,608</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,534</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,506</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,726</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,726</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">50,725</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">17,770</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">26,440</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">88</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
<TD>$</TD>
    <TD nowrap align="right">4,265</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">99,288</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->23<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><u>Nine-Month Period Ended September&nbsp;30, 2006</u></B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Non-</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Rechargeable</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Communications</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Technology</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Products</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Accessories</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Contracts</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Corporate</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Revenues</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">614</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">63,437</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Segment contribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,280</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,882</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,776</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,448</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(759</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(759</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Miscellaneous</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-current</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes-deferred</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(401</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(401</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">47,748</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,602</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">27,526</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">29,236</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">112,232</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt">13. FIRES AT MANUFACTURING FACILITIES
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2004 and June&nbsp;2004, we experienced two fires that damaged certain inventory and
property at our facilities. The May&nbsp;2004 fire occurred at our Newark facility and was caused by
cells that shorted out when a forklift truck accidentally tipped the cells over in an oven in an
enclosed area. Certain inventory, equipment and a small portion of the building where the fire
was contained were damaged. The June&nbsp;2004 fire happened at our U.K. location and mainly caused
damage to various inventory and the U.K. company&#146;s leased facility. The fire was contained
mainly in a bunkered, non-manufacturing area designed to store various material, and there was
additional smoke and water damage to the facility and its contents. It is unknown how the U.K.
fire was started.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The total amount of the two losses and related expenses associated with our owned assets
was approximately $2,000. Of this total, approximately $450 was related to machinery and
equipment, approximately $750 was related to inventory and approximately $800 was required to
repair and clean up the facilities. The insurance claim related to the fire at our Newark
facility was finalized in March&nbsp;2005. In the first quarter of 2006, we received notice of a
final claim settlement for the U.K. facility. As a result of the final settlement for the fire
at the U.K. facility, we reflected a gain of $148 in the first quarter of 2006 related to
equipment and inventory damage. In April&nbsp;2006 we received payment in final settlement. In June
2006 we recorded a gain of $43 for the favorable settlement of fire damage that pertained to our
leased facilities in the U.K.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2006, we experienced a fire that damaged certain inventory and property at our
facility in China, which began in a battery storage area. Certain inventory and portions of
buildings were damaged. We believe we maintain adequate insurance coverage for this operation.
The total amount of the loss pertaining to assets and the related expenses is expected to be
approximately $849. The majority of the insurance claim is related to the recovery of damaged
inventory. In July&nbsp;2007, we received approximately $637 as a partial payment on our insurance
claim, which resulted in no gain or loss being recognized. As of September&nbsp;29, 2007, our
current assets in our Consolidated Balance Sheet included a receivable from insurance companies
for approximately $148, representing additional proceeds to be received.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">14. RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, &#147;The Fair Value Option for Financial Assets
and Financial Liabilities&#151;Including an amendment of FASB Statement No.&nbsp;115.&#148; SFAS No.&nbsp;159
permits entities to choose to measure many financial instruments and certain other items at fair
value. Unrealized gains and losses on items for which the fair value option has been elected
will be recognized in earnings at each subsequent reporting date. SFAS No.&nbsp;159 is effective for
an entity&#146;s first fiscal year beginning after November&nbsp;15, 2007. We are currently evaluating any
potential impact of adopting this pronouncement.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->24<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, the FASB issued FASB Staff Position (&#147;FSP&#148;) EITF 00-19-2 which addresses
an issuer&#146;s accounting for registration payment arrangements for financial instruments such as
equity shares, warrants or debt instruments. This FSP specifies that the contingent obligation
to make future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in accordance with
FASB SFAS No.&nbsp;5, &#147;Accounting for Contingencies&#148; and FASB Interpretation No.&nbsp;14, &#147;Reasonable
Estimation of the Amount of a Loss.&#148; The financial instrument(s) subject to the registration
payment arrangement shall be recognized and measured in accordance with other applicable
Generally Acceptable Accounting Principles (&#147;GAAP&#148;), without regard to the contingent obligation
to transfer consideration pursuant to the registration payment arrangement.<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>An entity
should recognize and measure a registration payment arrangement as a separate unit of account
from the financial instrument(s) subject to that arrangement. Adoption of this FSP may require
additional disclosures relating to the nature of the registration payment, settlement
alternatives, current carrying amount of the liability representing the issuer&#146;s obligations and
the maximum potential amount of consideration, undiscounted, that the issuer could be required
to transfer. This FSP shall be effective immediately for registration payment arrangements and
the financial instruments subject to those arrangements that are entered into or modified
subsequent to the date of issuance of this FSP. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance
of this FSP, this guidance shall be effective for financial statements issued for fiscal years
beginning after December&nbsp;15, 2006. The adoption of this pronouncement had no impact on our
financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148;, which
establishes a framework for measuring fair value and requires expanded disclosure about the
information used to measure fair value. The statement applies whenever other statements require,
or permit, assets or liabilities to be measured at fair value. The statement does not expand the
use of fair value in any new circumstances and is effective for fiscal years beginning after
November&nbsp;15, 2007, and interim periods within those fiscal years, with early adoption
encouraged. We are currently evaluating any potential impact of adopting this pronouncement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.&nbsp;109&#148; (&#147;FIN 48&#148;). This statement clarifies the
accounting for uncertainty in income taxes recognized in a company&#146;s financial statements in
accordance with SFAS No.&nbsp;109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The provisions of FIN 48 are
effective for fiscal years beginning after December&nbsp;15, 2006. The adoption of this
pronouncement on January&nbsp;1, 2007 had no significant impact on our financial statements. See
Note 10 for additional information related to the effect of the adoption of FIN 48.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2006, the FASB issued SFAS No.&nbsp;156, &#147;Accounting for Servicing of Financial
Assets&#148;, an amendment of FASB Statement No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities&#148; (&#147;SFAS&nbsp;No.&nbsp;156&#148;). SFAS&nbsp;No.&nbsp;156 requires
all separately recognized servicing assets and servicing liabilities to be measured initially at
fair value, if practicable, and permits for subsequent measurement using either fair value
measurement with changes in fair value reflected in earnings or the amortization and impairment
requirements of Statement No.&nbsp;140. The subsequent measurement of separately recognized servicing
assets and servicing liabilities at fair value eliminates the necessity for entities that manage
the risks inherent in servicing assets and servicing liabilities with derivatives to qualify for
hedge accounting treatment and eliminates the characterization of declines in fair value as
impairments or direct write-downs. SFAS&nbsp;No.&nbsp;156 is effective for an entity&#146;s first fiscal year
beginning after September&nbsp;15, 2006. The adoption of this pronouncement had no impact on our
financial statements.
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->25<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; (&#148;SFAS No.&nbsp;155&#148;). SFAS No.&nbsp;155 amends SFAS No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.&#148; SFAS No.&nbsp;155 also resolves issues
addressed in SFAS No.&nbsp;133 Implementation Issue No.&nbsp;D1, &#147;Application of Statement 133 to
Beneficial Interests in Securitized Financial Assets.&#148; SFAS No.&nbsp;155 eliminates the exemption
from applying SFAS No.&nbsp;133 to interests in securitized financial assets so that similar
instruments are accounted for in the same manner regardless of the form of the instruments. SFAS
No.&nbsp;155 allows a preparer to elect fair value measurement at acquisition, at issuance, or when a
previously recognized financial instrument is subject to a remeasurement (new basis) event, on
an instrument-by-instrument basis. SFAS No.&nbsp;155 is effective for all financial instruments
acquired or issued after the beginning of an entity&#146;s first fiscal year that begins after
September&nbsp;15, 2006. The fair value election provided for in paragraph 4(c) of SFAS No.&nbsp;155 may
also be applied upon adoption of SFAS No.&nbsp;155 for hybrid financial instruments that had been
bifurcated under paragraph 12 of SFAS No.&nbsp;133 prior to the adoption of this Statement. Earlier
adoption is permitted as of the beginning of an entity&#146;s fiscal year, provided the entity has
not yet issued financial statements, including financial statements for any interim period for
that fiscal year. Provisions of SFAS No.&nbsp;155 may be applied to instruments that an entity holds
at the date of adoption on an instrument-by-instrument basis. The adoption of this
pronouncement had no significant impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Staff Position No.&nbsp;FAS 143-1 (&#147;FSP FAS 143-1&#148;),
Accounting for Electronic Equipment Waste Obligations. FSP FAS 143-1 addresses the accounting
for obligations associated with the Directive 2002/96/EC on Waste Electrical and Electronic
Equipment (the Directive) adopted by the European Union (EU). FSP FAS 143-1 is effective the
latter of the first reporting period that ends after June&nbsp;8, 2005 or the date that the EU-member
country adopts the law. Effective January&nbsp;2, 2007, the United Kingdom, the only EU-member
country in which we have significant operations, adopted the law. The adoption of this law had
no significant impact on our financial statements.
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0%">15.
SUBSEQUENT EVENT</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">On October 30, 2007, we entered into definitive agreements to acquire
all of the outstanding shares of two affiliated companies
headquartered in Clearwater, Florida: Stationary Power Services, Inc.
(&#147;SPS&#148;), an infrastructure power management services
company, and Reserve Power Systems, Inc. (&#147;RPS&#148;), a
provider of lead-acid batteries for standby power systems. The
purchase price for both companies, excluding the payment of any
contingent purchase price, is anticipated to be approximately $11,400. Under the terms of the agreements, the SPS purchase price will
consist of $6,000 in cash and a $4,000 non-transferable subordinated convertible note to be held by
the seller, and the RPS purchase price will consist of 100,000
unregistered shares of our common stock, currently valued at $1,400,
to be issued upon closing. The $4,000 convertible note carries a
three-year term and is convertible at $15 per share of our common
stock, with a forced conversion feature at $17 per share. We are
working with our banks to finalize the cash financing. The
acquisitions, subject to customary closing conditions, are expected to
close by the end of the fourth quarter. We anticipate that these
acquisitions will be accretive in the first quarter of 2008.
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<DIV align="left">
<A name="107"></A>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Item&nbsp;2. MANAGEMENT&#146;S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Private Securities Litigation Reform Act of 1995 provides a &#147;safe harbor&#148; for
forward-looking statements. This report contains certain forward-looking statements and
information that are based on the beliefs of management as well as assumptions made by and
information currently available to management. The statements contained in this report relating to
matters that are not historical facts are forward-looking statements that involve risks and
uncertainties, including, but not limited to, future demand for our products and services,
addressing the process of U.S. military procurement, the successful commercialization of our
products, general economic conditions, government and environmental regulation, finalization of
non-bid government contracts, competition and customer strategies, technological innovations in the
non-rechargeable and rechargeable battery industries, changes in our business strategy or
development plans, capital deployment, business disruptions, including those caused by fires, raw
materials supplies, environmental regulations, and other risks and uncertainties, certain of which
are beyond our control. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may differ materially from those described
herein as anticipated, believed, estimated or expected.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following discussion and analysis should be read in conjunction with the accompanying
Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q
and our Consolidated Financial Statements and Notes thereto contained in our Form 10-K for the year
ended December&nbsp;31, 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial information in this Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations is presented in thousands of dollars, except for per share amounts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>General</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a global provider of high-energy power systems, communications accessories, and
engineering and technical services for diverse applications. We develop, manufacture and market a
wide range of non-rechargeable and rechargeable batteries, charging systems and accessories for
markets including defense, commercial and consumer portable electronics. Through our portfolio of
standard products and engineered solutions, we are at the forefront of providing the next
generation of power systems, communications accessories and technical services. Our battery
technologies allow us to offer batteries and power systems that are flexibly configured,
lightweight and generally capable of achieving longer operating time than many competing batteries
currently available. Our communications accessories offer users a wide variety of integrated
solutions that satisfy the most demanding applications. Our engineering and technical services
capabilities enable us to design, integrate, and field mobile, modular and fixed-site communication
and electronic systems.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We report our results in four operating segments: Non-Rechargeable Products, Rechargeable
Products, Communications Accessories, and Technology Contracts. The Non-Rechargeable Products
segment includes: lithium 9-volt, cylindrical and various other non-rechargeable batteries,
including seawater-activated. The Rechargeable Products segment includes: our lithium ion and
lithium polymer rechargeable batteries and charging systems and accessories, such as cables. In
2006, as a result of the acquisition of McDowell Research, we formed a new segment, Communications
Accessories. The Communications Accessories segment includes: power supplies, cables and connector
assemblies, RF Amplifiers, amplified speakers, equipment mounts, case equipment and integrated
communication systems kits. In addition, the Communications Accessories segment includes our
engineering and technical services for communication and electronic systems. The Technology
Contracts segment includes: revenues and related costs associated with various development
contracts. We look at our segment performance at the gross margin level, and we do not allocate
research and development or selling, general and administrative costs against the segments. All
other items that do not specifically relate to these four segments and are not considered in the
performance of the segments are considered to be Corporate charges.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continually evaluate ways to grow, including opportunities to expand through mergers and
acquisitions. On May&nbsp;19, 2006, we acquired 100% of the equity securities of ABLE New Energy Co.,
Ltd. (&#147;ABLE&#148;), an established manufacturer of lithium batteries located in Shenzhen, China. The
total consideration given was a combination of cash and equity. The initial cash portion of the
purchase price of $1,896 (net of $104 in cash acquired), with an additional $500 cash payment
contingent on the achievement of certain performance milestones, payable in separate $250
increments, when cumulative ABLE revenues from the date of acquisition attain $5,000 and $10,000,
respectively. In August&nbsp;2007, the $5,000 cumulative revenues milestone was attained, and as such,
we have recorded the first $250 contingent cash payment. The equity portion of the purchase price
consisted of 96,247 shares of our common stock valued at $1,000, and 100,000 stock warrants valued
at $526, for a total equity consideration of $1,526. (See Note 2 in Notes to Condensed Consolidated
Financial Statements for additional information.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;3, 2006, we finalized the acquisition of substantially all of the assets of McDowell
Research, Ltd. (&#147;McDowell&#148;), a manufacturer of military communications accessories located in Waco,
Texas. Under the terms of the acquisition agreement, the purchase price of approximately $25,000
consisted of $5,000 in cash and a $20,000 non-transferable, subordinated convertible promissory
note to be held by the sellers. In addition, the purchase price was subject to a post-closing
adjustment based on a final valuation of trade accounts receivable, inventory and trade accounts
payable that were acquired or assumed on the date of the closing, using a base value of $3,000.
The final net value of these assets, under our contractual obligation under the acquisition
agreement, was $6,389, resulting in a revised purchase price of approximately $28,448. On October
5, 2007, we announced a settlement agreement with the sellers of McDowell, which reduced the
overall purchase price by approximately $7,900, by reducing the principal amount on the convertible
note from $20,000 to $14,000, and eliminating a $1,889 liability related to the Purchase Price
Adjustment formula. In addition, the interest rate on the convertible notes was increased from 4%
to 5% and we are to make prepayments totaling $3,500 on the convertible notes on or before November
18, 2007. (See Note 2 in Notes to Condensed Consolidated Financial Statements for additional
information.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On September&nbsp;28, 2007, we finalized the acquisition of all of the issued and outstanding
shares of common stock of Innovative Solutions Consulting, Inc. (&#147;ISC&#148;), a provider of a full range
of engineering and technical services for communication electronic systems to government agencies
and prime contractors. The initial cash purchase price was $1,000, with up to $2,000 in additional
cash consideration contingent on the achievement of certain sales milestones. The additional cash
consideration is payable in up to three annual payments and subject to possible adjustments as set
forth in the Stock Purchase Agreement. The initial $1,000 cash payment was financed through a
combination of cash on hand and borrowings through the revolver component of our credit facility
with our primary lending banks. (See Note 2 in Notes to Condensed Consolidated Financial
Statements for additional information.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Results of Operations</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Three-month periods ended September&nbsp;29, 2007 and September&nbsp;30, 2006</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenues. </B>Consolidated revenues for the three-month period ended September&nbsp;29, 2007 amounted
to $33,291, an increase of $9,566, or 40%, from the $23,725 reported in the same quarter in the
prior year. Non-rechargeable product sales increased $5,821, or 34%, from $16,998 last year to
$22,819 this year. The increase in revenues was mainly attributable to higher sales of batteries
to international defense organizations and an increase in demand from automotive telematics
customers, offset in part by lower 9-volt battery revenues. Rechargeable product revenues were
$3,252 in 2007, at around the same level as $3,463 reported in the previous year. Communications
Accessories revenues increased $3,687, or 121%, from $3,046 to $6,733, mainly due to strong demand
of communications systems and kits sold to government/defense customers. Technology Contract
revenues were $487 in the third quarter of 2007, an increase of $269 from the $218 reported in the
third quarter of 2006 mainly due to the timing of various contract awards and the related work
being performed on such contracts.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cost of Products Sold. </B>Cost of products sold totaled $26,369 for the quarter ended September
29, 2007, an increase of $6,625, or 34%, from the $19,744 reported for the same three-month period
a year ago. The gross margin on consolidated revenues for the quarter was $6,922, an increase of
$2,941 over the $3,981 reported in the same quarter in the prior year due mainly to higher sales
and production volumes and a more favorable sales mix. As a percentage of revenues, consolidated
gross margins amounted to 21% in the third quarter of 2007, an increase from 17% reported in the
third quarter of 2006. Non-rechargeable product margins were $4,360, or 19% of revenues, for the
third quarter of 2007 compared with $2,400, or 14% of revenues, in the same period in 2006.
Improvements in non-rechargeable gross margins resulted mainly from higher production volumes. In
our Rechargeable operations, gross margin amounted to $703 in the third quarter of 2007, or 22% of
revenues, compared to $397, or 11% of revenues, in 2006. This increase in gross margin was
attributable to a more favorable product mix. Communications Accessories margins were $1,637, or
24% of revenues, for the third quarter of 2007, an increase of $533 when compared with $1,104, or
36% of revenues, in the same period in 2006. The decrease in the percentage of revenues was mainly
due to operational issues incurred at our Waco, Texas operation shortly after the acquisition of
McDowell in July&nbsp;2006 that resulted in the procurement of premium cost inventory. As a result of
the manufacturing inefficiencies, during the third quarter of 2007, we relocated a significant
majority of the Waco Operations to our Newark, New York facility to instill better processes and
manufacturing disciplines. The costs associated with this relocation amounted to approximately
$86. Gross margins in the Technology Contract segment amounted to $222, or 46% of revenues in the
third quarter of 2007, compared to $80, or 37% of revenues, in 2006, an increase of $142 mainly due
to varying margins realized under different technology contracts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Operating Expenses. </B>Operating expenses for the three-month period ended September&nbsp;29, 2007
totaled $6,724, an increase of $606 from the prior year&#146;s amount of $6,118. Overall, operating
expenses as a percentage of sales decreased to 20% in the third quarter of 2007 from 26% reported
in the prior year. Research and development costs were $1,547 in 2007 consistent with the $1,517
reported in 2006. In addition to the research and development line shown in Operating Expenses, we
also consider our efforts in the Technology Contracts segment to be related to key product
development efforts. Selling, general, and administrative expenses increased $576 to $5,177,
primarily related to higher professional fees incurred from acquisition-related activity and higher
corporate costs required to operate a more diverse business. Overall, amortization expense
associated with intangible assets related to the acquisitions of ABLE and McDowell caused $549
($294 in selling, general, and administrative expenses and $255 in research and development costs)
in operating expenses, an increase of $37 from the prior year amount of $512.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Other Income (Expense). </B>Interest expense, net, for the third quarter of 2007 was $497, an
increase of $65 from the comparable period in 2006, mainly related to higher borrowings under our
revolving credit facility. Miscellaneous income/expense amounted to income of $171 for the third
quarter of 2007 compared with income of $39 for the same period in 2006. This increase was
primarily due to foreign currency exchange gains related to the strengthening of the U.K. pound
sterling compared with the U.S. dollar.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Income Taxes. </B>We reflected no income tax expense for the third quarter of 2007 compared with
a tax benefit of $832 in the third quarter of 2006. The effective consolidated tax rate for the
third quarter of 2007 was 0% compared with 33% for the same period in 2006. Since we have
significant net operating loss carryforwards from our U.S. and U.K. operations, the cash outlay for
income taxes is expected to be nominal for quite some time into the future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal quarter ended December&nbsp;31, 2006, we recorded a full valuation allowance on
our net deferred tax asset, due to the determination that it was more likely than not that we would
not be able to utilize these benefits in the future. At September&nbsp;29, 2007, we continue to
recognize a full valuation allowance on our net deferred tax asset, as we believe that it is more
likely than not that we will not be able to utilize these benefits in the future. We continually
monitor the assumptions and performance
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">results to assess the realizability of the tax benefits of the U.S. and U.K. net operating
losses and other deferred tax assets.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Net Income (Loss). </B>Net loss and loss per diluted share were $128 and $0.01, respectively, for
the three months ended September&nbsp;29, 2007, compared to net loss and loss per diluted share of
$1,698 and $0.11, respectively, for the same quarter last year, primarily as a result of the
reasons described above. Average common shares outstanding used to compute diluted earnings per
share increased from 14,987,000 in the third quarter of 2006 to 15,160,000 in 2007, mainly due to
stock option exercises and restricted stock grants.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Nine-month periods ended September&nbsp;29, 2007 and September&nbsp;30, 2006</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Revenues. </B>Consolidated revenues for the nine-month period ended September&nbsp;29, 2007 amounted
to $100,807, an increase of $37,370, or 59%, from the $63,437 reported in the same period in the
prior year. Non-rechargeable product sales increased $12,684, or 25%, from $51,101 last year to
$63,785 this year. The increase in revenues was mainly attributable to an increase in sales of
HiRate batteries and distribution sales of lithium sulfur-dioxide BA-5590 batteries, as well as
sales attributable to the addition of ABLE in May&nbsp;2006, offset in part by lower sales of small
cylindrical cell products due to lower demand from the U.S. Department of Defense. Rechargeable
product revenues increased $4,666, or 54%, from $8,676 to $13,342, mainly due to higher shipments
of multi-cell lithium ion rechargeable battery packs, particularly UBI-2590 batteries, and charger
systems, sold primarily to government and defense customers. Communications Accessories revenues
increased $19,866, or 652%, from $3,046 to $22,912, mainly due to the fact that 2007 includes nine
months of sales activity in the segment compared with only three months in 2006 as a result of the
acquisition of McDowell Research in July&nbsp;2006. Technology Contract revenues were $768 in the first
nine months of 2007, an increase of $154 from the $614 reported in the first nine months of 2006
mainly attributed to the timing of various contract awards and the related work being performed on
such contracts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Cost of Products Sold. </B>Cost of products sold totaled $77,767 for the nine-month period ended
September&nbsp;29, 2007, an increase of $26,658, or 52%, from the $51,109 reported for the same
nine-month period a year ago. The gross margin on consolidated revenues for the nine-month period
was $23,040, an increase of $10,712 over the $12,328 reported in the same nine-month period in the
prior year due mainly to higher sales volumes and improved sales mix,
including the impact from the ABLE and McDowell acquisitions. As a percentage of revenues,
consolidated gross margins amounted to 23% in the first nine months of 2007, an increase from 19%
reported in the first nine months of 2006. Non-rechargeable product margins were $15,109, or 24%
of revenues, for the first nine months of 2007 compared with $9,280, or 18% of revenues, in the
same period in 2006. Improvements in non-rechargeable gross margins resulted from higher
production and sales volumes, a more favorable sales mix and improved operating efficiencies at our
U.K. manufacturing facility. In our Rechargeable operations, gross margin amounted to $3,008 in
the first nine months of 2007, or 23% of revenues, compared to $1,882, or 22% of revenues, in 2006.
This modest increase in gross margin was mainly attributable to a more favorable product mix.
Communications Accessories margins were $4,608, or 20% of revenues, for the first nine months of
2007 compared with $1,104, or 36% of revenues, in the same period in 2006. These Communications
Accessories margins in 2007 were hampered by the use of premium cost raw material inventory that
was procured during the latter part of 2006. Gross margins in the Technology Contract segment
amounted to $315, or 41% of revenues in the first nine months of 2007, compared to $62, or 10% of
revenues, in the same period in 2006, an improvement of $253 mainly due to varying margins realized
under different technology contracts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Operating Expenses. </B>Operating expenses for the nine-month period ended September&nbsp;29, 2007
totaled $20,534, an increase of $6,758 from the prior year&#146;s amount of $13,776. Overall, operating
expenses as a percentage of sales decreased to 20% in the first nine months of 2007 from 22%
reported in the prior year. Research and development costs increased $1,488 to $4,849 in 2007 due
mainly to an increase in intangible asset amortization expense of $486, an increase in McDowell&#146;s
product
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">development costs of $657 for nine months in 2007 versus three months in 2006, as well as an
increased investment in overall product development and design activity. In addition to the
research and development line shown in Operating Expenses, we also consider our efforts in the
Technology Contracts segment to be related to key product development efforts. Selling, general,
and administrative expenses increased $5,270 to $15,685, primarily related to an increase in costs
associated with ABLE and McDowell of approximately $2,200 for nine months in 2007 compared with
only three months in 2006, an increase in the amortization of intangible assets in 2007 of $632,
and an overall increase in general corporate expenses related to operating a larger, more diverse
business. Overall, amortization expense associated with intangible assets related to the
acquisitions of ABLE and McDowell caused $1,630 ($866 in selling, general, and administrative
expenses and $764 in research and development costs) in operating expenses, an increase of $1,118
from the prior year amount of $512.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Other Income (Expense). </B>Interest expense, net, for the first nine months of 2007 was $1,726,
an increase of $967 from the comparable period in 2006, mainly related to interest on the $20,000
convertible note issued to partially finance the McDowell acquisition in July&nbsp;2006, and higher
borrowings under our revolving credit facility. During 2006, we recorded a $191 gain on insurance
settlement related to the finalization of an insurance claim for our U.K. operations (See Note 13
in Notes to Condensed Consolidated Financial Statements for additional information.).
Miscellaneous income/expense amounted to income of $354 for the first nine months of 2007 compared
with income of $186 for the same period in 2006. This increase was primarily due to foreign
currency exchange gains related to the strengthening of the U.K. pound sterling compared with the
U.S. dollar.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Income Taxes. </B>We reflected no income tax expense for the first nine months of 2007 compared
with a tax benefit of $381 in the first nine months of 2006. The effective consolidated tax rate
for the first nine months of 2007 was 0% compared with 21% for the same period in 2006. Since we
have significant net operating loss carryforwards from our U.S. and U.K. operations, the cash
outlay for income taxes is expected to be nominal for quite some time into the future.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the fiscal quarter ended December&nbsp;31, 2006, we recorded a full valuation allowance on
our net deferred tax asset, due to the determination that it was more likely than not that we would
not be able to utilize these benefits in the future. At September&nbsp;29, 2007, we continue to
recognize a full valuation allowance on our net deferred tax asset, as we believe that it is more
likely than not that we will not be able to utilize these benefits in the future. We continually
monitor the assumptions and performance results to assess the realizability of the tax benefits of
the U.S. and U.K. net operating losses and other deferred tax assets.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Net Income (Loss). </B>Net income and earnings per diluted share were $1,134 and $0.07,
respectively, for the nine months ended September&nbsp;29, 2007, compared to net loss and loss per
diluted share of $1,449 and $0.10, respectively, for the same period last year, primarily as a
result of the reasons described above. Average common shares outstanding used to compute diluted
earnings per share increased from 14,867,000 in the first nine months of 2006 to 15,346,000 in
2007, mainly due to stock option exercises and restricted stock grants.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Adjusted EBITDA</U><BR>
&nbsp;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In evaluating our business, we consider and use Adjusted EBITDA, a non-GAAP financial measure,
as a supplemental measure of our operating performance. We define Adjusted EBITDA as net income
(loss)&nbsp;before net interest expense, provision (benefit)&nbsp;for income taxes, depreciation and
amortization, plus expenses that we do not consider reflective of our ongoing operations. We use
Adjusted EBITDA as a supplemental measure to review and assess our operating performance and to
enhance comparability between periods. We also believe the use of Adjusted EBITDA facilitates
investors&#146; use of operating performance comparisons from period to period and company to company by
backing out potential differences caused by variations in such items as capital structures
(affecting relative interest expense and stock-based compensation expense), the book amortization
of intangible assets (affecting relative
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->31<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">amortization expense), the age and book value of facilities and equipment (affecting relative
depreciation expense) and other non-cash expenses. We also present Adjusted EBITDA because we
believe it is frequently used by securities analysts, investors and other interested parties as a
measure of financial performance. We reconcile Adjusted EBITDA to net income (loss), the most
comparable financial measure under U.S.&nbsp;generally accepted accounting principles (&#147;U.S.&nbsp;GAAP&#148;).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We use Adjusted EBITDA in our decision-making processes relating to the operation of our
business together with U.S. GAAP financial measures such as income (loss)&nbsp;from operations. We
believe that Adjusted EBITDA permits a comparative assessment of our operating performance,
relative to our performance based on our U.S. GAAP results, while isolating the effects of
depreciation and amortization, which may vary from period to period without any correlation to
underlying operating performance, and of non-cash stock-based compensation, which is a non-cash
expense that varies widely among companies. We provide information relating to our Adjusted EBITDA
so that securities analysts, investors and other interested parties have the same data that we
employ in assessing our overall operations. We believe that trends in our Adjusted EBITDA are a
valuable indicator of our operating performance on a consolidated basis and of our ability to
produce operating cash flows to fund working capital needs, to service debt obligations and to fund
capital expenditures.
</DIV>
&nbsp;

