e10vq

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FnLRSy4nTqQEVx9car6zagaa+yLPA1lQGNWcWlwjm3/YyQm2Wj52k27pD/jP5lrn PC6UH5EUdCGw0fuiKwOaZA== 0000950123-09-035338.txt : 20090814 0000950123-09-035338.hdr.sgml : 20090814 20090814144939 ACCESSION NUMBER: 0000950123-09-035338 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENDWAVE CORP CENTRAL INDEX KEY: 0001118941 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 954333817 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31635 FILM NUMBER: 091014893 BUSINESS ADDRESS: STREET 1: 130 BAYTECH DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: (408)522-3100 MAIL ADDRESS: STREET 1: 130 BAYTECH DRIVE CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 f53332e10vq.htm FORM 10-Q e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

000-31635

(Commission file number)

ENDWAVE CORPORATION

(Exact name of registrant as specified in its charter)


Delaware (State of incorporation)		95-4333817 (I.R.S. Employer Identification No.)

130 Baytech Drive
San Jose, CA		95134
(Address of principal executive offices)		(Zip code)

(408) 522-3100
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

The number of shares of the registrant’s Common Stock outstanding as of July 24, 2009 was 9,593,648 shares. The number of shares of the registrant’s Preferred Stock outstanding as of July 24, 2009 was 300,000 shares.

ENDWAVE CORPORATION

INDEX


	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements		3

Condensed Consolidated Balance Sheets as of June 30, 2009 (unaudited) and December 31, 2008		3

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008		4

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008		5

Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		16

Item 3. Quantitative and Qualitative Disclosure about Market Risk		23

Item 4. Controls and Procedures		23

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		24

Item 1A. Risk Factors		24

Item 6. Exhibits		34

SIGNATURES		36

EXHIBITS		37
EX-2.2
EX-2.3
EX-10.14
EX-31.1
EX-31.2
EX-32.1

PART I. FINANCIAL INFORMATION


Item 1.		Financial Statements

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)


	June 30,			December 31,
	2009			2008
	(unaudited)			(1)
ASSETS
Current assets:
Cash and cash equivalents	$	49,191		$	33,998
Short-term investments		19,476			11,350
Accounts receivable, net		4,374			4,762
Inventories		4,984			14,454
Other current assets		927			738

Total current assets		78,952			65,302
Property and equipment, net		1,976			4,220
Other assets, net		171			218
Restricted cash		—			600

	$	81,099		$	70,340

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,184		$	2,263
Accrued warranty		1,262			2,439
Accrued compensation		768			2,811
Other current liabilities		982			713

Total current liabilities		4,196			8,226
Other long-term liabilities		99			73

Total liabilities		4,295			8,299

Commitments and contingencies (Note 8)
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 5,000,000 shares authorized; 300,000 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		—			—
Common stock, $0.001 par value; 50,000,000 shares authorized; 9,588,748 and 9,345,442 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively		10			9
Additional paid-in capital		351,678			349,855
Accumulated other comprehensive income		1			42
Accumulated deficit		(274,885	)		(287,865	)

Total stockholders’ equity		76,804			62,041

	$	81,099		$	70,340


(1)		Derived from the Company’s audited consolidated financial statements as of December 31, 2008.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(unaudited)


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenues:
Product revenues	$	5,580		$	12,093		$	12,822		$	22,493
Development fees		—			—			—			60

Total revenues		5,580			12,093			12,822			22,553


Costs and expenses:
Cost of product revenues*		4,237			7,976			9,056			15,095
Research and development*		1,306			1,680			3,011			2,841
Selling, general and administrative*		1,935			2,757			4,293			5,536
Restructuring		166			—			1,233			—


Total costs and expenses		7,644			12,413			17,593			23,472


Loss from continuing operations		(2,064	)		(320	)		(4,771	)		(919	)
Interest and other income, net		94			294			200			733

Loss from continuing operations before provision (benefit) for income taxes		(1,970	)		(26	)		(4,571	)		(186	)
Provision (benefit) for income taxes		(13	)		22			(21	)		22

Loss from continuing operations		(1,957	)		(48	)		(4,550	)		(208	)
Income (loss) from discontinued operations, net of tax* (Note 10)		18,597			(712	)		17,530			(2,488	)

Net income (loss)	$	16,640		$	(760	)	$	12,980		$	(2,696	)


Basic and diluted net loss per share from continuing operations	$	(0.21	)	$	(0.01	)	$	(0.48	)	$	(0.02	)
Basic and diluted net income (loss) per share from discontinued operations	$	1.97		$	(0.07	)	$	1.86		$	(0.27	)
Basic and diluted net income (loss) per share	$	1.76		$	(0.08	)	$	1.38		$	(0.29	)

Shares used in computing basic and diluted net loss per share		9,460,395			9,187,183			9,403,482			9,164,682

* Includes the following amounts related to stock-based compensation:

Cost of product revenues	$	29		$	100		$	110		$	186
Research and development		60			165			188			319
Selling, general and administrative		318			564			716			1,096
Income (loss) from discontinued operations, net of tax		155			251			355			484

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENDWAVE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)


	Six months ended
	June 30,
	2009			2008
Operating activities:
Net income (loss)	$	12,980		$	(2,696	)
Income (loss) from discontinued operations		17,530			(2,488	)

Loss from continuing operations, net of tax		(4,550	)		(208	)
Adjustments to reconcile net loss to net cash provided by (used in) continuing operating activities:
Depreciation		380			266
Stock compensation expense		1,014			1,601
Amortization of investments, net		24			2
Gain on sale of investments		—			(45	)
Changes in operating assets and liabilities:
Accounts receivable, net		(1,827	)		(167	)
Inventories		4,602			(979	)
Other assets		(898	)		154
Accounts payable		123			346
Accrued warranty		(531	)		(57	)
Accrued compensation, other current liabilities and other long-term liabilities		(527	)		(277	)

Net cash provided (used in) provided by continuing operating activities		(2,190	)		636

Investing activities:
Proceeds from sale of discontinued operations		28,000			—
Purchase of ALC Microwave, Inc., net of cash acquired		—			(1,027	)
Change in restricted cash		600			(600	)
Purchases of property and equipment		(178	)		(675	)
Proceeds on sales and maturities of investments		14,315			7,157
Purchases of investments		(22,506	)		(7,845	)

Net cash provided by (used in) continuing investing activities		20,231			(2,990	)

Financing activities:
Payments on capital leases		(9	)		(12	)
Proceeds from common stock issuance		242			434
Proceeds from exercises of stock options, net of issuance costs		226			2

Net cash provided by financing activities		459			424


Effects of foreign exchange rate changes on cash and cash equivalents		—			12

Cash flows from discontinued operations:
Operating activities		(2,513	)		(3,423	)
Investing activities		(794	)		(299	)
Financing activities		—			—

Net cash used in discontinued operations		(3,307	)		(3,722	)


Net change in cash and cash equivalents		15,193			(5,640	)
Cash and cash equivalents at beginning of period		33,998			38,992

Cash and cash equivalents at end of period	$	49,191		$	33,352

The accompanying notes are an integral part of these condensed consolidated financial statements.

ENDWAVE CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Business and Basis of Presentation

Endwave Corporation (“Endwave” or the “Company”), designs, manufactures and markets radio frequency (“RF”) modules that enable the transmission, reception and processing of high-frequency signals in mobile communication networks.

The accompanying unaudited condensed consolidated financial statements of Endwave have been prepared in conformity with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The year-end condensed consolidated balance sheet data was derived from the Company’s audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the information contained herein reflects all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation of the results of the interim periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any future periods. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2008.

On April 30, 2009, the Company sold its defense and security business to Microsemi Corporation (“Microsemi”). The Company’s financial statements have been presented to reflect the defense and security business as a discontinued operation for all periods presented. See additional discussion at Note 10, Discontinued Operations.

2. Restricted Cash

At December 31, 2008, the Company had a restricted cash balance of $600,000, which represents a certificate of deposit held by a financial institution as collateral for a letter of credit in connection with the Company’s building lease in Folsom, California.

During the second quarter of 2009, the restricted cash was released as Microsemi assumed the Company’s building lease in Folsom, California as a result of the sale of the Company’s defense and security business to Microsemi on April 30, 2009. See additional discussion at Note 10, Discontinued Operations.

3. Investments

The following fair value amounts have been determined using available market information.


	June 30, 2009
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
			(In thousands)
Investments:
United States government agency	$	18,856	$	2	$	(2	)	$	18,856
Corporate securities		619		1		—			620

Total	$	19,475	$	3	$	(2	)	$	19,476


	December 31, 2008
			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
			(In thousands)
Investments:
Commercial paper	$	1,791	$	2	$	(3	)	$	1,790
United States government agency		6,690		35		—			6,725
Corporate securities		2,827		10		(2	)		2,835

Total	$	11,308	$	47	$	(5	)	$	11,350

At June 30, 2009, the Company had $19.5 million of short-term investments with maturities of less than one year and no long term investments.

At June 30, 2009, the Company had unrealized gains of $3,000 related to $7.3 million of investments in debt securities and unrealized losses of $2,000 related to $12.2 million of investments in debt securities. The securities were in an unrealized loss position for a period of less than one year. The investments mature through 2010 and the Company believes that it has the ability to hold these investments until the maturity date. Realized gains and losses were insignificant for the quarters ended June 30, 2009 and 2008.

The Company reviews its investment portfolio to identify and evaluate investments that have indications of possible impairment. Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been less than the cost basis, credit quality and the Company’s ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. If the Company believes the carrying value of an investment is in excess of its fair value, and this difference is other-than-temporary, it is the Company’s policy to write down the investment to reduce its carrying value to fair value.

Fair Value Measurements

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 (in thousands):


			Quoted Prices in		Significant Other
			Active Markets of		Observable
	Balance as of		Identical Assets		Inputs
	June 30, 2009		(Level 1)		(Level 2)
Assets:
Cash equivalents:
Money market funds	$	45,897	$	45,897	$	—
Short-term investments:
United States government agencies		18,856		—		18,856
Corporate security		620		—		620

Total	$	65,373	$	45,897	$	19,476


Liabilities:	$	—	$	—	$	—

The Company’s financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from readily-available pricing sources for comparable instruments. As of June 30, 2009, the Company did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (Level 3).

The amounts reported as cash and cash equivalents, accounts receivable, note receivable, accounts payable and accrued liabilities approximate fair value due to their short-term maturities. The fair value for the Company’s investments in marketable debt securities is estimated based on quoted market prices. Based upon borrowing rates currently available to the Company for capital leases with similar terms, the carrying value of its capital lease obligations approximates fair value.