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The term Adjusted EBITDA is not defined under U.S.&nbsp;GAAP, and is not a measure of operating
income, operating performance or liquidity presented in accordance with U.S.&nbsp;GAAP. Our Adjusted
EBITDA has limitations as an analytical tool, and when assessing our operating performance,
Adjusted EBITDA should not be considered in isolation, or as a substitute for net income (loss)&nbsp;or
other consolidated statement of operations data prepared in accordance with U.S.&nbsp;GAAP. Some of
these limitations include, but are not limited to, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Adjusted EBITDA (1)&nbsp;does not reflect our cash expenditures or future requirements
for capital expenditures or contractual commitments; (2)&nbsp;does not reflect changes in,
or cash requirements for, our working capital needs; (3)&nbsp;does not reflect the
interest expense, or the cash requirements necessary to service interest or principal
payments, on our debt; (4)&nbsp;does not reflect income taxes or the cash requirements for
any tax payments; and (5)&nbsp;does not reflect all of the costs associated with operating
our business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized often will have to be replaced in the future, and Adjusted
EBITDA does not reflect any cash requirements for such replacements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>while stock-based compensation is a component of cost of products sold and
operating expenses, the impact on our consolidated financial statements compared to
other companies can vary significantly due to such factors as assumed life of the
stock-based awards and assumed volatility of our common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other companies may calculate Adjusted EBITDA differently than we do, limiting its
usefulness as a comparative measure.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>&nbsp;
</TD>
</TR>
</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->32<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We compensate for these limitations by relying primarily on our U.S. GAAP results and using
Adjusted EBITDA only supplementally. Adjusted EBITDA is calculated as follows for the periods
presented:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>Three-Month Period Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>Nine-Month Period Ended</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 29,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 29,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2006</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>


<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(128</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,698</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(1,449</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">497</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">432</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,726</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: income tax benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(832</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(381</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: depreciation expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,871</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,747</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: amortization expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Add: stock-based
compensation
expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">501</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,532</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">975</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjusted EBITDA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,374</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(247</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8,893</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,163</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Liquidity and Capital Resources</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;29, 2007, cash and cash equivalents totaled $927, an increase of $207 from the
beginning of the year. During the nine-month period ended September&nbsp;29, 2007, operating activities
generated $4,164 in cash as compared to a generation of $4,007 for the nine-month period ended
September&nbsp;30, 2006. The generation of cash from operating activities in 2007 resulted mainly from
an increase in earnings before depreciation and amortization, offset in part by higher inventory
balances. Inventory levels have increased since the beginning of the year due mainly to a
procurement of certain raw materials that were suddenly in short supply, in order to meet
anticipated customer demand.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We used $4,163 in cash for investing activities during the first nine-month period of 2007
compared with $8,038 in cash used for investing activities in the same period in 2006. In 2007, we
made an investment of $956 to acquire ISC and a $1,500 payment related to the asset purchase of
McDowell, whereas in 2006 we made investments of $1,949 to acquire ABLE and $5,059 to acquire
McDowell. In addition, we spent $1,706 to purchase plant, property and equipment in 2007, as
compared with $1,030 for the same period in 2006.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the nine-month period ended September&nbsp;29, 2007, we used $24 in funds from financing
activities compared to a generation of $2,041 in funds in the same period of 2006. The financing
activities in 2007 included a $1,355 inflow from drawdowns on the revolver portion of our primary
credit facility, offset in part by outflows for principal payments of term debt under our primary
credit facility and capital lease obligations. During the first nine months of 2007, we issued
approximately 109,000 shares of common stock related to the exercises of stock options for which we
received approximately $470 in cash proceeds.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventory turnover for the first nine months of 2007 was an annualized rate of approximately
3.0 turns per year, down from the 3.2 turns for the full year of 2006. The decline in this metric
is mainly due to the timing of production and shipments, including the impact from procuring
materials that were unexpectedly in short supply in late 2006, maintaining a supply of raw
materials for surge production for the U.S. military, and the impact of procuring premium priced
inventory at our Waco operation in the latter part of 2006. We expect this metric to improve
during 2007 as production is brought more in line with shipment schedules and as we work to shorten
our supply chain with our vendors. Our Days Sales Outstanding (DSOs) was an average of 55&nbsp;days for
the first nine months of 2007, an increase from the 2006 average of 50&nbsp;days, as our customer base
has expanded internationally and the credit terms for non-U.S. customers are generally more lenient
than for U.S. customers.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->33<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At September&nbsp;29, 2007, we had outstanding capital lease obligations of $430.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
of September&nbsp;29, 2007, we had made commitments to purchase
approximately $320 of production
machinery and equipment, which we expect to fund through operating cash flows.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our primary credit facility consists of both a term loan component and a revolver component,
and the facility is collateralized by essentially all of our assets, including all of our
subsidiaries. The lenders of the new credit facility are JP Morgan Chase Bank and Manufacturers
and Traders Trust Company, with JP Morgan Chase Bank acting as the administrative agent. The
current revolver loan commitment is $15,000. Availability under the revolving credit component is
subject to meeting certain financial covenants. We are required to meet certain financial
covenants under the facility, as amended, including a debt to earnings ratio, a fixed charge
coverage ratio, and a current assets to total liabilities ratio. In addition, we are required to
meet certain non-financial covenants. The rate of interest, in general, is based upon either a
LIBOR rate or Prime, plus a Eurodollar spread (dependent upon a debt to earnings ratio within a
predetermined grid)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On June&nbsp;30, 2004, we drew down the full $10,000 term loan. The term loan is being repaid in
equal monthly installments of $167 over five years. On July&nbsp;1, 2004, we entered into an interest
rate swap arrangement in the notional amount of $10,000 to be effective on August&nbsp;2, 2004, related
to the $10,000 term loan, in order to take advantage of historically low interest rates. We
received a fixed rate of interest in exchange for a variable rate. The swap rate received was
3.98% for five years. The total rate of interest paid by us is equal to the swap rate of 3.98%
plus the Eurodollar spread stipulated in the predetermined grid associated with the term loan. On
January&nbsp;1, 2006, the adjusted rate was 6.98%. On February&nbsp;14, 2007, the adjusted rate increased to
7.23%, and on August&nbsp;15, 2007, the adjusted rate decreased to 6.98%. Derivative instruments are
accounted for in accordance with SFAS No.&nbsp;133, &#147;Accounting for Derivative Instruments and Hedging
Activities&#148;, which requires that all derivative instruments be recognized in the financial
statements at fair value. The fair value of this arrangement at September&nbsp;29, 2007 resulted in an
asset of $27, all of which was reflected as a short-term asset.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been several amendments to the credit facility during the past few years, including
amendments to authorize acquisitions and modify financial covenants. Recently, effective
February&nbsp;14, 2007, we entered into Forbearance and Amendment Number Six to the Credit Agreement
(&#147;Forbearance and Amendment&#148;) with the banks. The
Forbearance and Amendment provided that the
banks would forbear from exercising their rights under the credit facility arising from our failure
to comply with certain financial covenants in the credit facility with respect to the fiscal
quarter ended December&nbsp;31, 2006. Specifically, we were not in compliance with the terms of the
credit facility because we failed to maintain the required debt-to-earnings and EBIT-to-interest
ratios provided for in the credit facility. The banks agreed to forbear from exercising their
respective rights and remedies under the credit facility until March&nbsp;23, 2007 (&#147;Forbearance
Period&#148;), unless we breached the Forbearance and Amendment or unless another event or condition
occured that constituted a default under the credit facility. Each bank agreed to continue to make
revolving loans available to us during the Forbearance Period. Pursuant to the Forbearance and
Amendment, the aggregate amount of the banks&#146; revolving loan commitment was reduced from $20,000 to
$15,000. During the Forbearance Period, the applicable revolving interest rate and the applicable
term interest rate, in each case as set forth in the credit
agreement, both were increased by
25 basis points. In addition to a number of technical and conforming amendments, the Forbearance
and Amendment revised the definition of &#147;Change in Control&#148; in the credit facility to provide that
the acquisition of equity interests representing more than 30% of the aggregate ordinary voting
power represented by the issued and outstanding equity interests of us shall constitute a &#147;Change
in Control&#148; for purposes of the credit facility. Previously, the equity interests threshold had
been set at 20%.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective March&nbsp;23, 2007, we entered into Extension of Forbearance and Amendment Number Seven
to Credit Agreement (&#147;Extension and Amendment&#148;) with the banks. The Extension and Amendment
provided that the banks agreed to extend the Forbearance Period until May&nbsp;18, 2007. The
Extension and Amendment also acknowledged that we continued not to be in compliance with the
financial covenants
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">identified above for the fiscal quarter ended December&nbsp;31, 2006 and did not contemplate being
in compliance for the fiscal quarter ending March&nbsp;31, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective May&nbsp;18, 2007, we entered into Extension of Forbearance and Amendment Number Eight to
Credit Agreement (&#147;Second Extension and Amendment&#148;) with the banks. The Second Extension and
Amendment provided that the banks agreed to extend the Forbearance Period until August&nbsp;15,
2007. The Second Extension and Amendment also acknowledged that we continued not to be in
compliance with the financial covenants identified above for the fiscal quarter ended March&nbsp;31,
2007 and did not contemplate being in compliance for the fiscal quarter ending June&nbsp;30, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective August&nbsp;15, 2007, we entered in Amendment Number Nine to Credit Agreement (&#147;Amendment
Nine&#148;) with the banks. Amendment Nine effectively ended the Forbearance Period and extended the
term of the revolving credit component of the facility to January&nbsp;31, 2009 and the term of the term
loan component of the facility to July&nbsp;1, 2009. Amendment Nine also added several definitions and
modified or replaced certain covenants. As of September&nbsp;29, 2007, we were in compliance with all
of the credit facility covenants, as amended.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While we believe relations with our lenders are good and we have received waivers as necessary
in the past, there can be no assurance that such waivers can always be obtained. In such case, we
believe we have, in the aggregate, sufficient cash, cash generation capabilities from operations,
working capital, and financing alternatives at our disposal, including but not limited to
alternative borrowing arrangements (e.g. asset secured borrowings) and other available lenders, to
fund operations in the normal course and repay the debt outstanding
under our credit facility.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;29, 2007, we had $3,667 outstanding under the term loan component of our
credit facility with our primary lending bank and $8,950 was outstanding under the revolver
component. As a result of the uncertainty of our ability to comply with the modified or replaced
financial covenants, per Amendment Nine, within the next year, we continue to classify all of the
debt associated with this credit facility as a current liability on the Condensed Consolidated
Balance Sheet as of September&nbsp;29, 2007. The revolver arrangement now provides for up to $15,000 of
borrowing capacity, including outstanding letters of credit. At September&nbsp;29, 2007, we had no
outstanding letters of credit related to this facility, as amended August&nbsp;15, 2007, leaving $6,050
of additional borrowing capacity.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of September&nbsp;29, 2007, our wholly-owned U.K. subsidiary, Ultralife Batteries (UK)&nbsp;Ltd., had
$4 outstanding under its revolving credit facility with a commercial bank in the U.K. This credit
facility provides our U.K. operation with additional financing flexibility for its working capital
needs. Any borrowings against this credit facility are collateralized with that company&#146;s
outstanding accounts receivable balances. There was approximately $910 in additional borrowing
capacity under this credit facility as of September&nbsp;29, 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first nine-month periods of 2007 and 2006, we issued 109,000 and 165,000 shares of
common stock, respectively, as a result of exercises of stock options and warrants. We received
approximately $470 in 2007 and $1,076 in 2006 in cash proceeds as a result of these transactions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We continue to be optimistic about our future prospects and growth potential. We continually
explore various sources of liquidity to ensure financing flexibility, including leasing
alternatives, issuing new or refinancing existing debt, and raising equity through private or
public offerings. Although we stay abreast of such financing alternatives, we believe we have the
ability during the next 12&nbsp;months to finance our operations primarily through internally generated
funds or through the use of additional financing that currently is available to us.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If we are unable to achieve our plans or unforeseen events occur, we may need to implement
alternative plans. While we believe we can complete our original plans or alternative plans, if
necessary,
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">there can be no assurance that such alternatives would be available on acceptable terms and
conditions or that we would be successful in our implementation of such plans.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As described in Part&nbsp;II, Item&nbsp;1, &#147;Legal Proceedings&#148; of this report, we are involved in
certain environmental matters with respect to our facility in Newark, New York. Although we have
reserved for expenses related to this potential exposure, there can be no assurance that such
reserve will be adequate. The ultimate resolution of this matter may have a significant adverse
impact on the results of operations in the period in which it is resolved.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
respect to our battery products, we typically offer warranties against any defects due to product malfunction or workmanship
for a period up to one year from the date of purchase. With respect
ot our communications accesory products, we typically offer a
four-year warranty. We also offer a 10-year warranty on our 9-volt batteries that
are used in ionization-type smoke alarms. We provide for a reserve
for these
potential warranty expenses, which is based on an analysis of historical warranty issues. There is
no assurance that future warranty claims will be consistent with past history, and in the event we
experience a significant increase in warranty claims, there is no
assurance that our reserves will
be sufficient. This could have a material adverse effect on our business, financial
condition and results of operations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Outlook</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management is projecting revenue of approximately $41,000 to $44,000 for the fourth quarter
ending December&nbsp;31, 2007, based on a strong backlog position, anticipated orders and anticipated
delivery schedules. Based on this revenue estimate, which excludes any incremental revenue
associated with the pending acquisitions of Stationary Power Services and Reserve Power Systems,
management anticipates reporting operating income of approximately $2,700 to $3,500, inclusive of
approximately $1,000 of non-cash expenses related to stock-based compensation and intangible asset
amortization. In addition, management expects to report a one-time, non-operating gain of
approximately $7,500 in the fourth quarter related to the negotiated purchase price settlement
agreement with the sellers of McDowell Research, announced on October 5.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Recent Accounting Pronouncements and Developments</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In February&nbsp;2007, the FASB issued SFAS No.&nbsp;159, &#147;The Fair Value Option for Financial Assets
and Financial Liabilities&#151;Including an amendment of FASB Statement No.&nbsp;115.&#148; SFAS No.&nbsp;159 permits
entities to choose to measure many financial instruments and certain other items at fair value.
Unrealized gains and losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. SFAS No.&nbsp;159 is effective for an entity&#146;s
first fiscal year beginning after November&nbsp;15, 2007. We are currently evaluating any potential
impact of adopting this pronouncement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2006, the FASB issued FASB Staff Position (&#147;FSP&#148;) EITF 00-19-2 which addresses an
issuer&#146;s accounting for registration payment arrangements for financial instruments such as equity
shares, warrants or debt instruments. This FSP specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement,
whether issued as a separate agreement or included as a provision of a financial instrument or
other agreement, should be separately recognized and measured in accordance with FASB SFAS No.&nbsp;5,
&#147;Accounting for Contingencies&#148; and FASB Interpretation No.&nbsp;14, &#147;Reasonable Estimation of the Amount
of a Loss.&#148; The financial instrument(s) subject to the registration payment arrangement shall be
recognized and measured in accordance with other applicable Generally Acceptable Accounting
Principles (&#147;GAAP&#148;), without regard to the contingent obligation to transfer consideration pursuant
to the registration payment arrangement.<SUP style="font-size: 85%; vertical-align: text-top"> </SUP>An entity should recognize and measure a
registration payment arrangement as a separate unit of account from the financial instrument(s)
subject to that arrangement. Adoption of this FSP may require additional disclosures relating to
the nature of the registration payment, settlement alternatives, current carrying amount of the
liability representing the issuer&#146;s obligations and the maximum potential amount of consideration,
undiscounted, that the issuer could be required to transfer. This FSP shall be
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">effective immediately for registration payment arrangements and the financial instruments
subject to those arrangements that are entered into or modified subsequent to the date of issuance
of this FSP. For registration payment arrangements and financial instruments subject to those
arrangements that were entered into prior to the issuance of this FSP, this guidance shall be
effective for financial statements issued for fiscal years beginning after December&nbsp;15, 2006. The
adoption of this pronouncement had no impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2006, the FASB issued SFAS No.&nbsp;157, &#147;Fair Value Measurements&#148;, which establishes
a framework for measuring fair value and requires expanded disclosure about the information used to
measure fair value. The statement applies whenever other statements require, or permit, assets or
liabilities to be measured at fair value. The statement does not expand the use of fair value in
any new circumstances and is effective for fiscal years beginning after November&nbsp;15, 2007, and
interim periods within those fiscal years, with early adoption encouraged. We are currently
evaluating any potential impact of adopting this pronouncement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2006, the FASB issued FASB Interpretation No.&nbsp;48, &#147;Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.&nbsp;109&#148; (&#147;FIN 48&#148;). This statement clarifies the
accounting for uncertainty in income taxes recognized in a company&#146;s financial statements in
accordance with SFAS No.&nbsp;109, Accounting for Income Taxes. This Interpretation prescribes a
recognition threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. This Interpretation
also provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The provisions of FIN 48 are effective for fiscal
years beginning after December&nbsp;15, 2006. The adoption of this pronouncement on January&nbsp;1, 2007,
had no significant impact on our financial statements. (See Note 10 in Notes to Condensed
Consolidated Financial Statements for additional information.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2006, the FASB issued SFAS No.&nbsp;156, &#147;Accounting for Servicing of Financial Assets&#148;,
an amendment of FASB Statement No.&nbsp;140, &#147;Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities&#148; (&#147;SFAS&nbsp;No.&nbsp;156&#148;). SFAS&nbsp;No.&nbsp;156 requires all separately
recognized servicing assets and servicing liabilities to be measured initially at fair value, if
practicable, and permits for subsequent measurement using either fair value measurement with
changes in fair value reflected in earnings or the amortization and impairment requirements of
Statement No.&nbsp;140. The subsequent measurement of separately recognized servicing assets and
servicing liabilities at fair value eliminates the necessity for entities that manage the risks
inherent in servicing assets and servicing liabilities with derivatives to qualify for hedge
accounting treatment and eliminates the characterization of declines in fair value as impairments
or direct write-downs. SFAS&nbsp;No.&nbsp;156 is effective for an entity&#146;s first fiscal year beginning after
September&nbsp;15, 2006. The adoption of this pronouncement had no impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2006, the FASB issued SFAS No.&nbsp;155, &#147;Accounting for Certain Hybrid Financial
Instruments&#148; (&#148;SFAS No.&nbsp;155&#148;). SFAS No.&nbsp;155 amends SFAS No.&nbsp;133, &#147;Accounting for Derivative
Instruments and Hedging Activities&#148; and SFAS No.&nbsp;140, &#147;Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities.&#148; SFAS No.&nbsp;155 also resolves issues addressed
in SFAS No.&nbsp;133 Implementation Issue No.&nbsp;D1, &#147;Application of Statement 133 to Beneficial Interests
in Securitized Financial Assets.&#148; SFAS No.&nbsp;155 eliminates the exemption from applying SFAS No.&nbsp;133
to interests in securitized financial assets so that similar instruments are accounted for in the
same manner regardless of the form of the instruments. SFAS No.&nbsp;155 allows a preparer to elect fair
value measurement at acquisition, at issuance, or when a previously recognized financial instrument
is subject to a remeasurement (new basis) event, on an instrument-by-instrument basis. SFAS No.&nbsp;155
is effective for all financial instruments acquired or issued after the beginning of an entity&#146;s
first fiscal year that begins after September&nbsp;15, 2006. The fair value election provided for in
paragraph 4(c) of SFAS No.&nbsp;155 may also be applied upon adoption of SFAS No.&nbsp;155 for hybrid
financial instruments that had been bifurcated under paragraph 12 of SFAS No.&nbsp;133 prior to the
adoption of this Statement. Earlier adoption is permitted as of the beginning of an entity&#146;s fiscal
year, provided the entity has not yet issued financial statements, including financial statements
for any
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">interim period for that fiscal year. Provisions of SFAS No.&nbsp;155 may be applied to instruments
that an entity holds at the date of adoption on an instrument-by-instrument basis. The adoption of
this pronouncement had no significant impact on our financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2005, the FASB issued FASB Staff Position No.&nbsp;FAS 143-1 (&#147;FSP FAS 143-1&#148;), Accounting
for Electronic Equipment Waste Obligations. FSP FAS 143-1 addresses the accounting for obligations
associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the
Directive) adopted by the European Union (EU). FSP FAS 143-1 is effective the latter of the first
reporting period that ends after June&nbsp;8, 2005 or the date that the EU-member country adopts the
law. Effective January&nbsp;2, 2007, the United Kingdom, the only EU-member country in which we have
significant operations, adopted the law. The adoption of this law had no significant impact on our
financial statements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>Critical Accounting Policies</U>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management exercises judgment in making important decisions pertaining to choosing and
applying accounting policies and methodologies in many areas. Not only are these decisions
necessary to comply with U.S. generally accepted accounting principles, but they also reflect
management&#146;s view of the most appropriate manner in which to record and report our overall
financial performance. All accounting policies are important, and all policies described in Note 1
(&#147;Summary of Operations and Significant Accounting Policies&#148;) in our Annual Report on Form 10-K
should be reviewed for a greater understanding of how our financial performance is recorded and
reported.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the first nine months of 2007, there were no significant changes in the manner in which
our significant accounting policies were applied or in which related assumptions and estimates were
developed.
</DIV>



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<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Dollars in thousands)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are exposed to various market risks in the normal course of business, primarily interest
rate risk and foreign currency risk. Our primary interest rate risk is derived from our
outstanding variable-rate debt obligations. In July&nbsp;2004, we hedged a portion of this risk by
entering into an interest rate swap arrangement in connection with the term loan component of our
new credit facility. Under the swap arrangement, effective August&nbsp;2, 2004, we received a fixed
rate of interest in exchange for a variable rate. The swap rate received was 3.98% for five years
and will be adjusted accordingly for a Eurodollar spread incorporated in the credit agreement. As
of September&nbsp;29, 2007, a one basis point change in the Eurodollar spread would have a less than $1
value change. (See Note 9 in Notes to Condensed Consolidated Financial Statements for additional
information.)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to foreign currency risk, due to fluctuations in currencies relative to the
U.S. dollar. We monitor the relationship between the U.S. dollar and other currencies on a
continuous basis and adjust sales prices for products and services sold in these foreign currencies
as appropriate to safeguard against the fluctuations in the currency effects relative to the U.S.
dollar.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain manufacturing operations in the U.S., the U.K. and China, and export products
internationally. We purchase materials and sell our products in foreign currencies, and therefore
currency fluctuations may impact our pricing of products sold and materials purchased. In
addition, our foreign subsidiaries maintain their books in local currency, which is translated into
U.S. dollars for our consolidated financial statements.
</DIV>

<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;4. CONTROLS AND PROCEDURES
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Evaluation Of Disclosure Controls And Procedures &#150; Our president and chief executive officer
(principal executive officer) and our vice president &#151; finance and chief financial officer
(principal financial officer) have evaluated our disclosure controls and procedures (as defined in
Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly
report. Based on this evaluation, the president and chief executive officer and vice president -
finance and chief financial officer concluded that our disclosure controls and procedures were
effective as of such date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes In Internal Control Over Financial Reporting &#150; In the beginning of the third quarter
of fiscal year 2006, we completed our acquisition of substantially all of the assets of McDowell
Research, Ltd., a manufacturer of military communications accessories located in Waco, Texas.
During the second half of 2006, we performed a limited assessment of McDowell&#146;s internal control
over financial reporting (ICFR). We have gained a basic understanding of the internal control
structure within McDowell, which previously was a closely-held, private company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on this limited assessment, we believe that the following deficiencies that existed as
of the end of fiscal year 2006 would result in material weaknesses in McDowell&#146;s ICFR if not
appropriately remediated during 2007:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Ineffective information systems and related control processes
surrounding such systems;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inadequate controls and supporting documentation for inventory
valuations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Lack of routine and complete reconciliations of general ledger
accounts to detailed supporting documentation; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Levels of staffing that would promote sufficient segregation of
duties and assure a sufficient level of expertise in manufacturing accounting
and proper application of generally accepted accounting principles.</TD>
</TR>

</TABLE>
</DIV>
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<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are in the process of integrating McDowell into our business and assimilating McDowell&#146;s
operations, services, products and personnel with our management policies, procedures and
strategies. In connection with this integration process, during the third quarter of 2007, we
relocated a significant majority of the Waco Operations to our Newark, New York facility to instill
better processes and manufacturing disciplines. We are in the process of remediating the noted
internal control deficiencies and expect to complete the implementation of the necessary changes by
the end of 2007.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There has been no other change in the internal control over financial reporting that occurred
during the fiscal quarter covered by this quarterly report that has materially affected, or is
reasonably likely to materially affect, the internal control over financial reporting.
</DIV>


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<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><U>PART II OTHER INFORMATION</U>
</DIV>

<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;1. Legal Proceedings (Dollars in thousands)
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are subject to legal proceedings and claims that arise in the normal course of business.
We believe that the final disposition of such matters will not have a material adverse effect on
our financial position, results of operations or cash flows.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In conjunction with our purchase/lease of our Newark, New York facility in 1998, we entered
into a payment-in-lieu of tax agreement, which provides us with real estate tax concessions upon
meeting certain conditions. In connection with this agreement, a consulting firm performed a Phase
I and II Environmental Site Assessment, which revealed the existence of contaminated soil and
ground water around one of the buildings. We retained an engineering firm, which estimated that
the cost of remediation should be in the range of $230. Through September&nbsp;29, 2007, total costs
incurred have amounted to approximately $195, none of which has been capitalized. In February
1998, we entered into an agreement with a third party which provides that we and this third party
will retain an environmental consulting firm to conduct a supplemental Phase II investigation to
verify the existence of the contaminants and further delineate the nature of the environmental
concern. The third party agreed to reimburse us for fifty percent (50%) of the cost of correcting
the environmental concern on the Newark property. We have fully reserved for our portion of the
estimated liability. Test sampling was completed in the spring of 2001, and the engineering report
was submitted to the New York State Department of Environmental Conservation (NYSDEC)&nbsp;for review.
NYSDEC reviewed the report and, in January&nbsp;2002, recommended additional testing. We responded by
submitting a work plan to NYSDEC, which was approved in April&nbsp;2002. We sought proposals from
engineering firms to complete the remedial work contained in the work plan. A firm was selected to
undertake the remediation and in December&nbsp;2003 the remediation was completed, and was overseen by
the NYSDEC. The report detailing the remediation project, which included the test results, was
forwarded to NYSDEC and to the New York State Department of Health (NYSDOH). The NYSDEC, with
input from the NYSDOH, requested that we perform additional sampling. A work plan for this portion
of the project was written and delivered to the NYSDEC and approved. In November&nbsp;2005, additional
soil, sediment and surface water samples were taken from the area outlined in the work plan, as
well as groundwater samples from the monitoring wells. We received the laboratory analysis and met
with the NYSDEC in March&nbsp;2006 to discuss the results. On June&nbsp;30, 2006, the Final Investigation
Report was delivered to the NYSDEC by our outside environmental consulting firm. In November&nbsp;2006,
the NYSDEC completed its review of the Final Investigation Report and requested additional
groundwater, soil and sediment sampling. A work plan to address the additional investigation was
submitted to the NYSDEC in January&nbsp;2007 and was approved in April&nbsp;2007. Additional investigation
work was performed in May&nbsp;2007. A preliminary report of results was prepared by our outside
environmental consulting firm in August&nbsp;2007 and a meeting with the NYSDEC and NYSDOH took place in
September&nbsp;2007. As a result of this meeting, NYSDEC and NYSDOH have requested additional
investigation work. A work plan to address this additional investigation is being developed. The
results of the additional investigation requested by the NYSDEC may increase the estimated
remediation costs modestly. At September&nbsp;29, 2007 and December&nbsp;31, 2006, we had $45 and $35,
respectively, reserved for this matter.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->41<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Item&nbsp;6. Exhibits
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock Purchase Agreement by and among Innovative Solutions Consulting, Inc.,
Michele A. Aloisio, Marc DeLaVergne, Thomas R. Knowlton, Kenneth J. Wood, W. Michael
Cooper, and the Registrant, dated September&nbsp;12, 2007</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer Pursuant to Rule&nbsp;13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section&nbsp;302 of the
Sarbanes-Oxley Act of 2002</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Financial Officer Pursuant to Rule&nbsp;13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section&nbsp;302 of the
Sarbanes-Oxley Act of 2002</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">32</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt"><!-- Folio -->42<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">SIGNATURES
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><U>ULTRALIFE BATTERIES, INC.</U><BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Registrant)<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: <u>November 7, 2007</u>&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left"> Date: <U>November 7, 2007</U>&nbsp;</TD>
    <TD valign="top">By:&nbsp;&nbsp;</TD>
    <TD colspan="2" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Vice President - Finance and Chief<BR>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->43<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>
<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt">Index to Exhibits
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">10.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Stock Purchase Agreement by and among Innovative Solutions Consulting, Inc.,
Michele A. Aloisio, Marc DeLaVergne, Thomas R. Knowlton, Kenneth J. Wood, W. Michael
Cooper, and the Registrant, dated September&nbsp;12, 2007</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.1</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Executive Officer Pursuant to Rule&nbsp;13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section&nbsp;302 of the
Sarbanes-Oxley Act of 2002</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">31.2</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification of Chief Financial Officer Pursuant to Rule&nbsp;13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section&nbsp;302 of the
Sarbanes-Oxley Act of 2002</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">32</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certification pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to
Section&nbsp;906 of the Sarbanes-Oxley Act of 2002</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->44<!-- /Folio -->
</DIV>



</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>l28689aexv10w1.htm
<DESCRIPTION>EX-10.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-10.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt"><B>Exhibit&nbsp;10.1</B>
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">STOCK PURCHASE AGREEMENT

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">AMONG

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">ULTRALIFE BATTERIES, INC.

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">AND

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">INNOVATIVE SOLUTIONS CONSULTING, INC.,

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">MICHELE A. ALOISIO,

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">MARC DELAVERGNE,

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">THOMAS R. KNOWLTON,

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">KENNETH J. WOOD,

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">AND

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">W. MICHAEL COOPER

</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">DATED AS OF SEPTEMBER 12, 2007

</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="87%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 1. DEFINITIONS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 2. PURCHASE AND SALE OF TARGET SHARES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Basic Transaction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Purchase Price; Allocation; Payment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Deliveries at Closing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Closing Balance Sheet</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Dispute Mechanism for Certain Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Sellers&#146; Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Buyer&#146;s Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Organization, Qualification, and Corporate Power</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Non-contravention</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Brokers&#146; Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Title to Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(g) </B>Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(h) </B>Events Subsequent to Most Recent Fiscal Year End</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(i) </B>Undisclosed Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(j) </B>Legal Compliance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(k) </B>Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(l) </B>Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(m) </B>Intellectual Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(n) </B>Tangible Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(o) </B>Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(p) </B>Contracts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(q) </B>Notes and Accounts Receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(r) </B>Powers of Attorney</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(s) </B>Insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(t) </B>Litigation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(u) </B>Product Warranty</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(v) </B>Product Liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(w) </B>Employees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(x) </B>Employee Benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(y) </B>Guaranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(z) </B>Environmental, Health, and Safety Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(aa) </B>Systems Continuity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(bb) </B>Certain Business Relationships with Target</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-i-&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="87%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(cc) </B>Customers and Suppliers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(dd) </B>Disclosure</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 5. PRE-CLOSING COVENANTS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Notices and Consents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Operation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Preservation of Business</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Full Access</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Notice of Developments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(g) </B>Exclusivity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(h) </B>Maintenance of Real Property</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(i) </B>Leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(j) </B>Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(k) </B>S Corporation Status</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 6. POST-CLOSING COVENANTS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>General</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Litigation Support</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Transition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Confidentiality</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Termination of Aloisio Guarantees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Release of Target by Sellers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Conditions to Buyer&#146;s Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Conditions to Sellers&#146; Obligation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Survival of Representations and Warranties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Indemnification Provisions for Buyer&#146;s Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Indemnification Provisions for Sellers&#146; Benefit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Matters Involving Third Parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Determination of Adverse Consequences</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Setoff against Holdback Payments; Priority</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(g) </B>Other Indemnification Provisions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 9. TAX MATTERS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Tax Indemnification</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Responsibility for Filing Tax Returns</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>Cooperation on Tax Matters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Tax Sharing Agreements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Certain Taxes and Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Section&nbsp;338(h)(10) Election</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(g) </B>Tax Adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-ii-&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="87%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Page</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 10. TERMINATION</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Termination of Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Effect of Termination</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">SECTION 11. MISCELLANEOUS</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(a) </B>Nature of Sellers&#146; Obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(b) </B>Press Releases and Public Announcements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(c) </B>No Third-Party Beneficiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(d) </B>Entire Agreement</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(e) </B>Succession and Assignment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(f) </B>Counterparts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(g) </B>Headings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(h) </B>Notices</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(i) </B>Governing Law</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(j) </B>Amendments and Waivers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(k) </B>Severability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(l) </B>Expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(m) </B>Construction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(n) </B>Incorporation of Exhibits, Annexes, and Schedules</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(o) </B>Specific Performance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(p) </B>Submission to Jurisdiction</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(q) </B>Tax Disclosure Authorization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px"><B>(r) </B>Attorneys Fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><U>Attachments to Stock Purchase Agreement</U>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Exhibit&nbsp;A: Target Financial Statements
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Annex I: Exceptions to Sellers&#146; Representations and Warranties
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Annex II: Exceptions to Buyer&#146;s Representations and Warranties
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Target Disclosure Schedule
</DIV>



<P align="center" style="font-size: 10pt"><!-- Folio -->-iii-&nbsp;<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>STOCK PURCHASE AGREEMENT</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Stock Purchase Agreement (this &#147;<B><I>Agreement</I></B>&#148;) is entered into as of September&nbsp;12, 2007, by
and among Ultralife Batteries, Inc., a Delaware corporation (&#147;<B><I>Buyer</I></B>&#148;), and Innovative Solutions
Consulting, Inc., a Maryland corporation (&#147;<B><I>Target</I></B>&#148;), Michele A. Aloisio, Marc DeLaVergne, Thomas R.
Knowlton, Kenneth J. Wood, and W. Michael Cooper (each a &#147;<B><I>Seller</I></B>&#148; and collectively, &#147;<B><I>Sellers</I></B>&#148;).
Buyer, Target and Sellers are referred to collectively herein as the &#147;Parties.&#148;
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>RECITALS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A.&nbsp;The Sellers own all of the outstanding stock of Target as of the date of this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B.&nbsp;This Agreement contemplates a transaction in which Buyer will purchase from Sellers, and
Sellers will sell to Buyer, all of the outstanding capital stock of Target in return for cash.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NOW, THEREFORE, in consideration of the premises and the mutual promises herein made, and in
consideration of the representations, warranties, and covenants herein contained, the Parties agree
as follows.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 1. DEFINITIONS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Adverse Consequences</I>&#148; means all actions, suits, proceedings, hearings, investigations,
charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens,
losses, expenses, and fees, including court costs and attorneys&#146; fees and expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliate</I>&#148; means a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person specified.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Affiliated Group</I>&#148; means any affiliated group within the meaning of Code Section 1504(a) or
any similar group defined under a similar provision of state, local or foreign law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Aloisio Guarantees</I>&#148; has the meaning set forth in Section 6(e) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Auditor</I>&#148; has the meaning set forth in Section 2(f) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Basis</I>&#148; means any past or present fact, situation, circumstance, status, condition, activity,
practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or
could form the basis for any specified consequence.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Buyer</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Balance Sheet</I>&#148; has the meaning set forth in Section 2(e) below.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Date</I>&#148; has the meaning set forth in Section 2(c) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Closing Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>COBRA</I>&#148; means the requirements of Part&nbsp;6 of Subtitle B of Title I of ERISA and Code Section
4980B and of any similar state law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Code</I>&#148; means the Internal Revenue Code of 1986, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Confidential Information</I>&#148; means any information concerning the businesses and affairs of the
Target that is not already generally available to the public.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Controlled Group</I>&#148; has the meaning set forth in Code Section&nbsp;1563.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Disclosure Schedule</I>&#148; has the meaning set forth in Section&nbsp;4 below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Benefit Plan</I>&#148; has the meaning set forth in Section 4(x) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Pension Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(2).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Employee Welfare Benefit Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(1).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Encumbrance Documents</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Enforcement Costs</I>&#148; has the meaning set forth in Section 11(r) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Environmental, Health, and Safety Requirements</I>&#148; shall mean all federal, state, local, and
foreign statutes, regulations, ordinances, and other provisions having the force or effect of law,
all judicial and administrative orders and determinations, all contractual obligations, and all
common law concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage, disposal, distribution,
labeling, testing, processing, discharge, release, threatened release, control, or cleanup of any
hazardous materials, substances, or wastes, chemical substances or mixtures, pesticides,
pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, or radiation, each as amended and as now or hereafter in effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA</I>&#148; means the Employee Retirement Income Security Act of 1974, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>ERISA Affiliate</I>&#148; means any Person that is a member of a &#147;controlled group of corporations&#148;
with, or is under &#147;common control&#148; with, or is a member of the same &#147;affiliated service group&#148; with
Target, as defined in Section&nbsp;414 of the Code.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Estoppel Certificates</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Fiduciary</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(21).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>First Holdback Excess Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>First Holdback Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>First Measuring Period</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>GAAP</I>&#148; means United States generally accepted accounting principles as in effect from time to
time, consistently applied.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Holdback Payments</I>&#148; has the meaning set forth in Section 2(b) below. For the avoidance of
doubt, the term &#147;Holdback Payments&#148; may include, as applicable, the First Holdback Payment, the
First Holdback Excess Payment, the Second Holdback Payment and the Third Holdback Payment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Improvements</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnified Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Indemnifying Party</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Intellectual Property</I>&#148; means all of the following in any jurisdiction throughout the world:
(a)&nbsp;all inventions (whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent disclosures, together with
all reissuances, continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b)&nbsp;all trademarks, service marks, trade dress, logos, slogans, trade names, corporate
names, Internet domain names, and rights in telephone numbers, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill associated therewith,
and all applications, registrations, and renewals in connection therewith, (c)&nbsp;all copyrightable
works, all copyrights, and all applications, registrations, and renewals in connection therewith,
(d)&nbsp;all mask works and all applications, registrations, and renewals in connection therewith, (e)
all trade secrets and confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (f)&nbsp;all computer software (including source code,
executable code, data, databases, and related documentation), (g)&nbsp;all advertising and promotional
materials, (h)&nbsp;all other proprietary rights, and (i)&nbsp;all copies and tangible embodiments thereof
(in whatever form or medium).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Knowledge</I>&#148; means actual knowledge after reasonable investigation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lease Consents</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leased Real Property</I>&#148; means all leasehold or subleasehold estates and other rights to use or
occupy any land, buildings, structures, improvements, fixtures, or other interest in real property
held by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Leases</I>&#148; means all leases, subleases, licenses, concessions and other agreements (written or
oral), including all amendments, extensions, renewals, guaranties, and other agreements with
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">respect thereto, pursuant to which Target holds any Leased Real Property, including the right
to all security deposits and other amounts and instruments deposited by or on behalf of Target
thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Liability</I>&#148; means any liability or obligation of whatever kind or nature (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become due), including any
liability for Taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Lien</I>&#148; means any mortgage, pledge, lien, encumbrance, charge, or other security interest,
other than (a)&nbsp;liens for Taxes not yet due and payable and (b)&nbsp;other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Material Adverse Effect</I>&#148; or &#147;<I>Material Adverse Change</I>&#148; means any effect or change that would
be materially adverse to the business, assets, condition (financial or otherwise), operating
results, operations, or business prospects of Target, taken as a whole, or on the ability of
Sellers to consummate timely the transactions contemplated hereby (regardless of whether or not
such adverse effect or change can be or has been cured at any time or whether Buyer has knowledge
of such effect or change on the date hereof).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Balance Sheet</I>&#148; means the balance sheet contained within the Most Recent Financial
Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Financial Statements</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Month End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Most Recent Fiscal Year End</I>&#148; has the meaning set forth in Section 4(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Multiemployer Plan</I>&#148; has the meaning set forth in ERISA Section&nbsp;3(37).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Non-Disturbance Agreements</I>&#148; has the meaning set forth in Section 7(a) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Ordinary Course of Business</I>&#148; means the ordinary course of business consistent with past
custom and practice (including with respect to quantity and frequency).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Party</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Permitted Encumbrances</I>&#148; means with respect to each parcel of Real Property: (a)&nbsp;real estate
taxes, assessments and other governmental levies, fees, or charges imposed with respect to such
Real Property that are (i)&nbsp;not due and payable as of the Closing Date or (ii)&nbsp;that are being
contested in good faith and for which appropriate reserves have been established in accordance with
GAAP; (b)&nbsp;mechanics&#146; liens and similar liens for labor, materials, or supplies provided with
respect to such Real Property incurred in the Ordinary Course of Business for amounts that are (i)
not due and payable as of the Closing Date or (ii)&nbsp;being contested in good faith and for which
appropriate reserves have been established in accordance with GAAP; (c)&nbsp;zoning, building codes and
other land use laws regulating the use or occupancy of such Real Property or the activities
conducted thereon which are imposed by any governmental authority having jurisdiction over
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">such Real Property and are not violated by the current use or occupancy of such Real Property
or the operation of Target&#146;s business as currently conducted thereon; and (d)&nbsp;easements, covenants,
conditions, restrictions, and other similar matters of record affecting title to such Real Property
which do not or would not impair the use or occupancy of such Real Property in the operation of
Target&#146;s business as currently conducted thereon.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Person</I>&#148; means an individual, a partnership, a corporation, a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization, any
other business entity, or a governmental entity (or any department, agency, or political
subdivision thereof).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Prohibited Transaction</I>&#148; has the meaning set forth in ERISA Section&nbsp;406 and Code Section&nbsp;4975.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Purchase Price</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Real Property Laws</I>&#148; has the meaning set forth in Section 4(l) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Released Parties</I>&#148; has the meaning set forth in Section 6(f) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Released Claims</I>&#148; has the meaning set forth in Section 6(f) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Reportable Event</I>&#148; has the meaning set forth in ERISA Section&nbsp;4043.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Requisite Sellers</I>&#148; means Sellers holding a majority in interest of the Target Shares as set
forth in Section 4(b) of the Disclosure Schedule.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Re-Sale Transaction</I>&#148; has the meaning set forth in Section&nbsp;2(b)(vi) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Sales</I>&#148; means revenues, determined in accordance with GAAP, that are achieved by Target in the
ordinary course of business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Second Holdback Excess Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Second Holdback Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Second Measuring Period</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Section&nbsp;</I><I>338(h)(10)</I><I> Election</I>&#148; has the meaning set forth in Section 9(f) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Section&nbsp;</I><I>338(h)(10)</I><I> Election Liability</I>&#148; has the meaning set forth in Section 9(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Act</I>&#148; means the Securities Act of 1933, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Securities Exchange Act</I>&#148; means the Securities Exchange Act of 1934, as amended.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Seller</I>&#148; and &#147;<I>Sellers</I>&#148; have the meanings set forth in the preface above.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Subsidiary</I>&#148; means, with respect to any Person, any corporation, limited liability company,
partnership, association, or other business entity of which (i)&nbsp;if a corporation, a majority of the
total voting power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers, or trustees thereof is at the time
owned or controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof or (ii)&nbsp;if a limited liability company,
partnership, association, or other business entity (other than a corporation), a majority of
partnership or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination
thereof and for this purpose, a Person or Persons own a majority ownership interest in such a
business entity (other than a corporation) if such Person or Persons shall be allocated a majority
of such business entity&#146;s gains or losses or shall be or control any managing director or general
partner of such business entity (other than a corporation). The term &#147;Subsidiary&#148; shall include all
Subsidiaries of such Subsidiary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Systems</I>&#148; has the meaning set forth in Section&nbsp;4(aa) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target</I>&#148; has the meaning set forth in the preface above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Target Share</I>&#148; means any share of the common stock, par value $0.10 per share, of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax</I>&#148; or &#147;<I>Taxes</I>&#148; means any federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section&nbsp;59A), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or
succeed to the Tax liability of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax Adjustment</I>&#148; has the meaning set forth in Section 9(g) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Tax Return</I>&#148; means any return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Third Holdback Payment</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Third Measuring Period</I>&#148; has the meaning set forth in Section 2(b) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Third Party Claim</I>&#148; has the meaning set forth in Section 8(d) below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;<I>Treasury Regulations</I>&#148; means the Treasury Regulations promulgated under the Code.
</DIV>