4. Inventories

Inventories are stated at the lower of cost (determined on a first-in, first-out basis) or market and consisted of the following (in thousands):


	June 30,		December 31,
	2009		2008
Raw materials	$	4,385	$	8,452
Work in process		490		1,574
Finished goods		109		4,428

	$	4,984	$	14,454

5. Note Receivable

During the third quarter of 2008, the Company set up a note receivable with one of its customers, Allgon Microwave Corporation AB (“Allgon”) who failed to meet the terms of its accounts receivable. The note was in the amount of $545,000, with payments of $25,000 due on a weekly basis. The note was to be paid in full by the end of the first quarter of 2009.

During the third and fourth quarters of 2008, Allgon made the first five payments under the note. However, during the fourth quarter of 2008, Allgon went in default on the note and filed for bankruptcy protection under Swedish composition rules. At the time of default, the note receivable balance was $420,000. Based on Allgon’s bankruptcy filing and current estimates of payments to Allgon’s creditors, the Company has reserved 75% or $315,000 of the remaining balance of the note receivable. At June 30, 2009 and December 31, 2008, the net amount of $105,000 is included in other current assets on the consolidated balance sheet.

Subsequent to Allgon’s default on the note receivable, the Company filed a complaint alleging that Allgon’s parent company, Advantech Advanced Microwave Technologies Inc. of Montreal, Canada (“Advantech”), had breached its contractual obligations with the Company and owes the Company $994,500 including the note receivable, purchased inventory and authorized and accepted purchase orders resulting in shippable finished goods. See additional discussion at Note 8, Commitments and Contingencies. There have been no changes to the note receivable since December 31, 2008.

6. Warranty

The warranty periods for the Company’s products are between twelve and thirty months from date of shipment. The Company provides for estimated warranty expense at the time of shipment. While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.

Changes in the Company’s product warranty liability during the six months ended June 30, 2009 and 2008 are as follows (in thousands):


	Six months ended June 30,
	2009			2008
Balance at January 1	$	2,439		$	2,712
Warranties accrued		600			376
Warranties settled or reversed		(1,049	)		(285	)
Warranties transferred due to sale of the business		(728	)		—

Balance at June 30	$	1,262		$	2,803

7. Restructuring

During the first quarter of 2009, the Company undertook certain restructuring activities to reduce expenses (“First Quarter 2009 Restructuring Plan”). The Company terminated the employment of 33 employees in order to reduce the Company’s cost structure. These terminations affected all areas of the Company’s operations. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with the termination of the employees. The charge for these restructuring activities was $1.2 million and is expected to be substantially completed by the end of the first quarter of 2010.

During the second quarter of 2009, the Company undertook certain restructuring activities to reduce expenses (“Second Quarter 2009 Restructuring Plan”). The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with the termination of the employees. The charge for these restructuring activities was $258,000 and is expected to be substantially completed by the end of the first quarter of 2010.


	Restructuring
	(in thousands)

First Quarter 2009 Restructuring Plan charge	$	1,249
Second Quarter 2009 Restructuring Plan charge		258
Cash payments		(1,125	)
First Quarter 2009 Restructuring Plan adjustment		(55	)

Accrual at June 30, 2009	$	327

The accrued restructuring charges are included in other current liabilities on the condensed consolidated balance sheet.

During the second quarter of 2009, the Company recorded $166,000 of restructuring expense which included the following: a $258,000 restructuring charge for the Second Quarter 2009 Restructuring Plan partially offset by a $55,000 adjustment to the First Quarter 2009 Restructuring Plan and $37,000 of restructuring expense recorded in discontinued operations.

8. Commitments and Contingencies

On October 31, 2008, the Company filed a complaint with the Canadian Superior Court in Montreal, Quebec alleging that Advantech, the parent company of Allgon had breached its contractual obligations with Endwave and owes the Company $994,500 in a note receivable, purchased inventory and authorized finished goods purchase orders. The Company cannot predict the outcome of these proceedings. An adverse decision in these proceedings could harm the Company’s consolidated financial position and results of operations.

In a related action, the Company filed a creditor’s claim for $994,500 against Allgon in the composition of creditors’ proceedings now pending in a Stockholm, Sweden bankruptcy court. Although a recovery under Swedish bankruptcy law is not assured, if it occurs any recovery will be a set-off in the Montreal action against Allgon’s parent, Advantech. Other than the described complaint against Advantech and the related claim against Allgon, the Company is not currently a party to any material litigation.

9. Stockholder’s Equity

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. All of the Company’s stock compensation is accounted for as an equity instrument.

The effect of recording stock-based compensation for the three months ended June 30, 2009 and 2008 was as follows (in thousands, except per share data):


	Three months ended June 30,
	2009			2008
Stock-based compensation expense by type of award:
Employee stock options	$	501		$	907
Employee stock purchase plan		61			171
Amounts capitalized into inventory during the three month period		(6	)		(19	)
Amounts previously capitalized into inventory and expensed		6			21

Total stock-based compensation		562			1,080
Tax effect on stock-based compensation		—			—

Total stock-based compensation expense	$	562		$	1,080

Impact on net income (loss) per share — basic and diluted	$	(0.06	)	$	(0.12	)

The effect of recording stock-based compensation for the six months ended June 30, 2009 and 2008 was as follows (in thousands, except per share data):


	Six months ended June 30,
	2009			2008
Stock-based compensation expense by type of award:
Employee stock options	$	1,151		$	1,798
Employee stock purchase plan		205			293
Amounts capitalized into inventory during the six month period		(12	)		(41	)
Amounts previously capitalized into inventory and expensed		25			35

Total stock-based compensation		1,369			2,085
Tax effect on stock-based compensation		—			—

Total stock-based compensation expense	$	1,369		$	2,085

Impact on net income (loss) per share — basic and diluted	$	(0.15	)	$	(0.23	)

During the three months ended June 30, 2009 and 2008, the Company granted options to purchase 50,300 and 56,800 shares of common stock, respectively, with an estimated total grant-date fair value of $60,000 and $147,000, respectively. Of these amounts, the Company estimated that the stock-based compensation expense of the awards not expected to vest was $5,000 and $17,000, respectively.

During the six months ended June 30, 2009, the Company granted options to purchase 520,000 shares of common stock with an estimated total grant date fair value of $538,000 or $1.04 per option. Of this amount, the Company estimated the stock based compensation expense of the awards not expected to vest was a total of $146,000.

During the six months ended June 30, 2008, the Company granted options to purchase 960,021 shares of common stock, including 327,921 options granted as part of an option exchange program. The 327,921 options granted as part of the exchange program had an estimated total grant-date fair value of $607,000 or $1.85 per option. The remaining 632,100 options had an estimated total grant-date fair value of $2.1 million or $3.28 per option. The total estimated grant-date fair value of all 960,021 options granted was $2.7 million. Of this amount, the Company estimated that the stock-based compensation expense of the awards not expected to vest was a total of $765,000.

During the three months ended June 30, 2009, the Company fully accelerated the vesting of 165,600 options in connection with the closing of the Microsemi transaction and certain restructuring activities. The Company recorded additional stock-based compensation expense of $66,000 relating to the incremental value of the fully vested modified awards.

As of June 30, 2009, the unrecorded stock-based compensation balance related to all stock options was $1.2 million, net of estimated forfeitures, and will be recognized over an estimated weighted-average service period of 1.3 years. As of June 30, 2009, the unrecorded stock-based compensation balance related to the employee stock purchase plan was $340,000, net of estimated forfeitures, and will be recognized over an estimate weighted-average service period of 0.6 years.

Valuation Assumptions

The Company estimates the fair value of stock options using a Black-Scholes option valuation model, consistent with the provisions of SFAS No. 123(R) and Securities and Exchange Commission Staff Accounting Bulletin No. 107. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model and the graded-vesting method with the following weighted-average assumptions:


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Risk-free interest rate		1.46% - 2.05	%		2.38% - 2.80	%		1.44% - 2.05	%		2.32% - 2.80	%
Expected life of options		3.0 years			2.2 years			4.5 years			3.5 years
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		70	%		70	%		70	%		70	%

The fair value of purchase rights under the employee stock purchase plan is determined using the Black-Scholes option valuation model with the following weighted-average assumptions:


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Risk-free interest rate		0.35% - 0.93	%		2.05% - 4.74	%		0.35% - 0.93	%		2.05% - 4.74	%
Expected life of options		1.2 years			1.2 years			1.2 years			1.2 years
Expected dividends		0.0	%		0.0	%		0.0	%		0.0	%
Volatility		51	%		51	%		51	%		51	%

The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expected volatility is based on the combination of historical volatility of the Company’s common stock and the expected future volatility over the period commensurate with the expected life of the options and other factors. The risk-free interest rates are taken from the Daily Federal Yield Curve Rates as of the grant dates as published by the Federal Reserve and represent the yields on actively traded Treasury securities for terms equal to the expected term of the options. The expected term calculation is based on the Company’s observed historical option exercise behavior and post-vesting cancellations of options by employees.

The total intrinsic value of options exercised during the three months ended June 30, 2009 and 2008 was $107,000 and $5,000, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2009 and 2008 was $109,000 and $6,000, respectively.

Equity Incentive Program

The Company’s equity incentive program is a broad-based, long-term retention program designed to align stockholder and employee interests. Under the Company’s equity incentive program, stock options generally have a vesting period of four years, are exercisable for a period not to exceed ten years from the date of issuance and are generally granted at prices not less than the fair market value of the Company’s common stock at the grant date.

The following table summarizes activity under the equity incentive plans for the indicated periods:


					Weighted-
			Weighted-		Average		Aggregate
			Average		Remaining		Intrinsic
	Number of		Exercise		Contractual		Value
	Shares		Price		Term (Years)		(In thousands)
Outstanding at December 31, 2008		3,008,917	$	9.23
Options granted		520,000		1.88
Options exercised		(140,231)		1.61
Options cancelled		(955,291)		9.22

Outstanding at June 30, 2009		2,433,395	$	8.10		6.25	$	329

Options vested and exercisable and expected to be exercisable at June 30, 2009		2,266,088	$	8.31		6.06	$	282
Options vested and exercisable at June 30, 2009		1,504,416	$	9.35		4.73	$	125

At June 30, 2009, the Company had 3,056,119 options available for grant under its equity incentive plans.