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<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SECTION 2. PURCHASE AND SALE OF TARGET SHARES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Basic Transaction</B>. On and subject to the terms and conditions of this Agreement, Buyer
agrees to purchase from each Seller, and each Seller agrees to sell to Buyer, all of his or her or
its Target Shares for the consideration specified below in this Section&nbsp;2.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Purchase Price; Allocation; Payment</B>. The aggregate consideration for the Target Shares
shall be up to $3,000,000, subject to adjustments after Closing pursuant to Section&nbsp;2(b)(iii) for
accrued interest on Holdback Payments (as so adjusted, the &#147;<B><I>Purchase Price</I></B>&#148;). The Purchase Price
shall be allocated among Sellers in proportion to their respective holdings of Target Shares as set
forth in Section 4(b) of the Disclosure Schedule. On the terms and subject to the conditions set
forth herein, Buyer shall pay the Purchase Price to Sellers as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;At Closing, Buyer shall pay Sellers the aggregate amount of $1,000,000 by wire transfer of
immediately available funds into an account designated by Sellers prior to the Closing Date (the
&#147;<B><I>Closing Payment</I></B>&#148;). The Closing Payment shall be made by a single wire transfer; it is the
responsibility of Sellers to distribute the Closing Payment amongst themselves.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;On the terms and subject to the conditions set forth below, Buyer shall pay Sellers in up
to three installments an additional aggregate amount of up to, but in no event more than,
$2,000,000 (the &#147;<B><I>Holdback Payments</I></B>&#148;), as follows:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Buyer shall pay Sellers an amount (the &#147;<B><I>First Holdback Payment</I></B>&#148;) equal to 20% of
(1)&nbsp;Sales during the period commencing on the Closing Date and ending on the last day of the
fourth full fiscal quarter of Target following the Closing Date (the &#147;<B><I>First Measuring
Period</I></B>&#148;) <U>less</U> (2) $4,000,000. For the purposes of example only, if the Closing Date
is August&nbsp;17, 2007, the First Measuring Period would begin on August&nbsp;17, 2007 and end at
midnight on September&nbsp;30, 2008.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Buyer shall pay Sellers an amount (the &#147;<B><I>Second Holdback Payment</I></B>&#148;) equal to 20% of
(1)&nbsp;Sales during the 12-month period commencing on the first day following the conclusion of
the First Measuring Period (the &#147;<B><I>Second Measuring Period</I></B>&#148;) <U>less</U> (2) $4,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Buyer shall pay Sellers an amount (the &#147;<B><I>Third Holdback Payment</I></B>&#148;) equal to 20% of
(1)&nbsp;Sales during the 12-month period commencing on the first day following the conclusion of
the Second Measuring Period (the &#147;<B><I>Third Measuring Period</I></B>&#148;) <U>less</U> (2) $4,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) If the First Holdback Payment yields an amount less than or equal to $750,000, then
Buyer shall pay Sellers such amount within 60&nbsp;days of the conclusion of the First Measuring
Period. If the First Holdback Payment yields an amount greater than $750,000, then Buyer
shall pay Sellers $750,000 within 60&nbsp;days of the conclusion of the First Measuring Period
and the amount by which the First Holdback Payment exceeds $750,000 (the &#147;<B><I>First Holdback
Excess Payment</I></B>&#148;) shall be paid to Sellers within 60&nbsp;days of the conclusion of either the
Second Measuring Period or the Third Measuring Period, as described below.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) If the Second Holdback Payment plus the First Holdback Excess Payment, if any,
yields an amount less than or equal to $750,000, then Buyer shall pay Sellers such amount
within 60&nbsp;days of the conclusion of the Second Measuring Period. If the Second Holdback
Payment plus the First Holdback Excess Payment, if any, yields an amount greater than
$750,000, then Buyer shall pay Sellers $750,000 within 60&nbsp;days of the conclusion of the
Second Measuring Period, and the amount by which the Second Holdback Payment and the First
Holdback Excess Payment together exceed $750,000 (the &#147;<B><I>Second Holdback Excess Payment</I></B>&#148;)
shall be paid to Sellers within 60&nbsp;days of the conclusion of the Third Measuring Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) The Third Holdback Payment shall be paid (along with the Second Holdback Excess
Payment, if any) to Sellers within 60&nbsp;days of the conclusion of the Third Measuring Period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) The following is an illustration of the operation of Section&nbsp;2(b)(ii). For purposes
of this illustration, it is assumed that Sales during the First Measuring Period, the Second
Measuring Period and the Third Measuring Period were each $9,000,000. Since Sales during the
First Measuring Period were $9,000,000, the amount of the First Holdback Payment would be
$1,000,000 (i.e. 20% of the result of $9,000,000 minus $4,000,000), and Sellers would
receive $750,000 within 60&nbsp;days of the conclusion of the First Measuring Period. The First
Holdback Excess Payment would be $250,000 and it would rollover for payment within 60&nbsp;days
of the conclusion of the Third Measuring Period (because the payments made for the Second
Measuring Period would be in excess of $750,000, as discussed in the next sentence). Since
Sales during the Second Measuring Period were also $9,000,000, the amount of the Second
Holdback Payment would also be $1,000,000. Accordingly, Sellers would receive $750,000
within 60&nbsp;days of the conclusion of the Second Measuring Period, and the remaining $250,000
attributable to the Second Measuring Period, along with the First Holdback Excess Payment
would rollover for payment within 60&nbsp;days of the conclusion of the Third Measuring Period.
Since the combined amount of the First Holdback Excess Payment and the remaining $250,000
attributable to the Second Measuring Period would be $500,000, there cannot be a Third
Holdback Payment, as the upper limit of $2,000,000 on the aggregate amount of the Holdback
Payments would bar any additional payments. As a result, the $500,000 attributable to the
combination of the First Holdback Excess Payment and the remaining $250,000 attributable to
the Second Measuring Period would be paid to Sellers within 60&nbsp;days of the conclusion of the
Third Measuring Period and there after Sellers would not be entitled to any additional
Holdback Payments. The foregoing assumes that Buyer did not exercise its right of setoff
under Section&nbsp;8.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Each of the Holdback Payments shall be made by a single wire transfer of
immediately available funds into an account designated by Sellers prior to the applicable
payment deadline; it is the responsibility of Sellers to distribute each Holdback Payment
amongst themselves. Concurrently with the payment of each of the Holdback Payments or the
determination that a Holdback Payment has not been achieved, Buyer shall provide Sellers
with a notice that substantiates in reasonable detail the basis for the Holdback Payment or
the determination that the Holdback Payment has not been achieved.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer shall pay interest accrued at a rate of 5% per annum to Sellers on the First
Holdback Excess Payment and the Second Holdback Excess Payment, in each case at the time such
payments are made by Buyer to Sellers. Interest on the First Holdback Excess Payment shall accrue
from the 60<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> calendar day after the conclusion of the First Measuring Period. Interest
on the Second Holdback Excess Payment shall accrue from the 60<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> calendar day after the
conclusion of the Second Measuring Period. Payments hereunder shall be applied first to any
interest due in respect of the First Holdback Excess Payment and then any interest due in respect
of the Second Holdback Excess Payment.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;EACH OF THE HOLDBACK PAYMENTS IS SUBJECT TO THE RIGHT OF SETOFF IN FAVOR OF BUYER UNDER
SECTION 8. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL THE AGGREGATE AMOUNT
OF THE HOLDBACK PAYMENTS (EXCLUDING INTEREST UNDER SECTION 2(b)(iii)) EXCEED $2,000,000.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Following the Closing, until the expiration of the Third Measuring Period:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Subject to Section&nbsp;2(b)(vi), Buyer shall maintain the business of Target as a
separate, wholly-owned subsidiary of Buyer, and during such period any transactions between
Buyer and such subsidiary shall be on an arm&#146;s length basis or on terms that are more
favorable to such subsidiary than terms negotiated on an arm&#146;s length basis, and during such
period Buyer shall keep separate accounting books and records for the business of Target;
and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Subject to Section&nbsp;2(b)(vi), Buyer shall operate the business of Target in the
ordinary course, exercising reasonable business judgment with respect thereto, with due
consideration given to the past practices of the business of Target, and Buyer shall not
take any actions that are manifestly intended to deny Sellers the opportunity to receive
Holdback Payments. In addition, Buyer shall have the right to permanently discontinue and
terminate the business of Target if Buyer determines after the exercise of reasonable
business judgment that such actions are in its best interests and provided further that such
actions are not taken with the manifest intent to deny Sellers the opportunity to receive
Holdback Payments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Following the Closing, notwithstanding the terms of Section&nbsp;2(b)(v), Buyer shall have the
right to sell the business of Target to a third-party in a bona fide arm&#146;s length transaction
during any period in which the possibility remains under the terms of Section&nbsp;2(b)(ii) that Sellers
can receive Holdback Payments (a &#147;<B><I>Re-Sale Transaction</I></B>&#148;). For purposes of Section&nbsp;2(b)(vi), a
Re-Sale Transaction shall consist of a sale of substantially all of the assets of the business of
Target, as the same existed on the Closing Date, a sale of more than 50% of the Target Shares, or
any other transaction that would have the effect of conveying substantially all of the business of
Target, as the same existed on the Closing Date, to a third-party who is not an Affiliate of Buyer
or Sellers, in each case during, and only during, any period in which the possibility remains under
the terms of Section&nbsp;2(b)(ii) that Sellers can receive Holdback Payments. In any such Re-Sale
Transaction (provided the possibility remains under the terms of Section&nbsp;2(b)(ii) that Sellers can
receive Holdback Payments):
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) If the net proceeds received by Buyer on account of the Re-Sale Transaction are
less than or equal to $1,000,000, then Sellers shall be entitled to retain any Holdback
Payments already paid to Sellers and shall be entitled to receive either the First Holdback
Excess Payment or the Second Holdback Excess Payment or both of them, provided in each case
that such payment or payments have already been earned in accordance with the terms of
Section&nbsp;2(b)(ii), but Sellers shall not be entitled to any additional Holdback Payments and
their rights with respect thereto under this Agreement and otherwise shall be extinguished
and Sellers shall have no further rights to pursue Buyer, the purchaser in the Re-Sale
Transaction or any Affiliate of such parties for any additional consideration; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) If the net proceeds received by Buyer on account of the Re-Sale Transaction are
greater than $1,000,000, then following the closing of such Re-Sale Transaction Sellers
shall be entitled to a amount equal to 50% of the amount by which such net proceeds exceed
$1,000,000, up to a maximum amount of $2,000,000, and less the aggregate amount of any
Holdback Payments paid to Sellers or earned and due to be paid to Sellers in accordance with
the terms of Section&nbsp;2(b)(ii). Thereafter, Sellers shall not be entitled to any additional
Holdback Payments and their rights with respect thereto under this Agreement shall be
extinguished and Sellers shall have no further rights to pursue Buyer, the purchaser in the
Re-Sale Transaction or any Affiliate of such parties for any additional consideration. For
illustrative purposes, assuming Sellers had received a First Holdback Payment of $750,000
but had not earned any additional Holdback Payments and further assuming that a hypothetical
Re-Sale Transaction yielded net proceeds to Buyer of $6,000,000, the amount due to Sellers
in respect thereof would be calculated by: subtracting $1,000,000 from $6,000,000 to yield
$5,000,000; multiplying the result of $5,000,000 by 0.5 to yield $2,500,000; applying the
$2,000,000 limitation to yield $2,000,000; and subtracting from $2,000,000 the First
Holdback Payment of $750,000 to yield an aggregate amount due to Sellers of $1,250,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Closing</B>. The closing of the transactions contemplated by this Agreement (the &#147;<B><I>Closing</I></B>&#148;)
shall take place at the offices of Harter Secrest &#038; Emery LLP, in Rochester, New York, commencing
at 10:00&nbsp;a.m. local time on the second business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take at the Closing
itself) or such other place (including remotely, via electronic means), time and date as Buyer and
Requisite Sellers may mutually determine (the &#147;<B><I>Closing Date</I></B>&#148;); <U>provided</U>, <U>however</U>,
that the Closing Date shall be no later than September&nbsp;12, 2007.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Deliveries at Closing</B>. At the Closing, (i)&nbsp;Sellers will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 7(a) below, (ii)&nbsp;Buyer will deliver
to Sellers the various certificates, instruments, and documents referred to in Section 7(b) below,
(iii)&nbsp;each Seller will deliver to Buyer stock certificates representing all of his or its Target
Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv)&nbsp;Buyer will
deliver to Sellers the consideration specified in Section 2(b) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Closing Balance Sheet</B>. Within 45&nbsp;days following Closing, Buyer will prepare a closing
balance sheet (the &#147;<B><I>Closing Balance Sheet</I></B>&#148;) and deliver the same to Sellers. Buyer will
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">cause the Closing Balance Sheet to be derived from the books and records of Target, and to
present fairly the assets and liabilities of Target as of the Closing Date, in accordance with
GAAP.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Dispute Mechanism for Certain Matters</B>. In the event that another provision of this
Agreement refers to this section for a dispute process, then in connection with such calculation,
accounting treatment or other matter, then either party may submit such dispute, or the resolution
of only such item or items thereof as are in dispute, to BDO Seidman LLP (the &#147;<B><I>Auditor</I></B>&#148;) for
computation, verification or resolution in accordance with the provisions of this Agreement. Buyer
and Sellers shall make readily available to the Auditor all relevant books and records (including
work papers of a party&#146;s independent public accountants) as the Auditor reasonably requests. The
Auditor&#146;s computation or verification of the account, calculation or item or resolution of such
disputed item or items thereof (as the case may be), which Buyer and Sellers will instruct the
Auditor to deliver to them within 30&nbsp;days after submission to the Auditor, will be final and
binding upon the parties for all purposes relating to this Section&nbsp;2(f), and the Auditor&#146; fees and
expenses therefor will be borne by the non-prevailing party or, in the event that each party
prevails on some of the issues in dispute, will be shared proportionately, as determined by the
Auditor.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 3. TRANSACTION REPRESENTATIONS AND WARRANTIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Sellers&#146; Representations and Warranties</B>. Each Seller represents and warrants to Buyer that
the statements contained in this Section 3(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement throughout this Section
3(a)) with respect to himself or itself, except as set forth in Annex I attached hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <I>Organization of Certain Sellers</I>. Seller (if a corporation or other entity) is duly
organized, validly existing, and in good standing under the laws of the jurisdiction of its
incorporation or other formation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <I>Authorization of Transaction</I>. Seller has full power and authority (including full
corporate or other entity power and authority) to execute and deliver this Agreement and to perform
his, her, or its obligations hereunder. This Agreement constitutes the valid and legally binding
obligation of Seller, enforceable in accordance with its terms and conditions. Seller need not give
any notice to, make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions contemplated by this
Agreement. The execution, delivery, and performance of this Agreement and all other agreements
contemplated hereby have been duly authorized by Seller.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)&nbsp;to the Knowledge of Sellers violate
any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which Seller is subject
or, if Seller is an entity, any provision of its charter, bylaws, or other governing documents, (B)
conflict with, result in a breach of, constitute a default under,
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">result in the acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which Seller is a party or by which he or it is bound or to which any of his
or its assets is subject, that individually or in the aggregate could reasonably be expected to
have a Material Adverse Effect on Target&#146;s business or financial condition, or (C)&nbsp;result in the
imposition or creation of a Lien upon or with respect to the Target Shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <I>Brokers&#146; Fees</I>. Seller has no Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by this Agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <I>Target Shares</I>. Seller holds of record and owns beneficially the number of Target Shares
set forth next to his or its name in Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act and state securities
laws), Taxes, Liens, options, warrants, purchase rights, contracts, commitments, equities, claims,
and demands. Seller is not a party to any option, warrant, purchase right, or other contract or
commitment that could require Seller to sell, transfer, or otherwise dispose of any capital stock
of Target (other than this Agreement). Seller is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital stock of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Buyer&#146;s Representations and Warranties</B>. Buyer represents and warrants to Sellers that the
statements contained in this Section 3(b) are correct and complete as of the date of this Agreement
and will be correct and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this Section&nbsp;3(b)), except
as set forth in Annex II attached hereto.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <I>Organization of Buyer</I>. Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) <I>Authorization of Transaction</I>. Buyer has full power and authority (including full
corporate or other entity power and authority) to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of
Buyer, enforceable in accordance with its terms and conditions. Buyer need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this Agreement. The
execution, delivery, and performance of this Agreement and all other agreements contemplated hereby
have been duly authorized by Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) <I>Non-contravention</I>. Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (A)&nbsp;violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buyer is subject or any provision of its
charter, bylaws, or other governing documents or (B)&nbsp;conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract,
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">lease, license, instrument, or other arrangement to which Buyer is a party or by which it is
bound or to which any of its assets is subject.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) <I>Brokers&#146; Fees</I>. Buyer has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) <I>Investment</I>. Buyer is not acquiring the Target Shares with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) <I>Financial Ability</I>. Buyer presently maintains the financial ability to consummate the
transactions contemplated by this Agreement and meet its financial obligations hereunder and, to
the extent Buyer deems necessary, has obtained a commitment from a lender of Buyer&#146;s choice to
provide the financing described in Section&nbsp;7(a)(viii).
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 4. TARGET REPRESENTATIONS AND WARRANTIES</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sellers jointly and severally represent and warrant to Buyer that the statements contained in
this Section&nbsp;4 are correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section&nbsp;4), except as set forth in the
disclosure schedule delivered by Sellers to Buyer on the date hereof and initialed by the Parties
(the &#147;<B><I>Disclosure Schedule</I></B>&#148;). Nothing in the Disclosure Schedule shall be deemed adequate to
disclose an exception to a representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception with particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy)
of a document or other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty has to do with the
existence of the document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in this Section&nbsp;4.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Organization, Qualification, and Corporate Power</B>. Target is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland. Target is duly
authorized to conduct business and is in good standing under the laws of each jurisdiction where
such qualification is required. Target has full corporate power and authority and all licenses,
permits, and authorizations necessary to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. Section 4(a) of the Disclosure Schedule lists the
directors and officers of Target. Sellers have delivered to Buyer correct and complete copies of
the charter and bylaws of Target (as amended to date). The minute books (containing the records of
meetings of the stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of Target are correct and
complete. Target is not in default under or in violation of any provision of its charter or bylaws.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Capitalization</B>. The entire authorized capital stock of Target consists of 1,000,000 Target
Shares, of which 11,265.676 Target Shares are issued and outstanding and no Target Shares are held
in treasury. All of the issued and outstanding Target Shares have been
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">duly authorized, are validly issued, fully paid, and non-assessable, and are held of record by
the respective Sellers as set forth in Section 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require Target to issue,
sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding
or authorized stock appreciation rights, phantom stock, profit participation, or similar rights
with respect to Target. There are no voting trusts, proxies, or other agreements or understandings
with respect to the voting of the capital stock of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Non-contravention</B>. Except as set forth on Section 4(c) of the Disclosure Schedule, neither
the execution and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i)&nbsp;to the Knowledge of Sellers violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Target is subject or any provision of the
charter or bylaws of Target or (ii)&nbsp;conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Target is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Lien upon any of its assets). Target does not
need to give any notice to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Brokers&#146; Fees</B>. Target has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this Agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Title to Assets</B>. Except as set forth on Section 4(e) of the Disclosure Schedule, Target
has good and marketable title to, or a valid leasehold interest in, the properties and assets used
by Target, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Liens, except for properties and assets disposed of in the
Ordinary Course of Business since the date of the Most Recent Balance Sheet.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Subsidiaries</B>. Target has no Subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Financial Statements</B>. Attached hereto as Exhibit&nbsp;A are the following financial statements
(collectively the &#147;<B><I>Financial Statements</I></B>&#148;): (i)&nbsp;an unaudited balance sheet and statements of income,
changes in stockholders&#146; equity, and cash flow as of and for the fiscal year ended December&nbsp;31,
2006 (the &#147;<B><I>Most Recent Fiscal Year End</I></B>&#148;) for Target; and (ii)&nbsp;an unaudited balance sheet and
statements of income, changes in stockholders&#146; equity, and cash flow (the &#147;<B><I>Most Recent Financial
Statements</I></B>&#148;) as of and for the six months ended June&nbsp;30, 2007 (the &#147;<B><I>Most Recent Fiscal Month End</I></B>&#148;)
for Target. Except as set forth on Section 4(g) of the Disclosure Schedule, the Financial
Statements (including the notes thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the financial condition of
Target as of such dates and the results of operations of Target for such periods, are correct and
complete, and are consistent with the books and records of Target (which books and records are
correct and complete); <U>provided</U>, <U>however</U>, that the Most
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Recent Financial Statements are subject to normal year-end adjustments (which will not be
material individually or in the aggregate) and lack footnotes and other presentation items.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Events Subsequent to Most Recent Fiscal Year End</B>. Except as set forth on Section 4(h) of
the Disclosure Schedule, since the Most Recent Fiscal Year End, there has not been any Material
Adverse Change. Without limiting the generality of the foregoing, since that date:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target has not sold, leased, transferred, or assigned any of its assets, tangible or
intangible, other than for a fair consideration in the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Target has not entered into any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) either involving more than $10,000 or outside
the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;no party (including Target) has accelerated, terminated, modified, or cancelled any
agreement, contract, lease, or license (or series of related agreements, contracts, leases, and
licenses) involving more than $10,000 to which Target is a party or by which Target is bound;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Target has not imposed any Liens upon any of its assets, tangible or intangible;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Except as set forth on Section&nbsp;4(h)(v) of the Disclosure Schedule, Target has not made any
capital expenditure (or series of related capital expenditures) either involving more than $10,000
or outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Target has not made any capital investment in, any loan to, or any acquisition of the
securities or assets of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Except as set forth on Section&nbsp;4(h)(vii) of the Disclosure Schedule, Target has not
issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either involving more than $5,000
singly or $10,000 in the aggregate;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Target has not delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;Target has not cancelled, compromised, waived, or released any right or claim (or series
of related rights and claims) either involving more than $10,000 or outside the Ordinary Course of
Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Except as set forth on Section&nbsp;4(h)(x) of the Disclosure Schedule, Target has not
transferred, assigned, or granted any license or sublicense of any rights under or with respect to
any Intellectual Property;
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;there has been no change made or authorized in the charter or bylaws of Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;Except as set forth on Section&nbsp;4(h)(xii) of the Disclosure Schedule, Target has not
issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;Target has not declared, set aside, or paid any dividend or made any distribution with
respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;Target has not experienced any damage, destruction, or loss (whether or not covered by
insurance) to its property, except for normal wear and tear due to ordinary use;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;Target has not made any loan to, or entered into any other transaction with, any of its
directors, officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;Target has not entered into any employment contract or collective bargaining agreement,
written or oral, or modified the terms of any existing such contract or agreement;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii)&nbsp;Target has not granted any increase in the base compensation of any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii)&nbsp;Target has not adopted, amended, modified, or terminated any bonus, profit sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect to any other Employee
Benefit Plan);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix)&nbsp;Target has not made any other change in employment terms for any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx)&nbsp;Target has not made or pledged to make any charitable or other capital contribution
outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi)&nbsp;there has not been any other material occurrence, event, incident, action, failure to
act, or transaction outside the Ordinary Course of Business involving Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii)&nbsp;Target has not discharged a material Liability or Lien outside the Ordinary Course of
Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii)&nbsp;Target has not made any loans or advances of money;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiv)&nbsp;Target has not disclosed any Confidential Information outside the Ordinary Course of
Business, and all disclosures of Confidential Information made within the Ordinary Course of
Business were subject to not less than a reasonable level of customary legal
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">protection for disclosures of the type in light of the circumstances surrounding such
disclosures; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxv)&nbsp;Target has not committed to any of the foregoing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Undisclosed Liabilities</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability), except for (i)&nbsp;Liabilities set forth on the face
of the Most Recent Balance Sheet and (ii)&nbsp;Liabilities which have arisen after the Most Recent
Fiscal Month End in the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort,
infringement, or violation of law).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Legal Compliance</B>. Target and its predecessors and Affiliates, if any, have complied with
all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder and including the Foreign Corrupt Practices Act, 15 U.S.C.
78dd-1 et seq.) of federal, state, local, and foreign governments (and all agencies thereof) except
for any non-compliance that individually or in the aggregate could not reasonably be expected to
have a Material Adverse Effect on Target&#146;s business or financial condition, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Tax Matters</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target (and any predecessor of Target) has been a validly electing S corporation within
the meaning of Code Section&nbsp;1361 and Section&nbsp;1362 at all times during its existence and Target will
be an S corporation up to and including the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Target has no potential liability for any Tax under Code Section&nbsp;1374. Target has not, in
the past 10&nbsp;years, (A)&nbsp;acquired assets from another corporation in a transaction in which Target&#146;s
Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the transferor or (B)&nbsp;acquired
the stock of any corporation that is a qualified subchapter S subsidiary.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Target has filed all Tax Returns that it was required to file under applicable laws and
regulations. All such Tax Returns were correct and complete in all respects and have been prepared
in substantial compliance with all applicable laws and regulations. All Taxes due and owing by
Target (whether or not shown on any Tax Return) have been paid. Target currently is not the
beneficiary of any extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where Target does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet
due and payable) upon any of the assets of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Target has withheld and paid all Taxes required to have been withheld and paid in
connection with any amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;No Seller or director or officer (or employee responsible for Tax matters) of Target
expects any authority to assess any additional Taxes for any period for which Tax Returns have been
filed. No foreign, federal, state, or local tax audits or administrative or judicial Tax
proceedings are pending or being conducted with respect to Target. Target has not received from any
foreign, federal, state, or local taxing authority (including jurisdictions where Target has not
filed Tax Returns) any (i)&nbsp;notice indicating an intent to open an audit or other review, (ii)
request for information related to Tax matters, or (iii)&nbsp;notice of deficiency or proposed
adjustment for any amount of Tax proposed, asserted, or assessed by any taxing authority against
Target; Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed
with respect to Target for taxable periods ended on or after December&nbsp;31, 2003, indicates those Tax
Returns that have been audited, and indicates those Tax Returns that currently are the subject of
audit. Sellers have delivered to Buyer correct and complete copies of all federal income Tax
Returns, examination reports, and statements of deficiencies assessed against or agreed to by
Target filed or received since December&nbsp;31, 2003.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Target has not waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Target is not a party to any agreement, contract, arrangement or plan that has resulted
or would result, separately or in the aggregate, in the payment of (i)&nbsp;any &#147;excess parachute
payment&#148; within the meaning of Code Section&nbsp;280G (or any corresponding provision of state, local or
foreign Tax law) and (ii)&nbsp;any amount that will not be fully deductible as a result of Code 162(m)
(or any corresponding provision of state, local or foreign Tax law). Target has not been a United
States real property holding corporation within the meaning of Code Section&nbsp;897(c)(2) during the
applicable period specified in Code Section&nbsp;897(c)(1)(A)(ii). Target has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a substantial understatement
of federal income Tax within the meaning of Code Section&nbsp;6662. Target is not a party to or bound by
any Tax allocation or sharing agreement. Target (A)&nbsp;has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the common parent of which was
Target) or (B)&nbsp;has no Liability for the Taxes of any Person (other than Target) under Reg. Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;The unpaid Taxes of Target (A)&nbsp;did not, as of the Most Recent Fiscal Month End, exceed
the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (B)&nbsp;do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and practice of Target
in filing their Tax Returns. Since the date of the Most Recent Balance Sheet, Target has not
incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used
in GAAP, outside the Ordinary Course of Business consistent with past custom and practice.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;Target will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of any: (A)&nbsp;change in method of accounting for a taxable period ending on or prior
to the Closing Date; (B) &#147;closing agreement&#148; as described in Code Section
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">7121 (or any corresponding or similar provision of state, local or foreign income Tax law)
executed on or prior to the Closing Date; (C)&nbsp;intercompany transactions or any excess loss account
described in Treasury Regulations under Code Section&nbsp;1502 (or any corresponding or similar
provision of state, local or foreign income Tax law); (D)&nbsp;installment sale or open transaction
disposition made on or prior to the Closing Date; or (E)&nbsp;prepaid amount received on or prior to the
Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Target has not distributed stock of another Person, or has had its stock distributed by
another Person, in a transaction that was purported or intended to be governed in whole or in part
by Code Section&nbsp;355 or Section&nbsp;361.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;Target has not, since October&nbsp;3, 2004, (A)&nbsp;granted to any person an interest in a