The options outstanding and options vested and exercisable at June 30, 2009 were in the following exercise price ranges:


							Options Vested and Exercisable
Options Outstanding at June 30, 2009							At June 30, 2009
					Weighted-Average
			Weighted-Average		Remaining				Weighted-Average
Range of Exercise Price	Shares		Exercise Price		Contractual Life		Shares		Exercise Price
$ 0.76 - $ 1.21		14,863	$	1.14		2.94		14,863	$	1.14
$ 1.81 - $ 1.81		403,500	$	1.81		7.22		103,400	$	1.81
$ 1.93 - $ 6.37		184,245	$	3.61		6.46		135,784	$	3.95
$ 6.59 - $ 6.59		579,877	$	6.59		7.91		213,892	$	6.59
$ 6.60 - $ 9.75		65,432	$	8.71		5.17		52,282	$	8.70
$ 9.77 - $ 9.77		259,673	$	9.77		5.55		218,594	$	9.77
$ 9.90 - $ 10.22		305,515	$	10.13		4.41		288,433	$	10.15
$ 10.23 - - $ 12.90		196,658	$	11.90		3.92		182,502	$	11.91
$ 13.23 - - $ 13.23		342,779	$	13.23		6.56		214,589	$	13.23
$ 15.14 - - $ 21.47		80,853	$	17.37		4.15		80,077	$	17.39

		2,433,395	$	8.10		6.25		1,504,416	$	9.35

Employee Stock Purchase Plan

In October 2000, the Company established the Endwave Corporation Employee Stock Purchase Plan. All employees who work a minimum of 20 hours per week and are customarily employed by the Company (or an affiliate thereof) for at least five months per calendar year are eligible to participate. Under this plan, employees may purchase shares of common stock through payroll deductions of up to 15% of their earnings with a limit of 3,000 shares per offering period under the plan. The price paid for the Company’s common stock purchased under the plan is equal to 85% of the lower of the fair market value of the Company’s common stock on the date of commencement of participation by an employee in an offering under the plan or the date of purchase. The compensation cost in connection with the purchase plan for the three months ended June 30, 2009 and 2008 was $61,000 and $171,000. The compensation cost in connection with the purchase plan for the six months ended June 30, 2009 and 2008 was $205,000 and $293,000. During the second quarter of 2009, there were 103,075 shares issued under the purchase plan at a weighted average price of $2.35 per share. During the second quarter of 2008, there were 80,213 shares issued under the purchase plan at a weighted average price of $5.41 per share. At June 30, 2009, there were 257,294 shares available for purchase under the purchase plan.

10. Discontinued Operations

On April 30, 2009, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Microsemi, pursuant to which Microsemi purchased the Company’s defense and security business (the “Business”), including all of the outstanding capital stock of Endwave Defense Systems, Incorporated (“EDSI”). As consideration, Microsemi assumed certain liabilities associated exclusively with the Business, including the Company’s building lease in Folsom, California, and paid $28 million in cash. The Purchase Agreement contains standard representations and warranties as to the Business that survives for two years following the closing. In connection with the transaction, the Company entered into an indemnification agreement pursuant to which the Company agreed to indemnify Microsemi for environmental, product liability and intellectual property infringement claims related to the Company’s operation of the Business prior to the closing date, as well as for any other excluded liability, and Microsemi agreed to indemnify the Company for any claims related to the operation of the Business following the closing date and for any other assumed liability, subject in some cases to a customary deductible and limitation on maximum damages.

Concurrently with the closing of the acquisition, the Company entered into a transition services agreement and an employee transition services agreement with Microsemi pursuant to which the Company agreed to provide to Microsemi for a limited period of time certain transitional services, including human resources, information technology and product supply services.

The Company classified the results of the Business as a discontinued operation in the Company’s condensed consolidated statements of operations for all periods presented. During the second quarter of 2009, the Company recognized income from discontinued operations of $18.6 million net of tax expense of $41,000 related to the sale of the Business.

The results of operations for the Business classified as discontinued operations are as follows (in thousands):


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenue of discontinued operations	$	516		$	5,186		$	5,313		$	8,907
Loss from discontinued operations		(961	)		(712	)		(2,028	)		(2,488	)
Gain on sale of discontinued operation, net of tax		19,558			—			19,558			—

Net income (loss) from discontinued operations, net of tax	$	18,597		$	(712	)	$	17,530		$	(2,488	)

11. Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock and potential common stock equivalents outstanding during the period, if dilutive. Potential common stock equivalents include convertible preferred stock, options to purchase common stock, and shares to be purchased in connection with the Company’s employee stock purchase plan.

As of June 30, 2009 and 2008, 300,000 preferred shares were outstanding, which were convertible into 3,000,000 shares of common stock. Additionally, as of June 30, 2008, the Company had an outstanding warrant that granted the holder the right to purchase 90,000 shares of preferred stock, which are convertible into 900,000 shares of common stock. The warrant expired on April 24, 2009.

As the Company incurred net losses from continuing operations for all periods presented, shares associated with common stock issuable upon the conversion of the preferred shares or the exercise of the outstanding warrant were not included in the calculation of diluted net loss per share, as the effect would be anti-dilutive. Potential dilutive common shares of 2,433,395 as of June 30, 2009 and 2,958,073 as of June 30, 2008 from the assumed exercise of stock options were not included in the net income (loss) per share calculations as their inclusion would have been anti-dilutive. As a result, diluted net loss per share is the same as basic net loss per share for all periods presented.

12. Comprehensive Income (Loss)

Comprehensive income (loss) generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. The Company’s unrealized gains and losses on its available-for-sale securities and gains and losses resulting from foreign currency translation adjustments represent the only components of comprehensive loss excluded from the reported net loss.

The components of comprehensive income (loss) were as follows (in thousands):


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Net income (loss)	$	16,640		$	(760	)	$	12,980		$	(2,696	)
Foreign currency translation adjustments		—			19			—			12
Change in unrealized gain (loss) on investments		(16	)		(52	)		(41	)		(5	)

Total comprehensive income (loss)	$	16,624		$	(793	)	$	12,939		$	(2,689	)

13. Segment Disclosures

The Company operates in a single business segment. Although the Company sells to customers in various geographic regions throughout the world, the end customers may be located elsewhere. The Company’s total revenues by billing location for the periods ended June 30 were as follows (in thousands):


	Three months ended June 30,
	2009				2008
United States	$	6	0.1	%	$	262	2.2	%
Finland		3,351	60.0	%		10,614	87.8	%
Germany		976	17.5	%		—	—
Slovakia		906	16.3	%		328	2.7	%
Rest of the world		341	6.1	%		889	7.3	%

Total	$	5,580	100.0	%	$	12,093	100.0	%


	Six months ended June 30,
	2009				2008
United States	$	44	0.3	%	$	426	1.9	%
Finland		9,891	77.1	%		18,218	80.8	%
Germany		976	7.6	%		—	—
Slovakia		1,097	8.6	%		1,656	7.3	%
Rest of the world		814	6.4	%		2,253	10.0	%

Total	$	12,822	100	%	$	22,553	100	%

For the three months ended June 30, 2009, Nokia Siemens Networks and its manufacturing partner, SRI Radio Systems, and Nera accounted for 78% and 16%, respectively, of the Company’s total revenues. For the three months ended June 30, 2008, Nokia Siemens Networks accounted for 89% of the Company’s total revenues.

For the six months ended June 30, 2009 and 2008, Nokia Siemens Networks and its manufacturing partner, SRI Radio Systems, accounted for 85% and 84%, respectively, of the Company’s total revenues.

For the periods presented, no other customer accounted for more than 10% of the Company’s total revenues.

14. Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume or Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP 157-4”). FSP 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and requires interim and annual disclosures of the inputs and valuation technique(s) used to measure fair value. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009 and is to be applied prospectively. The adoption of FSP 157-4 did not have a material impact on the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP 107-1 and APB 28-1”). FSP 107-1 and APB 28-1 require disclosures about fair value of financial instruments in financial statements for interim and annual reporting periods of publicly traded companies. FSP 107-1 and APB 28-1 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP 107-1 and APB 28-1 did not have a material impact on the Company’s condensed consolidated financial statements.

In April 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (“FSP 141(R)-1”). FSP 141(R)-1 amends and clarifies SFAS No. 141 (revised 2007), “Business Combinations” to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact, if any, will depend on the nature and terms of business combinations the Company consummates after the effective date.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on the Company’s condensed consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No, 168”) which replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” as the source of authoritative accounting principles recognized by FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Since the underlying GAAP guidance for nongovernmental entities will not change as a result of the issuance of SFAS No. 168, the Company does not expect the adoption of the SFAS No. 168 to have a material impact on its financial condition or results of operations. References to codification guidance will be updated in the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009.

15. Subsequent Events

On August 11, 2009 the Company filed a Tender Offer Statement on Schedule TO with the Securities and Exchange Commission. The tender offer related to an offer by the Company to certain optionholders to exchange some or all of their outstanding stock option grants to purchase shares of the Company’s common stock granted under the Company’s 2007 Equity Incentive Plan with an exercise price per share greater than or equal to $5.00 for new option grants at an exchange ratio of 3 old options for 1 new option. The exchange offer was made to employees and directors of the Company who, as of the date the exchange offer commenced, were actively employed and held eligible option grants. The exchange offer is scheduled to expire on September 9, 2009.

The Company has performed an evaluation of subsequent events through August 14, 2009, which is the date the financial statements were issued.


Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements, related notes and “Risk Factors” section included elsewhere in this report on Form 10-Q, as well as the information contained under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2008. In addition to historical consolidated financial information, this discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this report are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our actual results could differ materially from those discussed in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements. In the past, our operating results have fluctuated and are likely to continue to fluctuate in the future.

The terms “we,” “us,” “our” and words of similar import below refer to Endwave Corporation.

Overview

On April 30, 2009, we entered into an Asset Purchase Agreement with Microsemi Corporation (“Microsemi”) pursuant to which Microsemi purchased our defense and security business, including all of the outstanding capital stock of Endwave Defense Systems Incorporated. As consideration, Microsemi assumed certain liabilities associated exclusively with the defense and security business and paid $28 million in cash. Additionally, as part of the sale, approximately 130 employees associated with the defense and security business transferred to Microsemi. As a result of the divestiture, we will now focus our resources on our communication module and RF semiconductor businesses. The sale of the defense and security business will have a meaningful impact on our operations and financial results in future periods.

The funding of the installation and enhancement of mobile communication networks integrating our products, often rely on the availability of credit. Over the past several months, global economic conditions have continued to be weak and credit has continued to be severely restricted. This continued restriction in credit has materially impacted our customers and vendors and has had a negative effect on our business. We expect the restriction in credit will continue to impact our customers and vendors for the foreseeable future. Without appropriate capital, our customers may have difficulty funding their on-going operations and may reduce their orders for our products. This could significantly impact our operations and financial results.

Results of Operations

Three and six months ended June 30, 2009 and 2008

The following table sets forth certain statement of operations data as a percentage of total revenues for the periods indicated:


	Three months ended						Six months ended
	June 30,						June 30,
	2009			2008			2009			2008
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%

Cost of product revenues		75.9			65.9			70.6			66.9
Research and development		23.4			13.9			23.5			12.6
Selling, general and administrative		34.7			22.8			33.5			24.6
Restructuring		3.0			—			9.6			—

Total costs and expenses		137.0			102.6			137.2			104.1

Loss from continuing operations		(37.0	)		(2.6	)		(37.2	)		(4.1	)
Interest and other income, net		1.7			2.4			1.6			3.3

Loss from continuing operations before provision (benefit) for income taxes		(35.3	)		(0.2	)		(35.6	)		(0.8	)
Provision (benefit) for income taxes		(0.2	)		0.2			(0.1	)		0.1

Loss from continuing operations		(35.1	)		(0.4	)		(35.5	)		(0.9	)
Income (loss) from discontinued operations, net of tax		333.3			(5.9	)		136.7			(11.0	)

Net income (loss)		298.2	%		(6.3	)%		101.2	%		(11.9	)%

Total revenues


	Three months ended June 30,						Six months ended June 30,
	2009		2008		% Change		2009		2008		% Change
	(In thousands)						(In thousands)
Total revenues	$	5,580	$	12,093		(53.9)%	$	12,822	$	22,553		(43.1)%
Product revenues	$	5,580	$	12,093		(53.9)%	$	12,822	$	22,493		(43.0)%
Development fees	$	—	$	—		—	$	—	$	60		(100.0)%

Total revenues consist of product revenues and development fees. Product revenues are attributable to sales of our mobile communication products. Development fees are attributable to the development of product prototypes and custom products pursuant to development agreements that provide for payment of a portion of our research and development or other expenses. We do not expect development fees to represent a significant percentage of our total revenues for the foreseeable future.

During the three months ended June 30, 2009, total revenues decreased by $6.5 million, or 54%, compared to the same period in 2008. During the six months ended June 30, 2009, total revenues decreased by $9.7 million, or 43%, compared to the same period in 2008. The demand for our products has declined relative to prior periods as the mobile communication industry has been impacted by the current global economic downturn and credit crisis.

During the remainder of 2009, we expect revenues to be lower relative to 2008 in absolute dollar terms because global economic conditions continue to remain weak and uncertain.

Cost of product revenues


	Three months ended June 30,									Six months ended June 30,
	2009			2008			% Change			2009			2008				% Change
	(In thousands)									(In thousands)
Cost of product revenues	$	4,237		$	7,976			(46.9	)%	$	9,056			$	15,095			(40.0	)%
Percentage of total revenues		75.9	%		65.9	%					70.6	%			66.9	%

Cost of product revenues consists primarily of: costs of direct materials; equipment depreciation; costs associated with procurement, production control, quality assurance and manufacturing engineering; fees paid to our offshore manufacturing vendor; reserves for potential excess or obsolete material; costs related to stock-based compensation; and accrued costs associated with potential warranty returns offset by the benefit of usage of materials that were previously written off.

During the second quarter of 2009, the cost of product revenues as a percentage of revenues increased compared to the same period in 2008, primarily due to the decreased absorption of our overhead costs resulting from decreased production. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $46,000 during the second quarter of 2009 and $15,000 during the second quarter of 2008.

During the first half of 2009, the cost of product revenues as a percentage of revenues increased compared to the same period in 2008, primarily due to the decreased absorption of our overhead costs resulting from decreased production. The cost of product revenues in both periods was favorably impacted by the utilization of inventory that was previously written off, amounting to approximately $65,000 during the first half of 2009 and $34,000 during the first half of 2008.

We continue to focus on reducing the cost of product revenues as a percentage of total revenues through the introduction of new designs and technology and further improvements to our offshore manufacturing processes. In addition, our product costs are impacted by the mix and volume of products sold and will continue to fluctuate as a result.

Research and development expenses


	Three months ended June 30,								Six months ended June 30,
	2009			2008			% Change		2009			2008			% Change
	(In thousands)									(In thousands)
Research and development expenses	$	1,306		$	1,680		(22.3)	%	$	3,011		$	2,841		6.0	%
Percentage of total revenues		23.4	%		13.9	%				23.5	%		12.6	%

Research and development expenses consist primarily of salaries and related expenses for research and development personnel, outside professional services, prototype materials, supplies and labor, depreciation for related equipment, allocated facilities costs and expenses related to stock-based compensation.

During the second quarter of 2009, research and development costs decreased in absolute dollars compared to the second quarter of 2008. During the second quarter of 2009, a decrease of $297,000 in personnel related expenses and a decrease of $105,000 for stock-based compensation expenses were partially offset by a $62,000 increase in project related expenses.

During the first half of 2009, research and development costs increased in absolute dollars compared to the first half of 2008. During the first half of 2009, an increase of $578,000 for project related expenses was partially offset by a decrease of $242,000 in personnel related expenses and a decrease of $131,000 for stock-based compensation expenses.

During the remainder of 2009, we expect research and development expenses to be flat on a quarterly basis relative to research and development expenses incurred during the second quarter of 2009.

Selling, general and administrative expenses


	Three months ended June 30,								Six months ended June 30,
	2009			2008			% Change		2009			2008			% Change
	(In thousands)									(In thousands)
Selling, general and administrative expenses	$	1,935		$	2,757		(29.8)	%	$	4,293		$	5,536		(22.5)	%
Percentage of total revenues		34.7	%		22.8	%				33.5	%		24.6	%

Selling, general and administrative expenses consist primarily of salaries and related expenses for executive, sales, marketing, finance, accounting, legal, information technology and human resources personnel, professional fees, facilities costs, expenses related to stock-based compensation and promotional activities.

During the second quarter of 2009, selling, general and administrative expenses decreased in absolute dollars compared to the second quarter of 2008 primarily due to a $437,000 decrease in personnel-related expenses, a $246,000 decrease in stock-based compensation expenses, and a $57,000 decrease in professional fees.

During the first half of 2009, selling, general and administrative expenses decreased in absolute dollars compared to the first half of 2008 primarily due to a $533,000 decrease in personnel-related expenses, a $381,000 decrease in stock-based compensation expenses, a $124,000 decrease in professional fees and a $75,000 decrease in travel and entertainment.

During the remainder of 2009, we expect selling, general and administrative expenses to moderately decrease on a quarterly basis relative to selling, general and administrative expenses incurred during the second quarter of 2009.

Restructuring


	Three months ended June 30,						Six months ended June 30,
	2009		2008		% Change		2009		2008		% Change
	(In thousands)						(In thousands)
Restructuring expenses	$	166	$	—		—	$	1,233	$	—		—

During the first quarter of 2009, we undertook certain restructuring activities to reduce expenses (“First Quarter 2009 Restructuring Plan”). We terminated the employment of 33 employees in order to reduce our cost structure. These terminations affected all areas of our operations. The components of the restructuring charge include severance, benefits, payroll taxes and other costs associated with the termination of the employees. The charge for these restructuring activities was $1.2 million and the restructuring activities are expected to be substantially completed by the end of the first quarter of 2010.

During the second quarter of 2009, we undertook certain restructuring activities to reduce expenses (“Second Quarter 2009 Restructuring Plan”). We terminated the employment of several employees in order to reduce our cost structure. The components of the restructuring charge included severance, benefits, payroll taxes and other costs associated with the termination of the employees. The charge for these restructuring activities was $258,000 and is expected to be substantially completed by the end of the first quarter of 2010.

During the second quarter of 2009, we recorded $166,000 of restructuring expenses. A restructuring charge of $258,000 for the Second Quarter 2009 Restructuring Plan was partially offset by a $55,000 adjustment to the First Quarter 2009 Restructuring Plan and $37,000 of restructuring expense recorded in discontinued operations.

Interest and other income, net


	Three months ended June 30,							Six months ended June 30,
	2009		2008		% Change			2009		2008		% Change
	(In thousands)							(In thousands)
Interest and other income, net	$	94	$	294		(68.0	%)	$	200	$	733		(72.7	%)

Interest and other income, net consists primarily of interest income earned on our cash, cash equivalents and investments, the amortization of the deferred gain from the sale of our Diamond Springs, California location and gains and losses related to foreign currency transactions.

The decrease in interest and other income, net during both the three and six months ended June 30, 2009 was primarily the result of decreased interest earned on our investments. Interest rates have decreased significantly from the prior year, especially on the highest rated investment vehicles, leading to lower interest income.

During the second quarter of 2009, we earned $68,000 of interest income and recognized $38,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location which were partially offset by banking charges and losses on foreign currency transactions. During the second quarter of 2008, we earned $254,000 of interest income, recognized a gain of $37,000 from the sale of securities and recognized $38,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location, which were partially offset by banking charges and losses on foreign currency transactions.

During the first half of 2009, we earned $154,000 of interest income and recognized $76,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location which were partially offset by banking charges and losses on foreign currency transactions. During the first half of 2008, we earned $707,000 of interest income, recognized a gain of $45,000 from the sales of securities and recognized $77,000 of other income from the amortization of the deferred gain from the sale of our Diamond Springs, California location, which were partially offset by banking charges and losses on foreign currency transactions.

Our functional currency is the U.S. Dollar. Transactions in foreign currencies other than the functional currency are remeasured into the functional currency at the time of the transaction. Foreign currency transaction losses consist of the remeasurement gains and losses that arise from exchange rate fluctuations related to our operations in Thailand. During the second quarter of 2009, we recorded a foreign currency transaction gain of $2,000 and during the second quarter of 2008 we recorded a foreign currency transaction loss of $19,000. During the first half of 2009 and 2008, we recorded foreign currency transaction losses of $3,000 and $41,000, respectively.

Provision (benefit) for income taxes


	Three months ended June 30,								Six months ended June 30,
	2009			2008		% Change			2009			2008		% Change
	(In thousands)								(In thousands)
Provision (benefit) for income taxes	$	(13	)	$	22		159.1	%	$	(21	)	$	22		195.5	%

During the second quarter of 2009, we recorded an income tax benefit of $13,000 due to a benefit from refundable research and development tax credits in the United States. During the six months ended June 30, 2009, we recorded an income tax benefit of $21,000 due to a benefit from refundable research and development tax credits in the United States.

Discontinued operations, net of tax


	Three months ended June 30,								Six months ended June 30,
	2009		2008			% Change			2009		2008			% Change
	(In thousands)								(In thousands)
Income (loss) from discontinued operations, net of tax	$	18,597	$	(712	)		2,711.9	%	$	17,530	$	(2,488	)		804.6	%

On April 30, 2009, we entered into an Asset Purchase Agreement with Microsemi pursuant to which Microsemi purchased our defense and security business (“the Business”), including all of the outstanding capital stock of Endwave Defense Systems Incorporated. As consideration, Microsemi assumed certain liabilities associated exclusively with the defense and security business and paid $28 million in cash.

We classified the results of the Business as a discontinued operation in our condensed consolidated statements of operations for all periods presented. During the second quarter of 2009, we recognized income from discontinued operations of $18.6 million net of tax expense of $41,000 related to the sale of the Business.