nonqualified deferred compensation plan (as defined in Code Section&nbsp;409A) which interest has been
or, upon the lapse of a substantial risk of forfeiture with respect to such interest, will be
subject to the Tax imposed by Code Section&nbsp;409A, or (B)&nbsp;modified the terms of any nonqualified
deferred compensation plan in a manner that could cause an interest previously granted under such
plan to become subject to the Tax imposed by Code Section&nbsp;409A. No person has a right to be
indemnified by Target for any Tax imposed by Code Section&nbsp;409A.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Real Property</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target does not own any Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Section&nbsp;4(l)(ii) of the Disclosure Schedule sets forth the address of each parcel of
Leased Real Property, and a true and complete list of all Leases for each such Leased Real Property
(including the date and name of the parties to such Lease document). Target has delivered to Buyer
a true and complete copy of each such Lease document, and in the case of any oral Lease, a written
summary of the material terms of such Lease. Except as set forth in Section&nbsp;4(l)(ii) of the
Disclosure Schedule, with respect to each of the Leases:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) such Lease is legal, valid, binding, enforceable and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the transaction contemplated by this Agreement does not require the consent of any
other party to such Lease (except for those Leases for which Lease Consents (as hereinafter
defined) are obtained), will not result in a breach of or default under such Lease that
individually or in the aggregate could reasonably be expected to have a Material Adverse
Effect on Target&#146;s business or financial condition, and will not otherwise cause such Lease
to cease to be legal, valid, binding, enforceable and in full force and effect on identical
terms following the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Target&#146;s possession and quiet enjoyment of the Leased Real Property under such
Lease has not been disturbed and there are no disputes with respect to such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) neither Target nor any other party to the Lease is in breach or default under such
Lease, and no event has occurred or circumstance exists which, with
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">the delivery of notice, the passage of time or both, would constitute such a breach or
default, or permit the termination, modification or acceleration of rent under such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no security deposit or portion thereof deposited with respect to such Lease has
been applied in respect of a breach or default under such Lease which has not been
redeposited in full;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) Target neither owes or will owe in the future any brokerage commissions or finder&#146;s
fees with respect to such Lease;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) the other party to such Lease is not an Affiliate of, and otherwise does not have
any economic interest in, Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not subleased, licensed or otherwise granted any Person the right to use
or occupy such Leased Real Property or any portion thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(I) Target has not collaterally assigned or granted any other Lien in such Lease or any
interest therein; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(J) there are no Liens on the estate or interest created by such Lease.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;The Leased Real Property identified in Section&nbsp;4(l)(ii) of the Disclosure Schedule
(collectively, the &#147;<B><I>Real Property</I></B>&#148;), comprises all of the real property used or intended to be used
in, or otherwise related to, Target&#146;s business; and Target is not a party to any agreement or
option to purchase any real property or interest therein.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;All buildings, structures, fixtures, building systems and equipment, and all components
thereof, including the roof, foundation, load-bearing walls and other structural elements thereof,
heating, ventilation, air conditioning, mechanical, electrical, plumbing and other building
systems, environmental control, remediation and abatement systems, sewer, storm and waste water
systems, irrigation and other water distribution systems, parking facilities, fire protection,
security and surveillance systems, and telecommunications, computer, wiring and cable
installations, included in the Real Property (the &#147;<B><I>Improvements</I></B>&#148;) are in good condition and repair
(except for ordinary wear and tear) and sufficient for the operation of Target&#146;s business. There
are no structural deficiencies or latent defects affecting any of the Improvements and there are no
facts or conditions affecting any of the Improvements which would, individually or in the
aggregate, interfere in any respect with the use or occupancy of the Improvements or any portion
thereof in the operation of Target&#146;s business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;There is no condemnation, expropriation or other proceeding in eminent domain, pending or,
to the Knowledge of Sellers, threatened, affecting any parcel of Real Property or any portion
thereof or interest therein. There is no injunction, decree, order, writ or judgment outstanding,
nor any claims, litigation, administrative actions or similar proceedings, pending or threatened,
relating to the ownership, lease, use or occupancy of the Real Property or any portion thereof, or
the operation of Target&#146;s business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;The Real Property is in compliance with all applicable building, zoning, subdivision,
health and safety and other land use laws, including the Americans with Disabilities
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Act of 1990, as amended, and all insurance requirements affecting the Real Property
(collectively, the &#147;<B><I>Real Property Laws</I></B>&#148;), and the current use and occupancy of the Real Property
and operation of Target&#146;s business thereon does not violate any Real Property Laws. Target has not
received any notice of violation of any Real Property Law and there is no basis for the issuance of
any such notice or the taking of any action for such violation. There is no pending or anticipated
change in any Real Property Law that will materially impair the ownership, lease, use or occupancy
of any Real Property or any portion thereof in the continued operation of Target&#146;s business as
currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Each parcel of Real Property has direct vehicular and pedestrian access to a public
street adjoining the Real Property, or to the Knowledge of Sellers has vehicular and pedestrian
access to a public street via an insurable, permanent, irrevocable and appurtenant easement
benefiting such parcel of Real Property, and to the Knowledge of Sellers such access is not
dependent on any land or other real property interest which is not included in the Real Property.
None of the Improvements or any portion thereof is dependent for its access, use or operation on
any land, building, improvement or other real property interest which is not included in the Real
Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;All water, oil, gas, electrical, steam, compressed air, telecommunications, sewer,
storm and waste water systems and other utility services or systems for the Real Property have been
installed and are operational and sufficient for the operation of Target&#146;s business as currently
conducted thereon. Each such utility service enters the Real Property from an adjoining public
street or valid private easement in favor of the supplier of such utility service or appurtenant to
such Real Property, and is not dependent for its access, use or operation on any land, building,
improvement or other real property interest which is not included in the Real Property.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;All certificates of occupancy, permits, licenses, franchises, approvals and
authorizations (collectively, the &#147;<B><I>Real Property Permits</I></B>&#148;) of all governmental authorities, boards
of fire underwriters, associations or any other entity having jurisdiction over the Real Property
which are required or appropriate to use or occupy the Real Property or operate Target&#146;s business
as currently conducted thereon, have been issued and are in full force and effect. Section&nbsp;4(l)(ix)
of the Disclosure Schedule lists all material Real Property Permits held by Target with respect to
each parcel of Real Property. Target has delivered to Buyer a true and complete copy of all Real
Property Permits. Target has not received any notice from any governmental authority or other
entity having jurisdiction over the Real Property threatening a suspension, revocation,
modification or cancellation of any Real Property Permit and there is no basis for the issuance of
any such notice or the taking of any such action. The Real Property Permits are transferable to
Buyer without the consent or approval of the issuing governmental authority or entity, no
disclosure, filing or other action by Target is required in connection with such transfer, and
Buyer shall not be required to assume any additional liabilities or obligations under the Real
Property Permits as a result of such transfer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;To the Knowledge of Sellers, the classification of each parcel of Real Property under
applicable zoning laws, ordinances and regulations permits the use and occupancy of such parcel and
the operation of Target&#146;s business as currently conducted thereon, and permits the Improvements
located thereon as currently constructed, used and occupied.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are sufficient parking spaces, loading docks and other facilities at such parcel to
comply with such zoning laws, ordinances and regulations. Target&#146;s use or occupancy of the Real
Property or any portion thereof or the operation of Target&#146;s business as currently conducted
thereon is not dependent on a &#147;permitted non-conforming use&#148; or &#147;permitted non-conforming
structure&#148; or similar variance, exemption or approval from any governmental authority.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;To the Knowledge of Sellers, the current use and occupancy of the Real Property and the
operation of Target&#146;s business as currently conducted thereon does not violate any easement,
covenant, condition, restriction or similar provision in any instrument of record or other
unrecorded agreement affecting such Real Property (the &#147;<B><I>Encumbrance Documents</I></B>&#148;). Neither Sellers
nor Target has received any notice of violation of any Encumbrance Documents, and there is no basis
for the issuance of any such notice or the taking of any action for such violation.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;To the Knowledge of Sellers, none of the Improvements encroach on any land which is not
included in the Real Property or on any easement affecting such Real Property, or violate any
building lines or set-back lines, and there are no encroachments onto any of the Real Property, or
any portion thereof, which encroachment would interfere with the use or occupancy of such Real
Property or the continued operation of Target&#146;s business as currently conducted thereon.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;To the Knowledge of Sellers, each parcel of Real Property is a separate lot for real
estate tax and assessment purposes, and no other real property is included in such tax parcel.
There are no Taxes, assessments, fees, charges or similar costs or expenses imposed by any
governmental authority, association or other entity having jurisdiction over the Real Property
(collectively, the &#147;<B><I>Real Estate Impositions</I></B>&#148;) with respect to any Real Property or portion thereof
which are delinquent. There is no pending or threatened increase or special assessment or
reassessment of any Real Estate Impositions for such parcel.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;None of the Real Property or any portion thereof is located in a flood hazard area (as
defined by the Federal Emergency Management Agency).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Intellectual Property</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target owns and possesses or has the right to use pursuant to a valid and enforceable,
written license, sublicense, agreement, or permission all Intellectual Property used in the
operation of the businesses of Target as presently conducted. Each item of Intellectual Property
owned or used by Target immediately prior to the Closing hereunder will be owned or available for
use by Target on identical terms and conditions immediately subsequent to the Closing hereunder.
Target has taken the actions described on Section&nbsp;4(m)(i) of the Disclosure Schedule to maintain
and protect each item of Intellectual Property that Target owns or uses.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Except as set forth on Section&nbsp;4(m)(ii) of the Disclosure Schedule, Target has not
received notice that it has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of third parties, and none of Sellers and the
directors and officers (and employees with responsibility for Intellectual Property matters) of
Target have ever received any charge, complaint, claim, demand, or notice alleging any such
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">interference, infringement, misappropriation, or violation (including any claim that Target
must license or refrain from using any Intellectual Property rights of any third party). To the
Knowledge of any of Sellers and the directors and officers (and employees with responsibility for
Intellectual Property matters) of Target, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property rights of Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Section&nbsp;4(m)(iii) of the Disclosure Schedule identifies each patent or registration that
has been issued to Target with respect to any of its Intellectual Property, identifies each pending
patent application or application for registration which Target has made with respect to any of its
Intellectual Property, and identifies each license, sublicense, agreement, or other permission
which Target has granted to any third party with respect to any of its Intellectual Property
(together with any exceptions). Sellers have delivered to Buyer correct and complete copies of all
such patents, registrations, applications, licenses, sublicenses, agreements, and permissions (as
amended to date). Section&nbsp;4(m)(iii) of the Disclosure Schedule also identifies each material
unregistered trademark, service mark, trade name, corporate name or Internet domain name, computer
software item (other than commercially available off-the-shelf software purchased or licensed for
less than a total cost of $1,000 in the aggregate) and each material unregistered copyright used by
Target in connection with any of its businesses. With respect to each item of Intellectual Property
required to be identified in Section&nbsp;4(m)(iii) of the Disclosure Schedule:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) Target owns and possesses all right, title, and interest in and to the item, free
and clear of any Lien, license, or other restriction or limitation regarding use or
disclosure;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the item is not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
which challenges the legality, validity, enforceability, use, or ownership of the item, and
there are no grounds for the same;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Target has never agreed to indemnify any Person for or against any interference,
infringement, misappropriation, or other conflict with respect to the item; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) no loss or expiration of the item is threatened, pending, or reasonably
foreseeable, except for patents expiring at the end of their statutory terms (and not as a
result of any act or omission by Sellers or Target, including without limitation, a failure
by Sellers or Target to pay any required maintenance fees).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Section&nbsp;4(m)(iv) of the Disclosure Schedule identifies each item of Intellectual Property
that any third party owns and that Target uses pursuant to license, sublicense, agreement, or
permission. The Sellers have delivered to Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">respect to each item of Intellectual Property required to be identified in Section&nbsp;4(m)(iv) of
the Disclosure Schedule:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) the license, sublicense, agreement, or permission covering the item is legal,
valid, binding, enforceable, and in full force and effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) the license, sublicense, agreement, or permission will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following consummation
of the transaction contemplated hereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) no party to the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration thereunder;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) no party to the license, sublicense, agreement, or permission has repudiated any
provision thereof;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) with respect to each sublicense, the representations and warranties set forth in
subsections (A)&nbsp;through (D)&nbsp;above are true and correct with respect to the underlying
license;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(F) the underlying item of Intellectual Property is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(G) no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand is pending or, to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of Target, is threatened
that challenges the legality, validity, or enforceability of the underlying item of
Intellectual Property, and there are no grounds for the same; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(H) Target has not granted any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;To the Knowledge of any of Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of Target: (A)&nbsp;Target has not in the past nor
will interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued operation of its
businesses as presently conducted; (B)&nbsp;there are no facts that indicate a likelihood of any of the
foregoing; and (C)&nbsp;no notices regarding any of the foregoing (including, without limitation, any
demands or offers to license any Intellectual Property from any third party) have been received.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Sellers have taken all necessary and desirable action to maintain and protect all of the
Intellectual Property of Target and will continue to maintain and protect all of the Intellectual
Property of Target prior to Closing so as not to adversely affect the validity or enforceability
thereof. To the Knowledge of any of Sellers, the owners of any of the Intellectual Property
licensed to Target have taken all necessary and desirable action to maintain and protect the
Intellectual Property covered by such license.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Sellers have complied in all material respects with and are presently in compliance in
all material respects with all foreign, federal, state, local, governmental (including, but not
limited to, the Federal Trade Commission and State Attorneys General), administrative or regulatory
laws, regulations, guidelines and rules applicable to any Intellectual Property and Sellers shall
take all steps necessary to ensure such compliance until Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Tangible Assets</B>. Target owns or leases all buildings, machinery, equipment, and other
tangible assets necessary for the conduct of their businesses as presently conducted. Each such
tangible asset is free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used and presently is proposed to
be used.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Inventory</B>. The inventory of Target consists of raw materials and supplies, manufactured
and purchased parts, goods in process, and finished goods, all of which is merchantable and fit for
the purpose for which it was procured or manufactured, and none of which is slow-moving, obsolete,
damaged, or defective, subject only to the reserve for inventory writedown set forth on the face of
the Most Recent Balance Sheet (rather than in notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Contracts</B>. Section 4(p) of the Disclosure Schedule lists the following contracts and other
agreements to which Target is a party:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;any agreement (or group of related agreements) for the lease of personal property to or
from any Person regardless of amount;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;any agreement (or group of related agreements) for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one year, result in a
loss to Target, or involve consideration in excess of $10,000;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;any agreement concerning a partnership or joint venture;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;any agreement (or group of related agreements) under which it has created, incurred,
assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;any agreement concerning confidentiality or non-competition;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;any agreement with any of Sellers and their Affiliates (other than Target);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;any profit sharing, stock option, stock purchase, stock appreciation, deferred
compensation, severance, or other plan or arrangement for the benefit of its current or former
directors, officers, and employees;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;any collective bargaining agreement;
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;any agreement for the employment of any individual on a full-time, part-time, consulting,
or other basis providing annual compensation in excess of $10,000 or providing severance benefits;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;any agreement under which it has advanced or loaned any amount to any of its directors,
officers, and employees outside the Ordinary Course of Business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;any agreement under which the consequences of a default or termination could have a
Material Adverse Effect;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;any agreement under which it has granted any Person any registration rights (including,
without limitation, demand and piggyback registration rights);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;any agreement under which Target has advanced or loaned any other Person any amounts;
or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;any other agreement (or group of related agreements) the performance of which involves
consideration in excess of $10,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Sellers have delivered to Buyer a correct and complete copy of each written agreement (as amended
to date) listed in Section 4(p) of the Disclosure Schedule and a written summary setting forth the
terms and conditions of each oral agreement referred to in Section 4(p) of the Disclosure Schedule.
With respect to each such agreement: (A)&nbsp;the agreement is legal, valid, binding, enforceable, and
in full force and effect; (B)&nbsp;the agreement will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms following the consummation of the transaction
contemplated hereby; (C)&nbsp;no party is in breach or default, and no event has occurred which with
notice or lapse of time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D)&nbsp;no party has repudiated any provision of the
agreement.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(q)&nbsp;Notes and Accounts Receivable</B>. Except as set forth on Section 4(q) of the Disclosure
Schedule, all notes and accounts receivable of Target are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(r)&nbsp;Powers of Attorney</B>. Except as set forth on Section 4(r) of the Disclosure Schedule, there
are no outstanding powers of attorney executed on behalf of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(s)&nbsp;Insurance</B>. Section 4(s) of the Disclosure Schedule sets forth the following information
with respect to each insurance policy (including policies providing property, casualty, liability,
and workers&#146; compensation coverage and bond and surety arrangements) to which Target has been a
party, a named insured, or otherwise the beneficiary of coverage at any time within the past 10
years:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the name, address, and telephone number of the agent;
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;the name of the insurer, the name of the policyholder, and the name of each covered
insured;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;the policy number and the period of coverage;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;the scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;a description of any retroactive premium adjustments or other loss-sharing arrangements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">With respect to each such insurance policy: (A)&nbsp;the policy is legal, valid, binding, enforceable,
and in full force and effect; (B)&nbsp;the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the consummation of the
transaction contemplated hereby; (C)&nbsp;neither Target nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of notices), and no
event has occurred which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the policy; and (D)&nbsp;no party
to the policy has repudiated any provision thereof. Target has been covered during the past 10
years by insurance in scope and amount customary and reasonable for the businesses in which they
have engaged during the aforementioned period. Section 4(s) of the Disclosure Schedule describes
any self-insurance arrangements affecting Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(t)&nbsp;Litigation</B>. Section 4(t) of the Disclosure Schedule sets forth each instance in which
Target (i)&nbsp;is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii)&nbsp;is a party or , to the Knowledge of any of Sellers and the directors and officers (and
employees with responsibility for litigation matters) of Target, is threatened to be made a party
to any action, suit, proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set
forth in Section 4(t) of the Disclosure Schedule could result in any Material Adverse Change. None
of Sellers and the directors and officers (and employees with responsibility for litigation
matters) of Target has any reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against Target or that there is any Basis for the
foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(u)&nbsp;Product Warranty</B>. Except as set forth on Section 4(u) of the Disclosure Schedule, each
product manufactured, sold, leased, or delivered by Target has been in conformity with all
applicable contractual commitments and all express and implied warranties, and Target has no
Liability (and there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving rise to any
Liability) for replacement or repair thereof or other damages in connection therewith.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(v)&nbsp;Product Liability</B>. Target has no Liability (and there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any Liability) arising out of any injury to individuals or
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">property as a result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(w)&nbsp;Employees</B>. Section 4(w) of the Disclosure Schedule includes a list of current employees of
Target as of the signing of this Agreement. Except as noted on Section 4(w) of the Disclosure
Schedule, to the Knowledge of any of Sellers and the directors and officers (and employees with
responsibility for employment matters) of Target, no executive, key employee, or group of employees
has any plans to terminate employment with Target. Target is not a party to or bound by any
collective bargaining agreement, nor has Target experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. Target has not committed any
unfair labor practice. None of Sellers and the directors and officers (and employees with
responsibility for employment matters) of Target has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with respect to employees of
Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(x)&nbsp;Employee Benefits</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Section&nbsp;4(x) of the Disclosure Schedule lists all employee benefit plans and collective
bargaining, employment or severance agreements or other similar arrangements which Target, or any
ERISA Affiliate, has ever sponsored, maintained, or to which contributions are made or have ever
been made, or for which obligations have been incurred, for the benefit of employees or former
employees of Target or an ERISA Affiliate, including, without limitation, (1)&nbsp;any &#147;employee benefit
plan&#148; (within the meaning of Section&nbsp;3(3) of ERISA), (2)&nbsp;any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting, retirement, severance, welfare
or incentive plan, agreement or arrangement, (3)&nbsp;any plan, agreement or arrangement providing for
&#147;fringe benefits&#148; or perquisites to employees, officers, directors or agents, including but not
limited to benefits relating to automobiles, clubs, vacation, child care, parenting, sabbatical,
sick leave, tuition reimbursement, medical, dental, hospitalization, life insurance, disability
insurance and other types of insurance, and (4)&nbsp;any employment agreement. The plans, agreements and
arrangements described in this Section 4(x) are referred to herein as &#147;<B><I>Employee Benefit Plans</I></B>.&#148;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;None of the Employee Benefit Plans is, and neither Target nor any other ERISA Affiliate
has ever contributed to or had any obligation to contribute to, (i)&nbsp;a plan subject to Title IV of
ERISA or Section&nbsp;412 of the Code, (ii)&nbsp;a &#147;multiemployer plan&#148; (within the meaning of Section&nbsp;3(37)
of ERISA), (iii)&nbsp;or a &#147;multiple employer plan&#148; (within the meaning of Section 413(c) of the Code),
any &#147;voluntary employees&#146; beneficiary association&#148; (within the meaning of Section&nbsp;501(c)(9) of the
Code), or any &#147;multiple employer welfare arrangement&#148; (within the meaning of Section&nbsp;3(40) of
ERISA).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;None of the Employee Benefit Plans, nor any trust created thereunder, now holds or has
heretofore held as assets any stock or securities issued by Target or any ERISA Affiliate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Target has delivered to Buyer true and complete copies of all documents (including plan
documents, trust agreements and insurance contracts) and summary plan descriptions of the Employee
Benefit Plans or summary descriptions of any such Employee
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Benefit Plan not otherwise in writing. Target has delivered to Buyer true and complete copies
of the most recent determination letters and the Forms 5500 filed in the most recent three plan
years with respect to any Employee Benefit Plan, including all schedules thereto and financial
statements with attached opinions of independent accountants. Target has delivered to Buyer
summaries of material modifications and material communications distributed within the last year to
the participants of each Employee Benefit Plan. Target has delivered to Buyer all communications
received from or sent to the Internal Revenue Service, Pension Benefit Guaranty Corporation or the
Department of Labor within the last three years and any Forms 5330 required to be filed by Target
or any ERISA Affiliate, whether related to a Employee Benefit Plan or otherwise. Target and any
ERISA Affiliate, as applicable, have maintained all employee data necessary to administer each
Employee Plan, including all data required to be maintained under Sections&nbsp;107 and 209 of ERISA,
and such data is true and correct and is maintained in usable form.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Each Employee Benefit Plan (and any related trust agreement) has been maintained, funded
and administered in accordance with its terms and the terms of any applicable collective bargaining
agreement, and Target, and each ERISA Affiliate, is in compliance with the applicable provisions of
ERISA, the Code and all laws applicable thereto. Without limitation of the foregoing:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) None of Target, any ERISA Affiliate, nor any Employee Benefit Plan fiduciary has,
with respect to the Employee Benefit Plans, engaged in a non-exempt Prohibited Transaction,
and no event or condition exists with respect to any Employee Benefit Plan which constitutes
a reportable event within the meaning of Section&nbsp;4043 of ERISA, as to which a waiver is not
applicable. No event has occurred and no condition exists with respect to any Employee
Benefit Plan which would give rise to any Liability under the Code or ERISA, including but
not limited to Sections&nbsp;511, 4971, 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E, 4980F
or 6652 of the Code, or to any fine or civil penalty under Sections&nbsp;502, 4069 or 4071 of
ERISA.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(B) Target and each ERISA Affiliate have complied in all respects with COBRA, the
Health Insurance Portability &#038; Accountability Act of 1996, and Medicare Part&nbsp;D with respect
to any events occurring prior to and including the Closing Date. Each Employee Benefit Plan
that is subject to Section&nbsp;1862(b)(1) of the Social Security Act has been operated in
compliance with the secondary payor requirements of Section&nbsp;1862 of such Act.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(C) Each Employee Benefit Plan that constitutes a &#147;welfare benefit plan,&#148; within the
meaning of Section&nbsp;3(1) of ERISA, and for which contributions are claimed by Target or any
ERISA Affiliate as deductions under any provision of the Code, is in compliance with all
applicable requirements pertaining to such deduction. &#167;4(x) of the Disclosure Schedule
discloses whether each welfare plan is (i)&nbsp;unfunded, (ii)&nbsp;with respect to welfare plans
subject to the provisions of the Code, funded through a &#147;welfare benefit fund&#148;, as such term
is defined in Section 419(e) of the Code, or other funding mechanism or (iii)&nbsp;insured.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(D) Arrangements which constitute &#147;nonqualified deferred compensation plans&#148; as defined
by &#167;409A of the Code have been administered in compliance with &#167;409A or an exemption
therefrom since January&nbsp;1, 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(E) All reports, returns and similar documents with respect to each Employee Benefit
Plan required to be filed with any Governmental Authority or distributed to any participant
of each Employee Benefit Plan have been duly and timely filed or distributed. All
contributions, fees, interest, penalties and assessments that are payable by or for Target
or any ERISA Affiliate have been timely reported, fully paid and discharged. There are no
unpaid contributions, fees, penalties, interest or assessments due from Target or any ERISA
Affiliate or from any other person that are or could become a Lien on any asset of Target or
any ERISA Affiliate or could otherwise adversely affect the business or assets of Target or
any ERISA Affiliate, and no assets of Target or any ERISA Affiliate are subject to (or
expected to be subject to) any such Lien. Target and each ERISA Affiliate have collected or
withheld all amounts that are required to be collected or withheld by them to discharge
their obligations, and all of those amounts have been paid to the appropriate Employee
Benefit Plans or governmental agencies or set aside in appropriate accounts for future
payment when due.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;No actions, suits, disputes or claims (other than routine claims for benefits in the
ordinary course) are pending or threatened with respect to any Employee Benefit Plan. No audits,
inquiries, reviews, proceedings, claims, or demands are pending with any governmental authority
with respect to any Employee Benefit Plan. There are no facts which could give rise to any
Liability in the event of any such investigation, claim, action, suit, audit, review, or other
proceeding (including, without limitation, any claim for breach of fiduciary duty).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue Service that such
Employee Benefit Plan is qualified under Section 401(a) of the Code, and such determination letter
considers the Uruguay Round Agreements Act, the Small Business Job Protection Act of 1996, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Taxpayer Relief Act of 1997,
the Internal Revenue Service Restructuring and Reform Act of 1998, and the Community Renewal Tax
Relief Act of 2000. Each Employee Benefit Plan that is intended to be qualified under Section
401(a) of the Code has been timely amended to reflect the provisions of the Economic Growth &#038; Tax
Relief Reconciliation Act of 2001 and any other statutory or regulatory changes requiring
amendments, and has been timely submitted for a determination letter regarding the provisions of
the Economic Growth &#038; Tax Relief Reconciliation Act of 2001 if the deadline for such submission has
passed. No event has occurred that will or could give rise to the revocation of any applicable
determination letter, or the disqualification or loss of tax-exempt status of any such Employee
Benefit Plan or trust under Sections 401(a) or 501(a) of the Code.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Each of the Employee Benefit Plans can be terminated within a period of thirty (30)
days following the Closing Date, without any additional contribution to such Employee Benefit Plan
or the payment of any additional compensation or amount or acceleration of any benefits.
</DIV>