Liquidity and Capital Resources

At June 30, 2009, we had $49.1 million of cash and cash equivalents, $19.5 million in short-term investments, working capital of $74.8 million and no debt outstanding. The following table sets forth selected condensed consolidated statement of cash flows data:


	Six months ended
	June 30,
	2009			2008
	(in thousands)
Net cash provided by (used in) operating activities	$	(2,190	)	$	636
Net cash provided by (used in) investing activities		20,231			(2,990	)
Net cash provided by financing activities		459			424
Cash, cash equivalents, restricted cash, short- term and long-term investments at end of period	$	68,667		$	44,668

During the first half of 2009, operating activities used $2.2 million of cash as compared to the first half 2008 which provided $636,000 of cash. During the first half of 2009, our net loss, adjusted for depreciation and other non-cash items, used $3.1 million of cash as compared to the first half of 2008 which provided $1.6 million of cash. During the first half of 2009, the remaining provision of $942,000 of cash was primarily due to a $4.6 million decrease in inventory and a $123,000 increase in accounts payable which were partially offset by a $1.8 million increase in accounts receivable, an $898,000 increase in other assets, a $531,000 decrease in accrued warranty and a $527,000 decrease in accrued compensation and other current and other long-term liabilities. During the first half of 2008, the remaining use of $980,000 of cash was primarily due to a $979,000 increase in inventory, a $277,000 decrease in accrued compensation, other current liabilities and other long-term liabilities and a $167,000 increase in accounts receivable, which were partially offset by a $346,000 increase in accounts payable and a $154,000 decrease in other assets.

During the first half of 2009, investing activities provided $20.2 million of cash as compared to the first half of 2008 which used $3.0 million of cash. The source of cash during the first half of 2009 was due to the $28.0 million proceeds from sale of our defense and security business and a $600,000 decrease to restricted cash, which were partially offset by a net increase in investments of $8.2 million and the purchase of $178,000 of property and equipment. The use of cash during the first half of 2008 was due to the $1.0 million final payment for the purchase of ALC, a net increase in investments of $688,000, the purchase of $675,000 of property and equipment and a $600,000 increase to restricted cash.

During the first half of 2009, financing activities provided $459,000 of cash as compared to the first half of 2008, which provided $424,000 of cash. During the first half of 2009, we received $242,000 of cash from the proceeds of stock issuance and $226,000 from the exercise of stock options, which were partially offset by capital lease payments. During the first half of 2008, we received $434,000 of cash from the proceeds of stock issuance, which was partially offset by capital lease payments.

At June 30, 2009, we had a net unrealized gain of $1,000 related to $19.5 million of investments in 10 debt securities. The investments all mature during 2009 or 2010 and we believe that we have the ability to hold these investments until the maturity date. Realized gains were $37,000 for the quarter ended June 30, 2008 and $45,000 for the first half of 2008. There were no such gains during the second quarter of 2009 or the first half of 2009. During the first half of 2009 and 2008, we recorded foreign currency transaction losses of $3,000 and $41,000, respectively.

In order to maintain and enhance our competitive position, we must be able to satisfy our customers’ short lead-times and rapidly-changing needs. As a result of these challenges, we may increase our raw materials and finished goods inventory so that they will be better-positioned to meet their customers’ demand. We currently have inventory consigned to a customer location and may increase this inventory in the future. Generally, if the consigned inventory is not withdrawn by our customer within a certain period of time we have the ability to invoice the customer for the consigned inventory. These increases in raw materials and finished goods may increase our working capital needs in the future.

We believe that our existing cash and investment balances will be sufficient to meet our operating and capital requirements for at least the next 12 months. With the exception of operating leases discussed in the notes to the consolidated financial statements included in this report, we have not entered into any off-balance sheet financing arrangements and we have not established or invested in any variable interest entities. We have not guaranteed the debt or obligations of other entities or entered into options on non-financial assets. The following table summarizes our future cash obligations for operating leases and capital lease, excluding interest, as of June 30, 2009:


	Payments Due by Period
	Total		Less Than 1 Year		1–3 Years		3-5 Years		More Than 5 Years
					(In thousands)
Contractual Obligations:
Capital lease obligations, including interest	$	21	$	12	$	9		—	$	—
Operating lease obligations		1,315		542		643		130		—

Total	$	1,336	$	554	$	652	$	130	$	—

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2 “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 do not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on our condensed consolidated financial statements.

In June 2009, the FASB issued State of Financial Accounting Standards (“SFAS”) SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 168”) which replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” as the source of authoritative accounting principles recognized by FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Since the underlying GAAP guidance for nongovernmental entities will not change as a result of the issuance of SFAS No. 168, the adoption of the SFAS is not expected to have an impact on our financial condition or results of operations. References to codification guidance will be updated in the Quarterly Report on Form 10-Q for the quarter ending September 30, 2009.


Item 3.		Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in our reported market risks since our report on market risks in our Annual Report on Form 10-K for the year ended December 31, 2008 under the heading corresponding to that set forth above. Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. In order to reduce this interest rate risk, we usually invest our cash primarily in investments with short maturities. As of June 30, 2009, our investments in our portfolio were classified as cash equivalents and short-term investments. The cash equivalents and short-term investments consisted primarily of United States treasury notes, United States government agency notes, United States government money market funds, and a corporate bond. Since our investments consist of cash equivalents and short-term investments, a change in interest rates would not have a material effect on our financial condition or results of operations. Declines in interest rates over time will, however, reduce interest income.

Currently, all sales to international customers are denominated in United States dollars and, accordingly, we are not exposed to foreign currency rate risks in connection with these sales. However, if the dollar were to strengthen relative to other currencies that could make our products less competitive in foreign markets and thereby lead to a decrease in revenues attributable to international customers.

We currently pay a number of expenses related to our Thai personnel and office in Thai Bhat. During the first half of 2009, the total payments made in Thai Bhat were $395,000 and we recorded a related foreign currency transaction loss of $3,000. During the first half of 2008, the total payments made in Thai Bhat were $465,000 and we recorded a related foreign currency transaction loss of $41,000.


Item 4.		Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective as of the end of the period covered by this report.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our chief executive officer and our chief financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level. We believe that a control system no matter how well designed and operated cannot provide absolute assurance that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

(b) Changes in internal controls over financial reporting.

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION


Item 1.		Legal Proceedings

On October 31, 2008, we filed a complaint with the Canadian Superior Court in Montreal, Quebec alleging that Advantech Advanced Microwave Technologies Inc. (“Advantech”) the parent company of Allgon Microwave Corporation AB (“Allgon”), had breached its contractual obligations with Endwave and owes us $994,500 in a note receivable, purchased inventory and authorized and accepted purchase orders resulting in shippable finished goods. We cannot predict the outcome of these proceedings. An adverse decision in these proceedings could harm our consolidated financial position and results of operations. Although we may have pending various legal actions arising in the ordinary course of business from time to time, other than the complaint against Advantech, we are not currently a party to any material litigation.

In a related action, we have filed a creditor’s claim for $994,500 against Allgon in the composition of creditors’ proceedings now pending in a Stockholm, Sweden bankruptcy court. Although a recovery under Swedish bankruptcy law is not assured, if it occurs any recovery will be a set-off in the Montreal action against Allgon’s parent, Advantech.


Item 1A.		Risk Factors

You should consider carefully the following risk factors as well as other information in this report before investing in any of our securities. If any of the following risks actually occur, our business, operating results and financial condition could be adversely affected. This could cause the market price of our common stock to decline, and you may lose all or part of your investment.

** Indicates risk factor has been updated since our Annual Report on Form 10-K for the year ended December 31, 2008.

Risks Relating to Our Business

We have had a history of losses and may not be profitable in the future.**

We had a net loss from continuing operations of $2.0 million for the second quarter of 2009. We also had net losses from continuing operations of $5.3 million and $2.9 million for the years ended December 31, 2008 and 2007, respectively. There is no guarantee that we will achieve or maintain profitability in the future.

Subsequent to the divesture of our defense and security business, we depend on the mobile communication industry for substantially all of our revenues. As this industry is negatively impacted by the global economic downturn, our revenues could decrease and our profitability could suffer. In addition, consolidation in this industry could result in delays or cancellations of orders for our products, adversely impacting our results of operations.**

The current global economic downturn and credit crisis has impacted the mobile communication industry. We anticipate decreased revenues from our mobile communication related customers in 2009, and therefore we undertook certain restructuring activities to reduce expenses. If the current downturn in the mobile communication industry persists, our revenues will continue to suffer and we may be forced to take further action, including but not limited to, making provisions for excess inventory, accounts receivable and abandoned or obsolete equipment and reducing our operating expenses through additional restructuring activities. We cannot guarantee that we would be able to reduce operating expenses to a level commensurate with the lower revenues resulting from such a prolonged industry downturn.

The mobile communication industry has undergone significant consolidation in the past few years. For example, during April 2007, Nokia and Siemens merged their mobile communication network businesses. The acquisition of one of our major customers in this market, or one of the communications service providers supplied by one of our major customers, could result in delays or cancellations of orders of our products and, accordingly, delays or reductions in our anticipated revenues and reduced profitability or increased net losses.

The current turmoil in the global economy could adversely impact our operations and financial results.**

Over the past several months, global economic conditions continue to remain weak and uncertain. For example, credit continues to be severely restricted. This restriction in credit has materially impacted our operations and financial results and we expect it to continue to do so. Our customers often rely on credit markets to finance the build-out of their networks and systems. With the current restriction in credit markets, capital may not be available to our customers or may only be available at unfavorable terms. Without appropriate capital, our customers may have difficulty funding their on-going operations and may reduce their orders for our products. This could significantly impact our operations and financial results. Additionally, our vendors may rely on credit markets to finance their operations. With the current restriction in credit markets, capital may not be available to our vendors or may only be available at unfavorable terms. Without appropriate capital, our vendors may have difficulty funding their on-going operations and may not be able to fulfill requirements for their products. This could significantly impact our operations and financial results through a reduction in our revenues.

We depend on a small number of key customers in the mobile communication industry for a significant portion of our revenues. If we lose any of our major customers, particularly Nokia Siemens Networks, or there is any material reduction in orders for our products from any of these customers, our business, financial condition and results of operations would be adversely affected.**

We depend, and expect to continue to depend, on a relatively small number of mobile communication customers for a significant part of our revenues. The loss of any of our major customers, particularly Nokia Siemens Networks and its manufacturing partner, SRI Radio Systems, or any material reduction in orders from any such customers, would have a material adverse effect on our business, financial condition and results of operations. In the first half of 2009 and in fiscal 2008, revenues from Nokia Siemens Networks and its manufacturing partner, SRI Radio Systems, accounted for 85% and 83% of our total revenues, respectively. We had no other customers individually representing more than 10% of our total revenues for these periods.

Our operating results may be adversely affected by substantial quarterly and annual fluctuations and market downturns.

Our revenues, earnings and other operating results have fluctuated in the past and our revenues, earnings and other operating results may fluctuate in the future. These fluctuations are due to a number of factors, many of which are beyond our control. These factors include, among others, global economic conditions, overall growth in our target markets, the ability of our customers to obtain adequate capital, U.S. export law changes, changes in customer order patterns, customer consolidation, availability of components from our suppliers, the gain or loss of a significant customer, changes in our product mix and market acceptance of our products and our customers’ products. These factors are difficult to forecast, and these, as well as other factors, could materially and adversely affect our quarterly or annual operating results.

Implementing our acquisition strategy could result in dilution to our stockholders and operating difficulties leading to a decline in revenues and operating profit.

One of our strategies is to grow through acquisitions. To that end, we have completed six acquisitions since our initial public offering in October 2000. We intend to continue to pursue acquisitions in our markets that we believe will be beneficial to our business. The process of investigating, acquiring and integrating any business into our business and operations is risky and may create unforeseen operating difficulties and expenditures. The areas in which we may face difficulties include:

	•		diversion of our management from the operation of our core business;

	•		assimilating the acquired operations and personnel;

	•		integrating information technology and reporting systems;

	•		retention of key personnel;

	•		retention of acquired customers; and

	•		implementation of controls, procedures and policies in the acquired business.

In addition to the factors set forth above, we may encounter other unforeseen problems with acquisitions that we may not be able to overcome. Future acquisitions may require us to issue shares of our stock or other securities that dilute our other stockholders, expend cash, incur debt, assume liabilities, including contingent or unknown liabilities, or create additional expenses related to write-offs or amortization of intangible assets with estimated useful lives, any of which could materially adversely affect our operating results.

We rely on the semiconductor foundry operations of third-party semiconductor foundries to manufacture the semiconductors contained in our products. The loss of our relationship with any of these foundries without adequate notice would adversely impact our ability to fill customer orders and could damage our customer relationships.

We utilize both industry standard semiconductor components and our own custom-designed semiconductor devices. However, we do not own or operate a semiconductor fabrication facility, or foundry, and rely on a limited number of third parties to produce our custom-designed components. If any of our semiconductor suppliers is unable to deliver semiconductors to us in a timely fashion, the resulting delay could severely impact our ability to fulfill customer orders and could damage our relationships with our customers. In addition, the loss of our relationship with or our access to any of the semiconductor foundries we currently use for the fabrication of custom designed components and any resulting delay or reduction in the supply of semiconductor devices to us, would severely impact our ability to fulfill customer orders and could damage our relationships with our customers.

We may not be successful in forming alternative supply arrangements that provide us with a sufficient supply of gallium arsenide devices. Gallium arsenide devices are used in a substantial portion of the products we manufacture. Because there are a limited number of semiconductor foundries that use the particular process technologies we select for our products and that have sufficient capacity to meet our needs, using alternative or additional semiconductor foundries would require an extensive qualification process that could prevent or delay product shipments and revenues. We estimate that it may take up to six months to shift production of a given semiconductor circuit design to a new foundry.

Because of the shortages of some components and our dependence on single source suppliers and custom components, we may be unable to obtain an adequate supply of components of sufficient quality in a timely fashion, or we may be required to pay higher prices or to purchase components of lesser quality.**

Many of our products are customized and must be qualified with our customers. This means that we cannot change components in our products easily without the risks and delays associated with requalification. Accordingly, while a number of the components we use in our products are made by multiple suppliers, we may effectively have single source suppliers for some of these components.

In addition, we currently purchase a number of components, some from single source suppliers, including, but not limited to:

	•		semiconductor devices;

	•		application-specific monolithic microwave integrated circuits;

	•		voltage-controlled oscillators;

	•		voltage regulators;

	•		unusual or low usage components;

	•		surface mount components compliant with the EU’s Restriction of Hazardous Substances, or RoHS, Directive;

	•		high-frequency circuit boards; and

	•		custom connectors.

Any delay or interruption in the supply of these or other components could impair our ability to manufacture and deliver our products, harm our reputation and cause a reduction in our revenues. In addition, any increase in the cost of the components that we use in our products could make our products less competitive and lower our margins. In the past, we suffered from shortages of and quality issues with various components. These shortages and quality issues adversely impacted our product revenues and could reappear in the future. Our single source suppliers could enter into exclusive agreements with or be acquired by one of our competitors, increase their prices, refuse to sell their products to us, discontinue products or go out of business. Even to the extent alternative suppliers are available to us and their components are qualified with our customers on a timely basis, identifying them and entering into arrangements with them may be difficult and time consuming, and they may not meet our quality standards. We may not be able to obtain sufficient quantities of required components on the same or substantially the same terms.

We are exposed to fluctuations in the market values of our investment portfolio.

Although we have not experienced any material losses on our cash, cash equivalents and short-term investments, future declines in their market values could have a material adverse effect on our financial condition and operating results. Although our portfolio has no direct investments in auction rate or sub-prime mortgage securities, our overall investment portfolio is currently and may in the future be concentrated in cash equivalents including money market funds. If any of the issuers of the securities we hold default on their obligations, or their credit ratings are negatively affected by liquidity, credit deterioration or losses, financial results, or other factors, the value of our cash equivalents and short-term and long-term investments could decline and result in a material impairment.

Competitive conditions often require us to reduce prices and, as a result, we need to reduce our costs in order to be profitable.**

Over the past year, we have reduced many of our prices of communication products by 10% to 15% in order to remain competitive and we expect market conditions will cause us to reduce our prices in the future. In order to reduce our per-unit cost of product revenues, we must continue to design and re-design products to require lower cost materials, improve our manufacturing efficiencies and successfully move production to lower-cost, offshore locations. The combined effects of these actions may be insufficient to achieve the cost reductions needed to maintain or increase our gross margins or achieve profitability.

We rely heavily on a Thailand facility of HANA Microelectronics Co., Ltd., a contract manufacturer, to produce our RF modules. If HANA is unable to produce these modules in sufficient quantities or with adequate quality, or it chooses to terminate our manufacturing arrangement, we will be forced to find an alternative manufacturer and may not be able to fulfill our production commitments to our customers, which could cause sales to be delayed or lost and could harm our reputation.**

We outsource the assembly and testing of most of our communication related products to a Thailand facility of HANA Microelectronics Co., Ltd., or HANA, a contract manufacturer. We plan to continue this arrangement as a key element of our operating strategy. If HANA does not provide us with high quality products and services in a timely manner, terminates its relationship with us, or is unable to produce our products due to financial difficulties or political instability we may be unable to obtain a satisfactory replacement to fulfill customer orders on a timely basis. In the event of an interruption of supply from HANA, sales of our products could be delayed or lost and our reputation could be harmed. Our latest manufacturing agreement with HANA expires in October 2009, but will

renew automatically for successive one-year periods unless either party notifies the other of its desire to terminate the agreement at least one year prior to the expiration of the term. No such notification has been sent to or received from HANA. In addition, either party may terminate the agreement without cause upon 365 days prior written notice to the other party, and either party may terminate the agreement if the non-terminating party is in material breach and does not cure the breach within 30 days after notice of the breach is given by the terminating party. There can be no guarantee that HANA will not seek to terminate its agreement with us.

Our products may contain component, manufacturing or design defects or may not meet our customers’ performance criteria, which could cause us to incur significant repair expenses, harm our customer relationships and industry reputation, and reduce our revenues and profitability.

We have experienced manufacturing quality problems with our products in the past and may have similar problems in the future. As a result of these problems, we have replaced components in some products, or replaced the product, in accordance with our product warranties. Our product warranties typically last twelve to thirty months. As a result of component, manufacturing or design defects, we may be required to repair or replace a substantial number of products under our product warranties, incurring significant expenses as a result. Further, our customers may discover latent defects in our products that were not apparent when the warranty period expired. These defects may cause us to incur significant repair or replacement expenses beyond the normal warranty period. In addition, any component, manufacturing or design defect could cause us to lose customers or revenues or damage our customer relationships and industry reputation.

We depend on our key personnel. Skilled personnel in our industry can be in short supply. If we are unable to retain our current personnel or hire additional qualified personnel, our ability to develop and successfully market our products would be harmed.

We believe that our future success depends upon our ability to attract, integrate and retain highly skilled managerial, research and development, manufacturing and sales and marketing personnel. Skilled personnel in our industry can be in short supply. As a result, our employees are highly sought after by competing companies and our ability to attract skilled personnel is limited. To attract and retain qualified personnel, we may be required to grant large stock option or other stock-based incentive awards, which may harm our operating results or be dilutive to our other stockholders. We may also be required to pay significant base salaries and cash bonuses, which could harm our operating results.

Due to our relatively small number of employees and the limited number of individuals with the skill set needed to work in our industry, we are particularly dependent on the continued employment of our senior management team and other key personnel. If one or more members of our senior management team or other key personnel were unable or unwilling to continue in their present positions, these persons would be very difficult to replace, and our ability to conduct our business successfully could be seriously harmed. We do not maintain key person life insurance policies.

The length of our sales cycle requires us to invest substantial financial and technical resources in a potential sale before we know whether the sale will occur. There is no guarantee that the sale will ever occur and if we are unsuccessful in designing a high-frequency RF module for a particular generation of a customer’s products, we may need to wait until the next generation of that product to sell our products to that particular customer.

Our products are highly technical and the sales cycle can be long. Our sales efforts involve a collaborative and iterative process with our customers to determine their specific requirements either in order to design an appropriate solution or to transfer the product efficiently to our offshore contract manufacturer. Depending on the product and market, the sales cycle can take anywhere from 2 to 24 months, and we incur significant expenses as part of this process without any assurance of resulting revenues. We generate revenues only if our product is selected for incorporation into a customer’s system and that system is accepted in the marketplace. If our product is not selected, or the customer’s development program is discontinued, we generally will not have an opportunity to sell our product to that customer until that customer develops a new generation of its system. There is no guarantee that our product will be selected for that new generation system. In the past, we have had difficulty meeting some of our major customers’ stated volume and cost requirements. The length of our product development and sales cycle makes us particularly vulnerable to the loss of a significant customer or a significant reduction in orders by a customer because we may be unable to quickly replace the lost or reduced sales.

We may not be able to design our products as quickly as our customers require, which could cause us to lose sales and may harm our reputation.**

Existing and potential customers typically demand that we design products for them under difficult time constraints. In the current market environment, the need to respond quickly is particularly important. If we are unable to commit the necessary resources to complete a project for a potential customer within the requested timeframe, we may lose a potential sale. Our ability to design products within the time constraints demanded by a customer will depend on the number of product design professionals who are available to focus on that customer’s project and the availability of professionals with the requisite level of expertise is limited. We have, in the past, expended significant resources on research and design efforts on potential customer products, that did not result in additional revenue.

Each of our communication products is designed for a specific range of frequencies. Because different national governments license different portions of the frequency spectrum for the mobile communication market, and because communications service providers license specific frequencies as they become available, in order to remain competitive we must adapt our products rapidly to use a wide range of different frequencies. This may require the design of products at a number of different frequencies simultaneously. This design process can be difficult and time consuming, could increase our costs and could cause delays in the delivery of products to our customers, which may harm our reputation and delay or cause us to lose revenues.

Our customers often have specific requirements that can be at the forefront of technological development and therefore difficult and expensive to develop. If we are not able to devote sufficient resources to these products, or we experience development difficulties or delays, we could lose sales and damage our reputation with those customers.