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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;No Employee Benefit Plan provides for or continues medical or health benefits, or life
insurance or other benefits (through insurance or otherwise) for any Person or any dependent or
beneficiary of any Person after such employee&#146;s retirement or other termination of employment
except as may be required by COBRA or applicable state law, and there has been no communication to
any Person that could reasonably be expected to promise or guarantee any such benefits.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;No condition exists as a result of which Target or any ERISA Affiliate would have any
Liability, whether absolute or contingent, including any obligations under the Employee Benefit
Plans, with respect to any misclassification of a Person performing services for Target or an ERISA
Affiliate as an independent contractor rather than as an employee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;All contributions (including all employer contributions and employee salary reduction
contributions) and premium payments which are or have been due have been paid to or with respect to
each Employee Benefit Plan within the time required by law. All required or discretionary (in
accordance with historical practices) payments, premiums, contributions, reimbursements, or
accruals for all periods ending prior to or as of the Closing Date shall have been made or properly
accrued on the Closing Balance Sheets or will be properly accrued on the books and records of
Target and each ERISA Affiliate as of the Closing Date. None of the Employee Benefit Plans has any
unfunded liabilities which are not reflected on the Closing Balance Sheet or the books and records
of Target and each ERISA Affiliate.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;The consummation of the transactions contemplated by this Agreement will not entitle any
individual to severance pay, and will not accelerate the time of payment or vesting, or increase
the amount of compensation due to any individual. None of the Employee Benefit Plans obligates
Target or any ERISA Affiliate to pay separation, severance, termination or similar benefits solely
as a result of any transaction contemplated by this Agreement or solely as a result of &#147;change of
control&#148; (as such term is defined in Section&nbsp;280G of the Code).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(y)&nbsp;Guaranties</B>. Target is not a guarantor or otherwise is liable for any Liability or
obligation (including indebtedness) of any other Person.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(z)&nbsp;Environmental, Health, and Safety Matters</B>. Except as set forth on Section 4(z) of the
Disclosure Schedule:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Target and its predecessors and Affiliates have complied and are in compliance with all
Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Without limiting the generality of the foregoing, Target and its Affiliates have obtained
and complied with, and are in compliance with, all permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their business; a list of all such permits, licenses and other
authorizations is set forth on Section&nbsp;4(z)(ii) of the Disclosure Schedule.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Neither Target nor its predecessors or Affiliates has received any written or oral
notice, report or other information regarding any actual or alleged violation of Environmental,
Health, and Safety Requirements, or any Liabilities or potential Liabilities,
</DIV>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">including any investigatory, remedial or corrective obligations, relating to any of them or
its facilities arising under Environmental, Health, and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;None of the following exists at any property or facility owned or operated by Target: (1)
underground storage tanks, (2)&nbsp;asbestos-containing material in any form or condition, (3)&nbsp;materials
or equipment containing polychlorinated biphenyls, or (4)&nbsp;landfills, surface impoundments, or
disposal areas.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Neither Target nor its predecessors or Affiliates have treated, stored, disposed of,
arranged for or permitted the disposal of, transported, handled, or released any substance,
including without limitation any hazardous substance, or owned or operated any property or facility
(and no such property or facility is contaminated by any such substance) in a manner that has given
or would give rise to Liabilities, including any Liability for response costs, corrective action
costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
(&#147;<B><I>CERCLA</I></B>&#148;), the Solid Waste Disposal Act, as amended (&#147;<B><I>SWDA</I></B>&#148;) or any other Environmental, Health,
and Safety Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;Neither this Agreement nor the consummation of the transaction that is the subject of
this Agreement will result in any obligations for site investigation or cleanup, or notification to
or consent of government agencies or third parties, pursuant to any of the so-called
&#147;transaction-triggered&#148; or &#147;responsible property transfer&#148; Environmental, Health, and Safety
Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Neither Target nor its predecessors or Affiliates has, either expressly or by operation
of law, assumed or undertaken any Liability, including without limitation any obligation for
corrective or remedial action, of any other Person relating to Environmental, Health, and Safety
Requirements.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;No facts, events or conditions relating to the past or present facilities, properties
or operations of Target or its predecessors or Affiliates will prevent, hinder or limit continued
compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or
give rise to any other Liabilities pursuant to Environmental, Health, and Safety Requirements,
including without limitation any relating to onsite or offsite releases or threatened releases of
hazardous materials, substances or wastes, personal injury, property damage or natural resources
damage.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(aa)&nbsp;Systems Continuity</B>. Except as set forth on Section&nbsp;4(aa) of the Disclosure Schedule, none
of the computer software, computer hardware (whether general or special purpose),
telecommunications capabilities (including all voice, data and video networks) and other similar or
related items of automated, computerized, and/or software systems and any other networks or systems
and related services that are used by or relied on by Target in the conduct of its business
(collectively, the &#147;<B><I>Systems</I></B>&#148;) have experienced bugs, failures, breakdowns, or continued substandard
performance in the past 12&nbsp;months that has caused any substantial disruption or interruption in or
to the use of any such Systems by Target.
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(bb)&nbsp;Certain Business Relationships with Target</B>. None of Sellers, their Affiliates, Sellers&#146;
directors, officers, employees and stockholders and Target&#146;s directors, officers, employees, and
stockholders has been involved in any business arrangement or relationship with Target within the
past 12&nbsp;months, and none of Sellers, their Affiliates, Seller&#146;s directors, officers, employees and
stockholders and Target&#146;s directors, officers, employees, and stockholders owns any asset, tangible
or intangible, which is used in the business of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(cc)&nbsp;Customers and Suppliers</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Section&nbsp;4(cc) of the Disclosure Schedule lists the 10 largest customers of Target for each
of the two most recent fiscal years and sets forth opposite the name of each such customer the
percentage of consolidated net sales attributable to such customer. Section&nbsp;4(cc) of the Disclosure
Schedule also lists any additional current customers that Target anticipates shall be among the 10
largest customers for the current fiscal year.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Since the date of the Most Recent Balance Sheet, no supplier of Target has indicated that
it shall stop, or decrease the rate of, supplying materials, products or services to Target, and no
customer listed on Section&nbsp;4(cc) of the Disclosure Schedule has indicated that it shall stop, or
decrease the rate of, buying materials, products or services from Target.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(dd)&nbsp;Disclosure</B>. The representations and warranties contained in this Section&nbsp;4 do not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to
make the statements and information contained in this Section&nbsp;4 not misleading.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 5. PRE-CLOSING COVENANTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period between the execution of this
Agreement and the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. Each of the Parties will use his, her, or its best efforts to take all action and
to do all things necessary, proper, or advisable in order to consummate and make effective the
transactions contemplated by this Agreement (including satisfaction, but not waiver, of the Closing
conditions set forth in Section&nbsp;7 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Notices and Consents</B>. Sellers will cause Target to give any notices to third parties, and
will cause Target to use its best efforts to obtain any third party consents referred to in Section
4(c) above, the Lease Consents, and the items set forth on Section 5(b) of the Disclosure Schedule.
Each of the Parties will (and Sellers will cause Target to) give any notices to, make any filings
with, and use its best efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in Section&nbsp;3(a)(ii), Section
3(b)(ii), and Section 4(c) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Operation of Business</B>. Sellers will not cause or permit Target to engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, Sellers will not cause or permit Target to (i)&nbsp;declare,
set aside, or pay any dividend or make any distribution whatsoever with respect to its capital
stock (whether in cash or in kind) or redeem, purchase, or otherwise acquire any of its
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">capital stock or (ii)&nbsp;otherwise engage in any practice, take any action, or enter into any
transaction of the sort described in Section 4(h) above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Preservation of Business</B>. Sellers will cause Target to keep its business and properties
substantially intact, including its present operations, physical facilities, working conditions,
insurance policies, and relationships with lessors, licensors, suppliers, customers, and employees.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Full Access</B>. Each of Sellers will permit, and Sellers will cause Target to permit,
representatives of Buyer (including legal counsel and accountants) to have full access at all
reasonable times, and in a manner so as not to interfere with the normal business operations of
Target, to all premises, properties, personnel, books, records (including Tax records), contracts,
and documents of or pertaining to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Notice of Developments</B>. Sellers will give prompt written notice to Buyer of any material
adverse development causing a breach of any of the representations and warranties in Section&nbsp;4
above. Each Party will give prompt written notice to the others of any material adverse development
causing a breach of any of his or its own representations and warranties in Section&nbsp;3 above. No
disclosure by any Party pursuant to this Section&nbsp;5(f), however, shall be deemed to amend or
supplement Annex I, Annex II, or the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Exclusivity</B>. None of Sellers will (and Sellers will not cause or permit Target to) (i)
solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any substantial portion of the
assets, of Target (including any acquisition structured as a merger, consolidation, or share
exchange) or (ii)&nbsp;participate in any discussions or negotiations regarding, furnish any information
with respect to, assist or participate in, or facilitate in any other manner any effort or attempt
by any Person to do or seek any of the foregoing. None of Sellers will vote their Target Shares in
favor of any such acquisition. Sellers will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Maintenance of Real Property</B>. Sellers will cause Target to maintain the Real Property,
including all of the Improvements, in substantially the same condition as of the date of this
Agreement, ordinary wear and tear excepted, and shall not demolish or remove any of the existing
Improvements, or erect new improvements on the Real Property or any portion thereof, without the
prior written consent of Buyer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Leases</B>. Except to the extent necessary to satisfy the Closing conditions set forth in
Section&nbsp;7 below, Sellers will not cause or permit any of Target&#146;s Leases to be amended, modified,
extended, renewed or terminated, nor shall Target enter into any new lease, sublease, license or
other agreement for the use or occupancy of any real property, without the prior written consent of
Buyer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Tax Matters</B>. Without the prior written consent of Buyer, Target shall not make or change
any election, change an annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">assessment relating to Target, surrender any right to claim a refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or assessment relating to
Target, or take any other similar action relating to the filing of any Tax Return or the payment of
any Tax, if such election, adoption, change, amendment, agreement, settlement, surrender, consent
or other action would have the effect of increasing the Tax liability of Target for any period
ending after the Closing Date or decreasing any Tax attribute of Target existing on the Closing
Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;S Corporation Status</B>. Target and Sellers shall not revoke Target&#146;s election to be taxed as
an S corporation within the meaning of Code Section&nbsp;1361 and Section&nbsp;1362. Target and Sellers shall
not take or allow any action, other than the sale of Target&#146;s stock pursuant to this Agreement,
that would result in the termination of Target&#146;s status as a validly electing S corporation within
the meaning of Code Section&nbsp;1361 and Section&nbsp;1362.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;&#091;INTENTIONALLY DELETED&#093;</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Restrictive Stock Transfer Agreements</B>. Prior to Closing, Target and Sellers shall cancel
any restrictive stock transfer agreements or similar agreements between or among them that pertain
to the Shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;4</B><B>01(k)</B><B> Plan Termination</B>. Notwithstanding anything in this Agreement to the contrary, prior
to Closing, Sellers shall cause the Company to terminate the Innovative Solutions Consulting, Inc.
401(k) Plan (the &#147;401(k) Plan&#148;) and any other Company Plan intended to be qualified under Code
Section 401(a) or 403(a). In addition, (a)&nbsp;Sellers shall cause the Company to remove, or Sellers
shall cause to resign, as a trustee under the 401(k) Plan Michele A. Aloisio and each other
trustee, if any, of the 401(k) Plan, effective as of the Closing Date; and (b)&nbsp;Sellers shall cause
the Company to appoint, effective as of the Closing Date, successor trustees designated by Buyer.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 6. POST-CLOSING COVENANTS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Parties agree as follows with respect to the period following the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;General</B>. In case at any time after the Closing any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the Parties will take such further
action (including the execution and delivery of such further instruments and documents) as any
other Party reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under Section&nbsp;8 below).
Sellers acknowledge and agree that from and after the Closing Buyer will be entitled to possession
of all documents, books, records (including Tax records), agreements, and financial data of any
sort relating to Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Litigation Support</B>. In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand in connection with (i)&nbsp;any transaction contemplated under this Agreement or (ii)&nbsp;any
fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">involving Target, each of the other Parties will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section&nbsp;8 below).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Transition</B>. None of Sellers will take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other business associate of
Target from maintaining the same business relationships with Target after the Closing as it
maintained with Target prior to the Closing. Each of Sellers will refer all customer inquiries
relating to the businesses of Target to Buyer from and after the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Confidentiality</B>. Each of the parties hereto will treat and hold as such all of the
Confidential Information of the other parties, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to such other party or
destroy, at the request and option of disclosing party, all tangible embodiments (and all copies)
of the Confidential Information which are in his, her, or its possession. In the event that any
party is requested or required pursuant to written or oral question or request for information or
documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar
process to disclose any Confidential Information, such party will notify the disclosing party
promptly of the request or requirement so that the disclosing party may seek an appropriate
protective order or waive compliance with the provisions of this Section&nbsp;6(d). If, in the absence
of a protective order or the receipt of a waiver hereunder, any of receiving parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any tribunal or party in a
proceeding therein or else stand liable for contempt, such party may disclose the Confidential
Information to the tribunal or such person involved in such action; <U>provided</U>,
<U>however</U>, that the disclosing party shall use his, her, or its best efforts to obtain, at
the reasonable request of the disclosing party, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information required to be disclosed
as the disclosing party shall designate. The foregoing provisions shall not apply to any
Confidential Information that is generally available to the public immediately prior to the time of
disclosure unless such Confidential Information is so available due to the actions of a party, nor
shall the foregoing provisions apply to Buyer to the extent Buyer is required to disclose such
information in order to comply with its disclosure obligations as a publicly-traded company under
applicable federal securities laws and stock exchange rules and listing standards.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Termination of Aloisio Guarantees</B>. Michele A. Aloisio is a party to certain guarantees as
more fully identified in Schedule&nbsp;Section&nbsp;6(e) of the Disclosure Schedules (the &#147;<B><I>Aloisio
Guarantees</I></B>&#148;). Buyer has represented to Sellers that it is Buyer&#146;s intention to refinance or
otherwise terminate the debt that is guaranteed by the Aloisio Guarantees, and Sellers are relying
on this representation in entering into this Agreement. Therefore, as further commitment under
Buyer&#146;s representation, Buyer hereby agrees to, promptly after Closing, take all actions and
execute all documents reasonably necessary to have the Aloisio Guarantees released, and Buyer
hereby agrees and covenants to defend, indemnify and hold harmless Michele A. Aloisio on any
action, suit, proceeding or other claim against him pursuant to the Aloisio Guarantees that arises
out of or directly relates to facts and circumstances occurring exclusively after the Closing Date.
For the avoidance of doubt, the Parties acknowledge that Buyer shall have no indemnity
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">obligation hereunder with respect to facts and circumstances occurring on or before the
Closing Date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Release of Target by Sellers</B>. Effective at and (only)&nbsp;upon Closing, each Seller (each a
&#147;Releasing Party&#148;) hereby irrevocably and unconditionally releases and forever discharges the
Target and its respective successors and assigns (the &#147;<B><I>Released Parties</I></B>&#148;) from any and all claims,
charges, complaints, causes of action, damages, agreements and liabilities of any kind or nature
whatsoever, including any claim by the Sellers against the Target for indemnification or for
advances with respect to actions or omissions (or claims or allegations thereof) of Sellers prior
to the Closing in their capacities as shareholders, officers, directors or employees of the Target
(&#147;<B><I>Released Claims</I></B>&#148;), whether known or unknown and whether at law or in equity, arising from conduct
occurring on or prior to the Closing Date, including without limitation any Released Claims
relating to or arising out of such Seller&#146;s ownership of Stock; provided that (i)&nbsp;nothing contained
herein shall release the Target from any of its post-Closing obligations and liabilities to a
Releasing Party created under this Agreement or constitute a waiver of any claims that such
Releasing Party may bring or have for indemnification by the Released Parties under Section&nbsp;8, and
(ii)&nbsp;this release shall only relate to those claims arising from conduct or omissions occurring on
or before the Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Winding-Up of </B><B>401(k)</B><B> Plan</B>. It is understood that Target will be responsible for ensuring
the proper liquidation of the 401(k) Plan after the Closing Date and the operation of the 401(k)
Plan on a terminated basis in compliance with applicable law pending completion of the termination
and liquidation process.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 7. CONDITIONS TO OBLIGATION TO CLOSE</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Conditions to Buyer&#146;s Obligation</B>. Buyer&#146;s obligation to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the following
conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the representations and warranties set forth in Section 3(a) and Section&nbsp;4 above shall be
true and correct in all material respects at and as of the Closing Date, except to the extent that
such representations and warranties are qualified by terms such as &#147;material&#148; and &#147;Material Adverse
Effect,&#148; in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Sellers shall have performed and complied with all of their covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case Sellers shall have performed
and complied with all of such covenants in all respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Target shall have procured all of the third party consents specified in Section 5(b)
above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction
</DIV>
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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (A)&nbsp;prevent consummation of any of the transactions contemplated by this Agreement,
(B)&nbsp;cause any of the transactions contemplated by this Agreement to be rescinded following
consummation, (C)&nbsp;affect adversely the right of Buyer to own the Target Shares and to control
Target, or (D)&nbsp;affect adversely the right of Target to own its assets and to operate its businesses
(and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;Sellers shall have delivered to Buyer a certificate to the effect that each of the
conditions specified above in Section&nbsp;7(a)(i)-(iv) is satisfied in all respects;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;the Parties shall have received all other authorizations, consents, and approvals of
governments and governmental agencies referred to in Section&nbsp;3(a)(ii), Section&nbsp;3(b)(ii), and
Section 4(c) above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii)&nbsp;Buyer shall have received the resignations, effective as of the Closing, of each
director and officer of Target other than those whom Buyer shall have specified in writing at least
five business days prior to the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii)&nbsp;Buyer shall have obtained on terms and conditions satisfactory to it any debt or equity
financing it needs in order to consummate the transactions contemplated hereby and fund the working
capital requirements of Target after the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix)&nbsp;all actions to be taken by the Sellers in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby shall be satisfactory in form and substance
to Buyer;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;Target shall have obtained and delivered to Buyer a written consent for the assignment of
each of the Leases, as well as a modification of the use restriction in the lease agreement for the
premises located at 44180 Airport View Drive, Hollywood, Maryland, to permit fabrication and
manufacturing activities and a waiver of tenant&#146;s obligation under such lease agreement to
surrender such premises to landlord in the condition in which such premises were originally
delivered to tenant and, if requested by Buyer&#146;s lender, a waiver of landlord liens, collateral
assignment of lease or leasehold mortgage from the landlord or other party whose consent thereto is
required under such Lease (the &#147;<B><I>Lease Consents</I></B>&#148;), in form and substance satisfactory to Buyer and
Buyer&#146;s lender;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi)&nbsp;Target shall have obtained and delivered to Buyer an estoppel certificate with respect to
each of the Leases, dated no more than 30&nbsp;days prior to the Closing Date, from the other party to
such Lease, in form and substance satisfactory to Buyer (the &#147;<B><I>Estoppel Certificates</I></B>&#148;);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii)&nbsp;Target shall have obtained and delivered to Buyer a non-disturbance agreement with
respect to each of the Leases for the Leased Real Property, in form and substance satisfactory to
Buyer, from each lender encumbering any real property underlying the Leased Real Property for such
Lease (the &#147;<B><I>Non-Disturbance Agreements</I></B>&#148;);
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiii)&nbsp;no damage or destruction or other change has occurred with respect to any of the Real
Property or any portion thereof that, individually or in the aggregate, would materially impair the
use or occupancy of the Real Property or the operation of Target&#146;s business as currently conducted
thereon;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xiv)&nbsp;each of Marc DeLaVergne, Thomas R. Knowlton, and Kenneth J. Wood shall have entered into
employment agreements with Buyer (or an Affiliate of Buyer) on terms reasonably satisfactory to
Buyer, and such agreements shall be in full force and effect as of the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xv)&nbsp;Sellers shall have delivered to Buyer copies of the certificate of incorporation of
Target certified on or soon before the Closing Date by the Secretary of State (or comparable
officer) of the jurisdiction of Target&#146;s incorporation;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvi)&nbsp;Sellers shall have delivered to Buyer copies of the certificate of good standing of
Target issued on or soon before the Closing Date by the Secretary of State (or comparable officer)
of the jurisdiction of Target&#146;s organization and of each jurisdiction in which each such Target is
qualified to do business;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xvii)&nbsp;Sellers shall have delivered to Buyer a certificate of the secretary or an assistant
secretary of Target, dated the Closing Date, in form and substance reasonably satisfactory to
Buyer, as to (i)&nbsp;no amendments to the Certificate of Incorporation of Target since the date
specified in clause (xxii)&nbsp;above; (ii)&nbsp;the bylaws of Target; and (iii)&nbsp;any resolutions of the board
of directors of Target relating to this Agreement and the transactions contemplated hereby;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xviii)&nbsp;Each Seller shall have delivered to Buyer a release of all claims against Target, in
form and substance satisfactory to Buyer, and shall have entered into confidentiality,
non-solicitation, non-compete and non-disparagement agreements with Target on terms satisfactory to
Buyer, and such releases and agreements shall be in full force and effect as of the Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xix)&nbsp;Any amounts owed by Target to Sellers shall have been paid in full and, at the request
of Buyer, Sellers shall deliver to Target a release to such effect in form and substance
satisfactory to Buyer.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx)&nbsp;Buyer shall have obtained the approval of its lenders of this Agreement and the
transactions contemplated thereby.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxi)&nbsp;Buyer shall have obtained the approval of its board of directors of this Agreement and
the transactions contemplated thereby.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxii)&nbsp;Target and each Seller shall have delivered to Buyer signed copies of any applicable
forms and attachments thereto required in connection with the Section&nbsp;338(h)(10) Election pursuant
to Section 9(f) below.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xxiii)&nbsp;W. Michael Cooper shall have discontinued any use or occupancy of the premises located
at 44180 Airport View Drive, Hollywood, Maryland for the private practice of
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">law or any other activity other than activities within the scope of and pursuant to his then
current duties as an employee of Target.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Buyer may waive any condition specified in this Section 7(a) if it executes a writing so stating at
or prior to the Closing.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Conditions to Sellers&#146; Obligation</B>. The obligation of Sellers to consummate the
transactions to be performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;the representations and warranties set forth in Section 3(b) above shall be true and
correct in all material respects at and as of the Closing Date, except to the extent that such
representations and warranties are qualified by terms such as &#147;material&#148; and &#147;Material Adverse
Effect,&#148; in which case such representations and warranties shall be true and correct in all
respects at and as of the Closing Date;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer shall have performed and complied with all of its covenants hereunder in all
material respects through the Closing, except to the extent that such covenants are qualified by
terms such as &#147;material&#148; and &#147;Material Adverse Effect,&#148; in which case Buyer shall have performed
and complied with all of such covenants in all respects through the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;no action, suit, or proceeding shall be pending or threatened before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A)&nbsp;prevent consummation of any of the transactions contemplated by this Agreement or (B)
cause any of the transactions contemplated by this Agreement to be rescinded following consummation
(and no such injunction, judgment, order, decree, ruling, or charge shall be in effect);
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Buyer shall have delivered to Sellers a certificate to the effect that each of the
conditions specified above in Section&nbsp;7(b)(i)-(iii) is satisfied in all respects;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;the Parties shall have received all authorizations, consents, and approvals of governments
and governmental agencies referred to in Section&nbsp;3(a)(ii), Section&nbsp;3(b)(ii), and Section 4(c)
above;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi)&nbsp;all actions to be taken by Buyer in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably satisfactory in form and substance
to the Requisite Sellers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The Requisite Sellers may waive any condition specified in this Section 7(b) on behalf of all
Sellers if they execute a writing so stating at or prior to the Closing.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SECTION 8. REMEDIES FOR BREACHES OF THIS AGREEMENT</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Survival of Representations and Warranties</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;All of the representations and warranties of the Parties contained in Section&nbsp;3 of this
Agreement shall survive the Closing hereunder (even if the damaged Party knew or had reason to know
of any misrepresentation or breach of warranty or covenant at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of limitations).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Except for those representations and warranties of the Parties contained in Sections
4(a)-(f) (inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement, all of the representations and warranties
of the Parties contained in Section&nbsp;4 of this Agreement, shall survive the Closing hereunder (even
if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty or
covenant at the time of Closing) and continue in full force and effect for a period of 3&nbsp;years from
the Closing Date. This provision shall not extinguish claims that are made within 3&nbsp;years of the
Closing Date but that remain unresolved on or after the date that is 3&nbsp;years after the Closing
Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;All of the representations and warranties of the Parties contained in Sections&nbsp;4(a)-(f)
(inclusive), (j), (k)&nbsp;and (z)&nbsp;of this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of warranty or covenant
at the time of Closing) and continue in full force and effect until the expiration of any
applicable statutes of limitations (after giving effect to any extensions or waivers) plus 60&nbsp;days.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Indemnification Provisions for Buyer&#146;s Benefit</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;In the event any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller has breached) any of his, her, or its representations, warranties, and
covenants contained herein (other than the covenants in Section 2(a) above and the representations
and warranties in Section 3(a) above) and, provided that Buyer makes a written claim for
indemnification against any Seller pursuant to Section 11(h) below within the survival period (if
there is an applicable survival period pursuant to Section 8(a) above), then each Seller shall be
obligated jointly and severally to indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer (including any Adverse Consequences Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach); <U>provided</U>, <U>however</U>, that Sellers shall
not have any obligation to indemnify Buyer from and against any Adverse Consequences resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or alleged breach) of
any representation or warranty of Sellers contained in Sections&nbsp;4(g)-(i) inclusive, Sections
4(l)-(y) inclusive and Sections&nbsp;4(aa)-(dd) inclusive above until Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess of a $30,000 aggregate
threshold, at which point Sellers will be obligated to indemnify Buyer from and against only such
Adverse Consequences above such $30,000 aggregate threshold.
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;In the event any Seller breaches (or in the event any third party alleges facts that, if
true, would mean any Seller breached) any of his, her, or its covenants in Section 2(a) above or
any of his, her, or its representations and warranties in Section 3(a) above, and provided that
Buyer makes a written claim for indemnification against such a Seller pursuant to Section 11(h)
below within the survival period (if there is an applicable survival period pursuant to Section
8(a) above), then such Seller shall indemnify Buyer from and against the entirety of any Adverse
Consequences Buyer may suffer (including any Adverse Consequences Buyer may suffer after the end of
any applicable survival period) resulting from arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Each Seller shall be obligated jointly and severally to indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer may suffer resulting from, arising out of, relating
to, in the nature of, or caused by any occurrence or circumstance related to Target or its business
that first arose, in whole or in part, on or before the Closing Date.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT SHALL THE
AGGREGATE LIABILITY OF SELLERS TO BUYER UNDER THIS SECTION 8(B) EXCEED THE PURCHASE PRICE.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Indemnification Provisions for Sellers&#146; Benefit</B>. In the event Buyer breaches (or in the
event any third party alleges facts that, if true, would mean Buyer has breached) any of its
representations, warranties, and covenants contained herein and, provided that any Seller makes a
written claim for indemnification against Buyer pursuant to Section 11(h) below within such
survival period (if there is an applicable survival period pursuant to Section 8(a) above), then
Buyer shall indemnify each Seller from and against the entirety of any Adverse Consequences
suffered (including any Adverse Consequences suffered after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Matters Involving Third Parties</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;If any third party shall notify any Party (the &#147;<B><I>Indemnified Party</I></B>&#148;) with respect to any
matter (a &#147;<B><I>Third Party Claim</I></B>&#148;) which may give rise to a claim for indemnification against any other
Party (the &#147;<B><I>Indemnifying Party</I></B>&#148;) under this Section&nbsp;8, then the Indemnified Party shall promptly
notify each Indemnifying Party thereof in writing; <U>provided</U>, <U>however</U>, that no delay
on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Any Indemnifying Party will have the right to defend the Indemnified Party against the
Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so
long as (A)&nbsp;the Indemnifying Party notifies the Indemnified Party in writing within 15&nbsp;days after
the Indemnified Party has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B)&nbsp;the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Indemnifying Party will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C)&nbsp;the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)&nbsp;settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice materially adverse to the
continuing business interests or the reputation of the Indemnified Party, and (E)&nbsp;the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;So long as the Indemnifying Party is conducting the defense of the Third Party Claim in
accordance with Section&nbsp;8(d)(ii) above, (A)&nbsp;the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the Third Party Claim, (B)&nbsp;the
Indemnified Party will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not
to be withheld unreasonably), and (C)&nbsp;the Indemnifying Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld unreasonably).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;In the event any of the conditions in Section&nbsp;8(d)(ii) above is or becomes unsatisfied,
however, (A)&nbsp;the Indemnified Party may defend against, and consent to the entry of any judgment or
enter into any settlement with respect to, the Third Party Claim in any manner it reasonably may
deem appropriate (and the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B)&nbsp;the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending against the Third Party
Claim (including reasonable attorneys&#146; fees and expenses), and (C)&nbsp;the Indemnifying Parties will
remain responsible for any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section&nbsp;8.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Determination of Adverse Consequences</B>. All indemnification payments under this Section&nbsp;8
and Section 9(a) shall be deemed adjustments to the Purchase Price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Setoff against Holdback Payments; Priority</B>. Any indemnification to which Buyer is entitled
under this Agreement as a result of any Adverse Consequences Buyer may suffer may be satisfied by
Buyer setting-off such indemnification amounts against any Holdback Payments due to Sellers, and
Buyer shall seek to satisfy such indemnification amounts against any Holdback Payments due to
Sellers prior to and before seeking to satisfy such indemnification amounts against other assets of
Sellers. The exercise by Buyer of such right of setoff shall not preclude Buyer from pursuing other
remedies available to Buyer against Sellers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Other Indemnification Provisions</B>. The foregoing indemnification provisions are in addition
to, and not in derogation of, any statutory, equitable, or common law remedy (including without
limitation any such remedy arising under Environmental, Health, and Safety Requirements) any Party
may have with respect to Target or the transactions contemplated by this Agreement. Each Seller
hereby agrees that he, she, or it will not make any claim for indemnification against Target by
reason of the fact that he, she, or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">partner, trustee, director, officer, employee, or agent of another entity (whether such claim
is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement,
or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by
Buyer against such Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 9. TAX MATTERS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following provisions shall govern the allocation of responsibility as between Buyer and
Sellers for certain tax matters following the Closing Date:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Tax Indemnification</B>. Each Seller shall jointly and severally indemnify Target, Buyer, and
each Buyer Affiliate and hold them harmless from and against without duplication, any loss, claim,
liability, expense, or other damage attributable to (i)&nbsp;all Taxes (or the non-payment thereof) of
Target for all Taxable periods ending on or before the Closing Date and the portion through the end
of the Closing Date for any Taxable period that includes (but does not end on) the Closing Date
(&#147;<B><I>Pre-Closing Tax Period</I></B>&#148;), (ii)&nbsp;all Taxes of any member of an affiliated, consolidated, combined
or unitary group of which Target (or any predecessor of Target) is or was a member on or prior to
the Closing Date, including pursuant to Treasury Regulation&nbsp;Section&nbsp;1.1502-6 or any analogous or
similar state, local, or foreign law or regulation, and (iii)&nbsp;any and all Taxes of any person
(other than Target) imposed on Target as a transferee or successor, by contract or pursuant to any
law, rule, or regulation, which Taxes relate to an event or transaction occurring before the
Closing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Responsibility for Filing Tax Returns</B>. At their expense, Sellers shall prepare or caused
to be prepared and file or caused to be filed all Tax Returns for Target for periods ending on or
before the Closing Date. Sellers shall permit Buyer to review and comment on each such Tax Return
described in the preceding sentence prior to filing. Buyer shall have the right to contest the
contents of all such Tax Returns, and any conflict between Sellers and Buyer with respect thereto
shall be resolved in accordance with the provisions of Section&nbsp;2(f), except that the parties shall
have twenty (20)&nbsp;days in which to attempt to reach mutual agreement before referring the
calculation to the Auditor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;Cooperation on Tax Matters</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Buyer, Target, and Sellers shall cooperate fully, as and to the extent reasonably
requested by the other Party, in connection with the filing of Tax Returns pursuant to Section 9(c)
and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include
the retention and (upon the other Party&#146;s request) the provision of records and information which
are reasonably relevant to any such 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. Target and Sellers agree (A)&nbsp;to retain all books and records with
respect to Tax matters pertinent to Target relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable periods, and
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to abide by all record retention agreements entered into with any taxing authority, and (B)&nbsp;to
give the other Party reasonable written notice prior to transferring, destroying or discarding any
such books and records and, if the other Party so requests, Target or Sellers, as the case may be,
shall allow the other Party to take possession of such books and records.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer and Sellers further agree, upon request, to use their best efforts to obtain any
certificate or other document from any governmental authority or any other Person as may be
necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer and Sellers further agree, upon request, to provide the other party with all
information that either party may be required to report pursuant to Code Section&nbsp;6043 and all
Treasury Regulations promulgated thereunder.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Tax Sharing Agreements</B>. All Tax sharing agreements or similar agreements with respect to
or involving Target shall be terminated as of the Closing Date and, after the Closing Date, Target
shall not be bound thereby or have any liability thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Certain Taxes and Fees</B>. All transfer, documentary, sales, use, stamp, registration and
other such Taxes, and all conveyance fees, recording charges and other fees and charges (including
any penalties and interest) incurred in connection with consummation of the transactions
contemplated by this Agreement shall be paid by Sellers when due, and Sellers will, at their own
expense, file all necessary Tax Returns and other documentation with respect to all such Taxes,
fees and charges, and, if required by applicable law, Buyer will, and will cause its Affiliates to,
join in the execution of any such Tax Returns and other documentation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Section&nbsp;</B><B>338(h)(10)</B><B> Election</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;At Buyer&#146;s request, Target and each Seller shall join with Buyer in making an election
under Sections&nbsp;338(h)(10) of the Code and the Treasury Regulations, including Treasury Regulation
Section&nbsp;1.338(h)(10)-1T(c)(1), and any corresponding or similar elections under state, local or
foreign Tax Law (collectively, a &#147;<B><I>Section&nbsp;338(h)(10) Election</I></B>&#148;) with respect to the purchase and
sale of the Target Shares. Target and Sellers shall include any income, gain, loss, deduction, or
other Tax item resulting from the Section&nbsp;338(h)(10) Election on their Tax Returns to the extent
required by applicable law.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer shall be responsible for the preparation and filing of all forms and documents
required in connection with the Section&nbsp;338(h)(10) Election. Sellers shall execute and deliver to
Buyer such documents or forms as are reasonably requested and are required by any law, rule or
regulation to complete properly the Section&nbsp;338(h)(10) Election no later than 60&nbsp;days after the
Closing. For the purposes of executing the Section&nbsp;338 Election, on or prior to the Closing Date,
Seller and Buyer will execute two copies of the applicable Internal Revenue Service form and all
attachments required to be filed therewith pursuant to applicable Treasury Regulations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer, not less than 30&nbsp;days prior to the date the forms required under Section
338(h)(10) of the Code are required to be filed, will provide Sellers with a valuation statement
reflecting, as of the Closing Date, the fair market values of all of the assets and the
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">liabilities and obligations of the Target. Buyer and Sellers will file, and will cause their
Affiliates to file, all Tax Returns and statements, forms and schedules in connection therewith in
a manner consistent with such valuation and will take no position contrary thereto unless required
to do so by applicable Tax laws.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;To the extent permitted by state and local law, the principles and procedures of this
section will also apply with respect to Section&nbsp;338(h)(10) Election or equivalent or comparable
provision under state or local law. Sellers will make any election similar to a Section&nbsp;338(h)(10)
Election which is optional under any state or local law, and will cooperate and join in any
election made by Target, Buyer or its Affiliates to effect such an election so as to treat the
transaction as a sale of assets for state and local income Tax purposes.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Tax Adjustment</B>. If Buyer makes a Section&nbsp;338(h)(10) Election, and if such Section
338(h)(10) Election causes each Seller&#146;s after-Tax net proceeds from the sale of Target&#146;s stock to
be less than the after-Tax net proceeds that such Seller would have received had the Section
338(h)(10) Election not been made, taking into account all appropriate state, federal and local Tax
implications (the &#147;<B><I>Section&nbsp;</I></B><B><I>338(h)(10)</I></B><B><I> Election Liability</I></B>&#148;), then Buyer shall pay to Sellers, in
cash, an aggregate amount determined pursuant to the following scale (the &#147;<B><I>Tax Adjustment</I></B>&#148;):
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;If the aggregate amount of the Section&nbsp;338(h)(10) Election Liability is more than $1 but
less than $50,000, then Buyer shall pay Sellers the aggregate amount of the Section&nbsp;338(h)(10)
Election Liability;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;If the aggregate amount of the Section&nbsp;338(h)(10) Election Liability is at least $50,000
but less than $77,000, then Buyer shall pay Sellers the aggregate amount of $50,000; or
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;If the aggregate amount of the Section&nbsp;338(h)(10) Election Liability is $77,000 or more,
then Buyer shall pay Sellers an aggregate amount equal to 65% of the aggregate amount of the
Section&nbsp;338(h)(10) Election Liability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The amount of the Tax Adjustment shall be paid to each eligible Seller prior to the date that any
Tax return is required to be filed in which the Section&nbsp;338(h)(10) Election would have an impact on
a Seller&#146;s Tax liability. If a Tax impact would occur in multiple years, only the amount necessary
to pay a Tax Adjustment for each year shall be paid in that year. In order to be entitled to a Tax
Adjustment each Seller shall provide Buyer with a schedule, not later than 30&nbsp;days before the due
date of the Tax return with respect to which the Tax Adjustment is requested, computing the amount
of the Tax Adjustment. The Tax Adjustment shall reflect the actual calculation of each Seller&#146;s tax
and shall not be based on assumed or hypothetical Tax rates. Buyer shall have the right to contest
the calculation of any requested Tax Adjustment, and any conflict with respect to the calculation
of a Tax Adjustment shall be resolved in accordance with the provisions of Section&nbsp;2(f), except
that the parties shall have 20&nbsp;days in which to attempt to reach mutual agreement before referring
the calculation to the Auditor.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-46-<!-- /Folio -->
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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>SECTION 10. TERMINATION</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Termination of Agreement</B>. Certain of the Parties may terminate this Agreement as provided
below:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;Buyer and Requisite Sellers may terminate this Agreement by mutual written consent at any
time prior to the Closing;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;Buyer may terminate this Agreement prior to the Closing by giving written notice to
Requisite Sellers on or before the 15<SUP style="font-size: 85%; vertical-align: text-top">th</SUP> day following the date of this Agreement (or
such shorter time if Closing occurs within such 15-day period) if Buyer is not satisfied with the
results of its continuing business, legal, environmental, and accounting due diligence regarding
Target;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;Buyer may terminate this Agreement by giving written notice to Requisite Sellers at any
time prior to the Closing (A)&nbsp;in the event any of Sellers has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, Buyer has notified
Requisite Sellers of the breach, and the breach has continued without cure for a period of 15&nbsp;days
after the notice of breach or (B)&nbsp;if the Closing shall not have occurred on or before September&nbsp;28,
2007, by reason of the failure of any condition precedent under Section 7(a) hereof (unless the
failure results primarily from Buyer itself breaching any representation, warranty, or covenant
contained in this Agreement); and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;Requisite Sellers may terminate this Agreement by giving written notice to Buyer at any
time prior to the Closing (A)&nbsp;in the event Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material respect, any Seller has notified
Buyer of the breach, and the breach has continued without cure for a period of 15&nbsp;days after the
notice of breach or (B)&nbsp;if the Closing shall not have occurred on or before September&nbsp;28, 2007, by
reason of the failure of any condition precedent under Section 7(b) hereof (unless the failure
results primarily from any Seller breaching any representation, warranty, or covenant contained in
this Agreement).
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Effect of Termination</B>. If any Party terminates this Agreement pursuant to Section 10(a)
above, all rights and obligations of the Parties hereunder shall terminate without any Liability of
any Party to any other Party (except for any Liability of any Party then in breach).
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 18pt"><B>SECTION 11. MISCELLANEOUS</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(a)&nbsp;Nature of Sellers&#146; Obligations</B>.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;The covenants of each Seller in Section 2(a) above concerning the sale of his, her, or its
Target Shares to Buyer and the representations and warranties of each Seller in Section 3(a) above
concerning the transaction are individual, and not joint and several, obligations. This means that
the particular Seller making the representation, warranty, or covenant shall be solely responsible
to the extent provided in Section&nbsp;8(b)(ii) above for any Adverse Consequences Buyer may suffer as a
result of any breach thereof.
</DIV>