We may not be able to manufacture and deliver our products as quickly as our customers require, which could cause us to lose sales and would harm our reputation.**

We may not be able to manufacture products and deliver them to our customers at the times and in the volumes they require. Manufacturing delays and interruptions can occur for many reasons, including, but not limited to:

	•		the failure of a supplier to deliver needed components on a timely basis or with acceptable quality;

	•		lack of sufficient capacity;

	•		poor manufacturing yields;

	•		equipment failures;

	•		manufacturing personnel shortages;

	•		labor disputes;

	•		transportation disruptions;

	•		changes in import/export regulations;

	•		infrastructure failures at the facilities of our offshore contract manufacturer;

	•		natural disasters;

	•		acts of terrorism; and

	•		political instability.

Manufacturing our products is complex. The yield, or percentage of products manufactured that conform to required specifications, can decrease for many reasons, including materials containing impurities, equipment not functioning in accordance with requirements or human error. If our yield is lower than we expect, we may not be able to deliver products on time. For example, in the past, we have on occasion experienced poor yields on certain products that have prevented us from delivering products on time and have resulted in lost sales. If we fail to manufacture and deliver products in a timely fashion, our reputation may be harmed, we may jeopardize existing orders and lose potential future sales, and we may be forced to pay penalties to our customers.

Although we do have long-term commitments from many of our customers, they are not for fixed quantities of product. As a result, we must estimate customer demand, and errors in our estimates could have negative effects on our cash, inventory levels, revenues and results of operations.

We have been required historically to place firm orders for products and manufacturing equipment with our suppliers up to six months prior to the anticipated delivery date and, on occasion, prior to receiving an order for the product, based on our forecasts of customer demands. Our sales process requires us to make multiple demand forecast assumptions, each of which may introduce error into our estimates. If we overestimate customer demand, we may allocate resources to manufacturing products that we may not be able to sell when we expect, if at all. As a result, we would have additional usage of cash, excess inventory and overhead expense, which would harm our financial results. On occasion, we have experienced adverse financial results due to excess inventory and excess manufacturing capacity. Conversely, if we underestimate customer demand or if insufficient manufacturing capacity were available, we would lose revenue opportunities, market share and damage our customer relationships. On occasion, we have been unable to adequately respond to unexpected increases in customer purchase orders and were unable to benefit from this increased demand. There is no guarantee that we will be able to adequately respond to unexpected increases in customer purchase orders in the future, in which case we may lose the revenues associated with those additional purchase orders and our customer relationships and reputation may suffer.

Any failure to protect our intellectual property appropriately could reduce or eliminate any competitive advantage we have.**

Our success depends, in part, on our ability to protect our intellectual property. We rely primarily on a combination of patent, copyright, trademark and trade secret laws to protect our proprietary technologies and processes. As of June 30, 2009, we had 41 United States patents issued, many with associated foreign filings and patents. Our issued patents include those relating to basic circuit and device designs, semiconductors, our multilithic microsystems technology and system designs. Our issued United States patents expire between 2009 and 2027. We maintain a vigorous technology development program that routinely generates potentially patentable intellectual property. Our decision as to whether to seek formal patent protection is done on a case by case basis and is based on the economic value of the intellectual property, the anticipated strength of the resulting patent, the cost of pursuing the patent and an assessment of using a patent as a strategy to protect the intellectual property.

To protect our intellectual property, we regularly enter into written confidentiality and assignment of rights to inventions agreements with our employees, and confidentiality and non-disclosure agreements with third parties, and generally control access to and distribution of our documentation and other proprietary information. These measures may not be adequate in all cases to safeguard the proprietary technology underlying our products. It may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization, develop similar technology independently or attempt to design around our patents. In addition, effective patent, copyright, trademark and trade secret protection may be unavailable or limited outside of the United States, Europe and Japan. We may not be able to obtain any meaningful intellectual property protection in other countries and territories. Additionally, we may, for a variety of reasons, decide not to file for patent, copyright, or trademark protection outside of the United States. Moreover we occasionally agree to incorporate a customer’s or supplier’s intellectual property into our designs, in which case we have obligations with respect to the non-use and non-disclosure of that intellectual property. We also license technology from other companies, including Northrop Grumman Corporation. There are no limitations on our rights to make, use or sell products we may develop in the future using the chip technology licensed to us by Northrop Grumman Corporation. Steps taken by us to prevent misappropriation or

infringement of our intellectual property or the intellectual property of our customers may not be successful. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of proprietary rights of others, including our customers. Litigation of this type could result in substantial costs and diversion of our resources.

We may receive in the future, notices of claims of infringement of other parties’ proprietary rights. In addition, the invalidity of our patents may be asserted or prosecuted against us. Furthermore, in a patent or trade secret action, we could be required to withdraw the product or products as to which infringement was claimed from the market or redesign products offered for sale or under development. We have also at times agreed to indemnification obligations in favor of our customers and other third parties that could be triggered upon an allegation or finding of our infringement of other parties’ proprietary rights. These indemnification obligations would be triggered for reasons including our sale or supply to a customer or other third parties of a product which was later discovered to infringe upon another party’s proprietary rights. Irrespective of the validity or successful assertion of such claims we would likely incur significant costs and diversion of our resources with respect to the defense of such claims. To address any potential claims or actions asserted against us, we may seek to obtain a license under a third party’s intellectual property rights. However, in such an instance, a license may not be available on commercially reasonable terms, if at all.

With regard to our pending patent applications, it is possible that no patents may be issued as a result of these or any future applications or the allowed patent claims may be of reduced value and importance. If they are issued, any patent claims allowed may not be sufficiently broad to protect our technology. Further, any existing or future patents may be challenged, invalidated or circumvented thus reducing or eliminating their commercial value. The failure of any patents to provide protection to our technology might make it easier for our competitors to offer similar products and use similar manufacturing techniques.

Risks Relating to Our Industry

Our failure to compete effectively could reduce our revenues and margins.**

Among merchant suppliers in the mobile communication market who provide integrated transceivers to radio OEMs, we primarily compete with Compel Electronics Inc., Filtronic plc, and Microelectronics Technology Inc. Additionally, there are mobile communication OEMs, such as Ericsson and NEC Corporation, that use their own captive resources for the design and manufacture of their high-frequency RF transceiver modules, rather than using merchant suppliers like us. We believe that over one-half of the high-frequency RF transceiver modules manufactured today are being produced by these captive resources. To the extent that mobile communication OEMs presently, or may in the future, produce their own RF transceiver modules, we lose the opportunity to gain a customer and the potential related sales. Further, if a mobile communication OEM were to sell its captive operation to a competitor, we would lose the opportunity to acquire those potential sales.

Our failure to comply with any applicable environmental regulations could result in a range of consequences, including fines, suspension of production, excess inventory, sales limitations and criminal and civil liabilities.

Due to environmental concerns, the need for lead-free solutions in electronic components and systems is receiving increasing attention within the electronics industry as companies are moving towards becoming compliant with the Restriction of Hazardous Substances Directive, or RoHS Directive. The RoHS Directive is European Union legislation that restricts the use of a number of substances, including lead, after July 2006. We believe that our products impacted by these regulations are compliant with the RoHS Directive and that materials will continue to be available to meet these new regulations. However, it is possible that unanticipated supply shortages or delays or excess non-compliant inventory may occur as a result of these new regulations. Failure to comply with any applicable environmental regulations could result in a range of consequences, including loss of sales, fines, suspension of production, excess inventory and criminal and civil liabilities.

Government regulation of the communications industry could limit the growth of the markets that we serve or could require costly alterations of our current or future products.

The markets that we serve are highly regulated. Communications service providers must obtain regulatory approvals to operate broadband wireless access networks within specified licensed bands of the frequency spectrum. Further, the Federal Communications Commission and foreign regulatory agencies have adopted regulations that impose stringent RF emissions standards on the communications industry. In response to the new environmental regulations on health and safety in Europe and China, we are required to design and build a lead-free product. Changes to these regulations may require that we alter the performance of our products.

Risks Relating to Ownership of Our Stock

The market price of our common stock has fluctuated historically and is likely to fluctuate in the future.**

The price of our common stock has fluctuated widely since our initial public offering in October 2000. In the first half of 2009, the lowest daily sales price for our common stock was $1.36 and the highest daily sales price for our common stock was $3.08. In 2008, the lowest daily sales price for our common stock was $1.93 and the highest daily sales price for our common stock was $7.69. The market price of our common stock can fluctuate significantly for many reasons, including, but not limited to:

	•		our financial performance or the performance of our competitors;

	•		the purchase or sale of common stock, short-selling or transactions by large stockholders;

	•		technological innovations or other trends or changes in mobile communication networks;

	•		successes or failures at significant product evaluations or site demonstrations;

	•		the introduction of new products by us or our competitors;

	•		acquisitions, strategic alliances or joint ventures involving us or our competitors;

	•		decisions by major participants in the communications industry not to purchase products from us or to pursue alternative technologies;

	•		decisions by investors to de-emphasize investment categories, groups or strategies that include our company or industry;

	•		market conditions in the industry, the financial markets and the economy as a whole;

	•		existence of preferred stock with rights differing from those of common stock; and

	•		the low trading volume of our common stock.

It is likely that our operating results in one or more future quarters may be below the expectations of security analysts and investors. In that event, the trading price of our common stock would likely decline. In addition, the stock market has experienced extreme price and volume fluctuations. These market fluctuations can be unrelated to the operating performance of particular companies and the market prices for securities of technology companies have been especially volatile. Future sales of substantial amounts of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock. Additionally, future stock price volatility for our common stock could provoke the initiation of securities litigation, which may divert substantial management resources and have an adverse effect on our business, operating results and financial condition. Our existing insurance coverage may not sufficiently cover all costs and claims that could arise out of any such securities litigation. We anticipate that prices for our common stock will continue to be volatile.

We have a few shareholders that each own a large percentage of our outstanding capital stock and, as a result of their significant ownership, are able to significantly affect the outcome of matters requiring stockholder approval.**

Oak Technology Partners XI, Limited Partnership, or Oak, owns 300,000 shares of our Series B preferred stock that are convertible into 3,000,000 shares of our common stock. Assuming the conversion of Oak’s preferred shares into common stock, as of May 15, 2009, Oak beneficially owned 24.1% of our capital stock. In addition, two other shareholders each beneficially owned more than 10% of our capital stock on May 15, 2009.

Because most matters requiring approval of our stockholders require the approval of the holders of a majority of the shares of our outstanding capital stock present in person or by proxy at the annual meeting, the significant ownership interest of these shareholders allows them to affect significantly the election of our directors and the outcome of corporate actions requiring stockholder approval. This concentration of ownership may also delay, deter or prevent a change in control and may make some transactions more difficult or impossible to complete without their support, even if the transaction is favorable to our stockholders as a whole.

Our certificate of incorporation, bylaws, arrangements with executive officers and the rights of our preferred shareholder contain provisions that could delay or prevent a change in control.