<P align="center" style="font-size: 10pt"><!-- Folio -->-47-<!-- /Folio -->
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;The remainder of the representations, warranties, and covenants in this Agreement are
joint and several obligations. This means that each Seller shall be responsible to the extent
provided in Section&nbsp;8(b)(i) and (iii)&nbsp;above for the entirety of any Adverse Consequences Buyer may
suffer as a result of any breach thereof.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(b)&nbsp;Press Releases and Public Announcements</B>. No Party shall issue any press release or make
any public announcement relating to the subject matter of this Agreement without the prior written
approval of Buyer and Requisite Sellers; <U>provided</U>, <U>however</U>, that any Party may make
any public disclosure it believes in good faith is required by applicable law or any listing or
trading agreement concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Parties prior to making the disclosure).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(c)&nbsp;No Third-Party Beneficiaries</B>. This Agreement shall not confer any rights or remedies upon
any Person other than the Parties and their respective successors and permitted assigns.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(d)&nbsp;Entire Agreement</B>. This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings, agreements, or
representations by or among the Parties, written or oral, to the extent they relate in any way to
the subject matter hereof, including, but not limited to that certain letter of intent and term
sheet dated as of June&nbsp;1, 2007, which letter of intent and term sheet are hereby terminated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(e)&nbsp;Succession and Assignment</B>. This Agreement shall be binding upon and inure to the benefit
of the Parties named herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his, her, or its rights, interests, or obligations hereunder
without the prior written approval of Buyer and Requisite Sellers; <U>provided</U>,
<U>however</U>, that Buyer may (i)&nbsp;assign any or all of its rights and interests hereunder to one
or more of its Affiliates and (ii)&nbsp;designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Buyer nonetheless shall remain responsible for
the performance of all of its obligations hereunder).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(f)&nbsp;Counterparts</B>. This Agreement may be executed in one or more counterparts (including by
means of facsimile), each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(g)&nbsp;Headings</B>. The section headings contained in this Agreement are inserted for convenience
only and shall not affect in any way the meaning or interpretation of hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(h)&nbsp;Notices</B>. All notices, requests, demands, claims, and other communications hereunder will
be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed
duly given (i)&nbsp;when delivered personally to the recipient, (ii)&nbsp;one business day after being sent
to the recipient by reputable overnight courier service (charges prepaid), (iii)&nbsp;one business day
after being sent to the recipient by facsimile transmission or electronic mail, or (iv)&nbsp;four
business days after being mailed to the recipient by certified or
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">registered mail, return receipt requested and postage prepaid, and addressed to the intended
recipient as set forth below:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="73%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>If to Buyer:</u>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Ultralife Batteries, Inc.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2000 Technology Parkway</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Newark, NY 14513</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: General Counsel</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (315)&nbsp;331-7048</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>With a copy to:</u>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Harter Secrest &#038; Emery LLP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1600 Bausch &#038; Lomb Place</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Rochester, NY 14604</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Jeffrey H. Bowen, Esq.</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (585)&nbsp;232-2152</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>If to Sellers:</u>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mr. Michele Aloisio</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">44850 Joy Chapel Road</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hollywood, MD 20636</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Michele A. Aloisio</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Phone: (301)&nbsp;373-6555</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>And:</u>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mr. Marc DeLaVergne</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2585 Aspen Road</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Port Republic, MD 20676</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Phone: (410)&nbsp;586-8763</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><u>With a copy to:</u>
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Bowie &#038; Jensen, LLC</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">29 W. Susquehanna Ave., Suite&nbsp;600</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Towson, MD 21204</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Attention: Michael D. Oliver</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Facsimile: (410)&nbsp;583-2437</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">For the avoidance of doubt, any notice, request, demand, claim, or other communication hereunder to
be given to Sellers shall be deemed given to all of the Sellers if it is given to Mr.&nbsp;Aloisio and
Mr.&nbsp;DeLaVergne in accordance with the provisions above. Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to be delivered by
giving the other Parties notice in the manner herein set forth.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(i)&nbsp;Governing Law</B>. This Agreement shall be governed by and construed in accordance with the
domestic laws of the State of New York without giving effect to any choice or conflict of law
provision or rule (whether of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(j)&nbsp;Amendments and Waivers</B>. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by Buyer and Requisite Sellers. No waiver by any
Party of any provision of this Agreement or any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be valid unless the
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-49-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">same shall be in writing and signed by the Party making such waiver nor shall such waiver be
deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent
such default, misrepresentation, or breach of warranty or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(k)&nbsp;Severability</B>. Any term or provision of this Agreement that is invalid or unenforceable in
any situation in any jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(l)&nbsp;Expenses</B>. Each of Buyer, Sellers, and Target will bear his, her, or its own costs and
expenses (including legal fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. If, and only if, the transactions contemplated by this Agreement
are consummated in accordance with the terms of this Agreement, then (i)&nbsp;Sellers shall be
responsible for all of their own legal costs and expenses incurred in connection with such
transactions, as well as all of Target&#146;s legal costs and expenses incurred in connection with such
transactions, and at Closing Seller&#146;s shall reimburse Buyer for any amounts already paid by or
through Target for Sellers&#146; and Target&#146;s legal costs and expenses incurred in connection with such
transactions; (ii)&nbsp;Sellers shall be responsible for up to the first $15,000 in accounting costs and
expenses incurred by Target in connection with such transactions, and at Closing Seller&#146;s shall
reimburse Buyer for such amount; and (iii)&nbsp;Buyer shall be responsible for Target&#146;s other costs and
expenses incurred in connection with such transactions; <U>provided</U><I>, </I><U>however</U>, in no
event shall Buyer have any responsibility or liability whatsoever for any obligation undertaken by
Sellers or Target to pay any finder&#146;s fee, commission or similar payment in connection with this
Agreement or the transactions contemplated hereby.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(m)&nbsp;Construction</B>. The Parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of
proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word &#147;including&#148; shall mean including without limitation. The
Parties intend that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty, or covenant
contained herein in any respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact that the Party is in
breach of the first representation, warranty, or covenant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(n)&nbsp;Incorporation of Exhibits, Annexes, and Schedules</B>. The Exhibits, Annexes, and Schedules
identified in this Agreement are incorporated herein by reference and made a part hereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(o)&nbsp;Specific Performance</B>. Each Party acknowledges and agrees that the other Parties would be
damaged irreparably in the event any provision of this Agreement is not performed in accordance
with its specific terms or otherwise is breached, so that a Party shall be entitled to
</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-50-<!-- /Folio -->
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">injunctive relief to prevent breaches of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in addition to any other remedy to which such Party
may be entitled, at law or in equity. In particular, the Parties acknowledge that the business of
Target is unique and recognize and affirm that in the event Sellers breach this Agreement, money
damages would be inadequate and Buyer would have no adequate remedy at law, so that Buyer shall
have the right, in addition to any other rights and remedies existing in its favor, to enforce its
rights and the other Parties&#146; obligations hereunder not only by action for damages but also by
action for specific performance, injunctive, and/or other equitable relief.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(p)&nbsp;Submission to Jurisdiction</B>. Each of the Parties submits to the jurisdiction of any state
or federal court having jurisdiction in Wayne County, New York, in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court. Each Party also agrees not to bring any
action or proceeding arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of any other Party
with respect thereto. Each Party agrees that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(q)&nbsp;Tax Disclosure Authorization</B>. Notwithstanding anything herein to the contrary, the Parties
(and each Affiliate and Person acting on behalf of any Party) agree that each Party (and each
employee, representative, and other agent of such Party) may disclose to any and all Persons,
without limitation of any kind, the transaction&#146;s tax treatment and tax structure (as such terms
are used in Code Sections&nbsp;6011 and 6112 and regulations thereunder) contemplated by this agreement
and all materials of any kind (including opinions or other tax analyses) provided to such Party or
such Person relating to such tax treatment and tax structure, except to the extent necessary to
comply with any applicable federal or state securities laws; <U>provided</U><I>, </I><U>however</U>,
that such disclosure many not be made until the earlier of date of (A)&nbsp;public announcement of
discussions relating to the transaction, (B)&nbsp;public announcement of the transaction, or (C)
execution of an agreement to enter into the transaction. This authorization is not intended to
permit disclosure of any other information including (without limitation) (A)&nbsp;any portion of any
materials to the extent not related to the transaction&#146;s tax treatment or tax structure, (B)&nbsp;the
identities of participants or potential participants, (C)&nbsp;the existence or status of any
negotiations, (D)&nbsp;any pricing or financial information (except to the extent such pricing or
financial information is related to the transaction&#146;s tax treatment or tax structure), or (E)&nbsp;any
other term or detail not relevant to the transaction&#146;s tax treatment or the tax structure.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>(r)&nbsp;Attorneys Fees</B>. Notwithstanding any other provision herein, if Buyer or Sellers incur
expenses (including but not limited to reasonable attorneys&#146; fees and other professional fees) to
enforce their respective rights to payments hereunder (collectively, &#147;<B><I>Enforcement Costs</I></B>&#148;), and the
prevailing party or parties in any such action or matter (whether or not an actual lawsuit or other
action is filed) shall be entitled to recover from the non-prevailing party or parties all of the
Enforcement Costs so incurred by such prevailing party or parties, and the non-prevailing party or
parties hereby agree to pay such Enforcement Costs.
</DIV>

<DIV align="Center" style="font-size: 10pt; margin-top: 6pt">&#091;THE SIGNATURES OF THE PARTIES APPEAR ON THE NEXT PAGE&#093;

</DIV>

<P align="center" style="font-size: 10pt"><!-- Folio -->-51-<!-- /Folio -->
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IN WITNESS WHEREOF, the Parties hereto have executed this Stock Purchase Agreement as of the
date first above written.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><U>BUYER</U>:<BR>
<BR>
Ultralife Batteries, Inc.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Peter F. Comerford
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Peter F. Comerford, Vice President of&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Administration and General Counsel&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><U>SELLERS</U>:<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Michele A. Aloisio
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Michele A. Aloisio, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                        /s/ Marc DeLaVergne
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Marc DeLaVergne, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                        /s/ Thomas R. Knowlton
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Thomas R. Knowlton, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                         /s/ Kenneth J. Wood
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Kenneth J. Wood, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">                        /s/ W. Michael Cooper
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">W. Michael Cooper, Individually&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left"><U>TARGET</U>:<BR>
<BR>
Innovative Solutions Consulting, Inc.<BR>
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Michele A. Aloisio
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Michele A. Aloisio, President&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->-52-<!-- /Folio -->
</DIV>



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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>3
<FILENAME>l28689aexv31w1.htm
<DESCRIPTION>EX-31.1
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.1</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
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<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;31.1
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, John D. Kavazanjian, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries, Inc.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The registrant&#146;s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and
15d-15(f)) for the registrant and have:
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting; and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.&nbsp;The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: <U>November 7, 2007</U></TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

</BODY>
</HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>4
<FILENAME>l28689aexv31w2.htm
<DESCRIPTION>EX-31.2
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-31.2</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;31.2
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">I, Robert W. Fishback, certify that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">1. I have reviewed this quarterly report on Form 10-Q of Ultralife Batteries, Inc.;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">4. The registrant&#146;s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules&nbsp;13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules&nbsp;13a-15(f) and
15d-15(f)) for the registrant and have:
</DIV>




<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this
report is being prepared;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant&#146;s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant&#146;s internal control over
financial reporting that occurred during the registrant&#146;s most recent fiscal quarter (the
registrant&#146;s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant&#146;s internal control
over financial reporting; and
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">5. The registrant&#146;s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant&#146;s auditors and the audit
committee of the registrant&#146;s board of directors (or persons performing the equivalent functions):
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant&#146;s ability to record, process, summarize and report financial information; and
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant&#146;s internal control over financial reporting.
</DIV>

<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: <U>November 7, 2007</U></TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>Vice President &#150; Finance and Chief Financial Officer</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>

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</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>5
<FILENAME>l28689aexv32.htm
<DESCRIPTION>EX-32
<TEXT>
<HTML>
<HEAD>
<TITLE>EX-32</TITLE>
</HEAD>
<BODY bgcolor="#FFFFFF">
<!-- PAGEBREAK -->
<H5 align="left" style="page-break-before:always">&nbsp;</H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="35%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>

</TABLE>

<DIV align="right" style="font-size: 10pt; margin-top: 12pt">Exhibit&nbsp;32
</DIV>


<DIV align="Center" style="font-size: 10pt; margin-top: 6pt"><B>Section&nbsp;1350 Certification</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley Act of
2002 (&#147;Section&nbsp;906&#148;), John D. Kavazanjian and Robert W. Fishback, the President and Chief Executive
Officer and Vice President &#151; Finance and Chief Financial Officer, respectively, of Ultralife
Batteries, Inc., certify that (i)&nbsp;the Quarterly Report on Form 10-Q for the quarter ended September
29, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 and (ii)&nbsp;the information contained in such report fairly presents, in all material
respects, the financial condition and results of operations of Ultralife Batteries, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">A signed original of this written statement required by Section&nbsp;906 has been provided to Ultralife
Batteries, Inc. and will be retained by Ultralife Batteries, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
</DIV>


<TABLE width="100%" border="0" cellspacing="0" cellpadding="0" style="font-size: 10pt">
<TR>
    <TD width="48%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: <U>November 7, 2007</U></TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ John D. Kavazanjian
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">John D. Kavazanjian&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">President and Chief Executive Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
<TR>
    <TD valign="top" align="left">&nbsp;</TD>
    <TD colspan="3" align="left">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">Date: <U>November 7, 2007</U></TD>
    <TD colspan="3" style="border-bottom: 1px solid #000000" align="left">/s/ Robert W. Fishback
&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Robert W. Fishback&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR><TR>
    <TD align="left">&nbsp;</TD>
    <TD colspan="3" align="left">Vice President &#150; Finance and
Chief Financial Officer&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>
</TABLE>


<P align="center" style="font-size: 10pt"><!-- Folio -->&nbsp;<!-- /Folio -->
</DIV>



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