We are subject to certain Delaware anti-takeover laws by virtue of our status as a Delaware corporation. These laws prevent us from engaging in a merger or sale of more than 10% of our assets with any stockholder, including all affiliates and associates of any stockholder, who owns 15% or more of our outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of our voting stock, unless our board of directors approved the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, or upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock of the corporation, or the business combination is approved by our board of directors and authorized by at least 66 2/3% of our outstanding voting stock not owned by the interested stockholder. A corporation may opt out of the Delaware anti-takeover laws in its charter documents; however we have not chosen to do so. Our certificate of incorporation and bylaws include a number of provisions that may deter or impede hostile takeovers or changes of control of management, including a staggered board of directors, the elimination of the ability of our stockholders to act by written consent, discretionary authority given to our board of directors as to the issuance of preferred stock, and indemnification rights for our directors and executive officers. Additionally, we have adopted a Stockholder Rights Plan, providing for the distribution of one preferred share purchase right for each outstanding share of common stock that may lead to the delay or prevention of a change in control that is not approved by our board of directors. We have an Executive Officer Severance and Retention Plan and a Key Employee Severance and Retention Plan that provide for severance payments and the acceleration of vesting of a percentage of certain stock options granted to our executive officers and certain senior, non-executive employees under specified conditions.

The preferred shareholder has certain rights upon any liquidation, merger, reorganization and/or consolidation of Endwave into or with another corporation or any transaction or series of related transactions in which a person, entity or group acquires 50% or more of the combined voting power of our then outstanding securities. If such an event were to occur the holders of the preferred shares are entitled to receive prior and in preference to any distribution to holders of our common stock or any other class or series of stock subordinate in liquidation preference to the preferred stock, the amount invested plus all accumulated or accrued and unpaid dividends thereon. The preferred shareholder also has the right to approve certain other transactions including cash dividends and stock repurchases.

These plans may make us a less attractive acquisition target or may reduce the amount a potential acquirer may otherwise be willing to pay for our company.


Item 6.		Exhibits.


Number		Description
2.1(1)		Stock Purchase Agreement among the Registrant and the stockholders and option holders of ALC Microwave, Inc. dated April 19, 2007.

2.2		Asset Purchase Agreement among the Registrant, Microsemi Corporation and SHR Corporation dated April 30, 2009.

2.3		Indemnification Agreement between the Registrant and Microsemi Corporation dated April 30, 2009.

3.1(2)		Amended and Restated Certificate of Incorporation effective October 20, 2000.

3.2(3)		Certificate of Amendment of Amended and Restated Certificate of Incorporation effective June 28, 2002.

3.3(4)		Certificate of Designation for Series A Junior Participating Preferred Stock.

3.4(5)		Certificate of Designation for Series B Preferred Stock.

3.5(6)		Certificate of Amendment of Amended and Restated Certificate of Incorporation effective July 26, 2007.

3.6(7)		Amended and Restated Bylaws.

4.1(2)		Form of Specimen Common Stock Certificate.

4.2(4)		Rights Agreement dated as of December 1, 2005 between the Registrant and Computershare Trust Company, Inc.

4.3(4)		Form of Rights Certificate

4.4(5)		Preferred Stock and Warrant Purchase Agreement by and between Oak Investment Partners XI, Limited Partnership and the Registrant dated April 24, 2006.

4.5(5)		Warrant issued to Oak Investment Partners XI, Limited Partnership.

4.6(8)		Amendment No. 1 to Rights Agreement, dated as of December 21, 2007, between the Registrant and ComputerShare Trust Company, Inc.

10.1(2)		Form of Indemnity Agreement entered into by the Registrant with each of its directors and officers.

10.2(2)*		1992 Stock Option Plan.

10.3(2)*		Form of Incentive Stock Option under 1992 Stock Option Plan.

10.4(2)*		Form of Nonstatutory Stock Option under 1992 Stock Option Plan.

10.5(9)*		2007 Equity Incentive Plan.

10.6(10)*		Form of Stock Option Agreement under 2007 Equity Incentive Plan.

10.7(10)*		Form of Stock Option Agreement for Non-Employee Directors under the 2007 Equity Incentive Plan.

10.8(2)*		2000 Employee Stock Purchase Plan.

10.9(2)*		Form of 2000 Employee Stock Purchase Plan Offering.

10.10(11)*		2000 Non-Employee Directors’ Stock Option Plan, as amended.

10.11(2)*		Form of Nonstatutory Stock Option Agreement under the 2000 Non-Employee Director Plan.

10.12(12)*		Description of Compensation Payable to Non-Employee Directors.

10.13(13)*		2009 Base Salaries for Named Executive Officers.

10.14*		Executive Officer Severance and Retention Plan.

10.15(2)		License Agreement by and between TRW Inc. and TRW Milliwave Inc. dated February 28, 2000.

10.16(14)†		Purchase Agreement between Nokia and the Registrant dated January 1, 2006.

10.17(14)†		Frame Purchase Agreement by and between the Registrant and Siemens Mobile Communications Spa dated January 16, 2006.

10.18(15)†		Lease Agreement by and between Legacy Partners I San Jose, LLC and the Registrant dated May 24, 2006.

10.19(16)†		Services Agreement by and between Hana Microelectronics Co., Ltd. and the Registrant dated October 15, 2006.

10.20(17)		Lease Agreement by and between 8812, a California limited partnership, and the Registrant dated May 20, 2008.

10.21(17)†		Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.


Number		Description
10.22(13)†		First Amendment, dated as of December 1, 2008, to Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.

10.23(13)†		Amendment, dated as of February 13, 2009, to Amended and Restated Supply Agreement by and between Northrop Grumman Space and Mission Systems Corp. and the Registrant dated May 12, 2008.

31.1		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


(1)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 24, 2007 and incorporated herein by reference.

(2)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-1 (Registration No. 333-41302) and incorporated herein by reference.

(3)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 and incorporated herein by reference.

(4)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 5, 2005 and incorporated herein by reference.

(5)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 26, 2006 and incorporated herein by reference.

(6)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference.

(7)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 28, 2008 and incorporated herein by reference.

(8)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 28, 2007 and incorporated herein by reference.

(9)		Previously filed as an appendix to the Registrant’s Definitive Proxy Statement on Schedule 14A filed on June 13, 2007 and incorporated herein by reference.

(10)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-144851) and incorporated herein by reference.

(11)		Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and incorporated herein by reference.

(12)		Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 1, 2008 and incorporated herein by reference.

(13)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed for the quarter year ended March 31, 2009 and incorporated herein by reference.

(14)		Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-144054) and incorporated herein by reference.

(15)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated herein by reference.

(16)		Previously filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and incorporated herein by reference.

(17)		Previously filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter year ended June 30, 2008 and incorporated herein by reference.

*		Indicates a management contract or compensatory plan or arrangement.

†		Confidential treatment has been requested for a portion of this exhibit.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, Endwave Corporation has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


ENDWAVE CORPORATION
Date: August 14, 2009	By:	/s/ Edward A. Keible, Jr.
	Edward A. Keible, Jr.
	Vice Chairman and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)


	By:	/s/ Curt P. Sacks
	Curt P. Sacks
	Chief Financial Officer and Senior Vice President (Duly Authorized Officer and Principal Financial and Accounting Officer)

Index to Exhibits


Number		Description
2.2		Asset Purchase Agreement among the Registrant, Microsemi Corporation and SHR Corporation dated April 30, 2009.

2.3		Indemnification Agreement between the Registrant and Microsemi Corporation dated April 30, 2009.

10.14		Executive Officer Severance and Retention Plan.

31.1		Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-2.2 2 f53332exv2w2.htm EX-2.2 exv2w2

Exhibit 2.2

ASSET PURCHASE AGREEMENT

Among

ENDWAVE CORPORATION, as Seller,

SHR CORPORATION, as Purchaser

And

MICROSEMI CORPORATION, as Parent

Dated as of April 30, 2009

ASSET PURCHASE AGREEMENT

THIS AGREEMENT (“Agreement”), dated as of April 30, 2009 is by and among Microsemi Corporation, a Delaware corporation with offices at 2381 Morse Avenue, Irvine, California 92614 (“Parent”), SHR Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent with offices at 2381 Morse Avenue, Irvine, California 92614 (“Purchaser”), and Endwave Corporation, a Delaware corporation with offices at 130 Baytech Drive, San Jose, California 95134 (“Seller”).

RECITALS:

WHEREAS, Seller and its wholly-owned subsidiary, Endwave Defense Systems Inc., a California corporation (“EDSI”), are engaged in the design, manufacture, marketing and sale of radio frequency modules that enable the transmission, reception, and processing of high frequency signals in defense electronics and security systems (the “Business”);

WHEREAS, Purchaser desires to purchase, and Seller desires to sell and transfer to Purchaser, the Business and the Purchased Assets (as defined below) (the “Sale of the Business”) upon the terms and subject to the conditions set forth herein; and

WHEREAS, in connection with the Sale of the Business, Purchaser will assume the Seller’s obligations under the Customer Orders and Assumed Contracts (each as defined below) and the other Assumed Liabilities (as defined below), upon the terms and subject to the conditions set forth herein.

AGREEMENT

NOW THEREFORE, in consideration of the terms, covenants and conditions hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1		ASSETS BEING PURCHASED.

		Upon the terms and subject to the conditions of this Agreement, at the Closing (as defined below) Seller shall sell, assign, transfer, convey and deliver to Purchaser, and Purchaser shall purchase, and accept any such assignment, transfer, conveyance or other delivery of, all of Seller’s right, title and interest in and to the assets of every kind and description and wherever located, whether tangible or intangible, real, personal or mixed, used exclusively in the Business, other than the Excluded Assets (as defined below) (collectively, the “Purchased Assets”), including without limitation the following, in each case (except as otherwise expressly provided to the contrary herein), free and clear of any and all mortgages, liens, security interests, encumbrances, pledges and leases (“Encumbrances”) other than those represented by the Assumed Liabilities (as defined below):

1.1		Raw Materials, Work in Process, Piece Parts Finished Goods and other Inventory. The raw materials, work in process, piece parts, finished goods and other inventory, packaging, and labels, supplies and other related personal property owned by Seller used exclusively in the Business, a description of which is set forth on Schedule 1.1 hereto

CONFIDENTIAL

		(collectively, the “Inventory”). Schedule 1.1 also contains a list of the addresses of all warehouses and other facilities in which the Inventory is located. Except to the extent provided in Schedule 1.1, the Inventory is in good and merchantable condition in all material respects, is suitable and usable for the purposes for which it is intended and is in a condition such that it can be sold in the ordinary course of the Business consistent with past practice.

1.2		Equipment/Personal Property/Fixtures. All equipment and machinery used exclusively in the Business, including, without limitation, those used exclusively in the development, design, manufacture and testing of Seller’s goods and services sold by the Business, including, without limitation the items listed on Schedule 1.2, as well as all furniture, fixtures and other tangible property owned by Seller at its Folsom, California facility (collectively, the “Equipment”).

1.3		Prepaid Expenses and Other Current Assets. The prepaid expenses and other current assets of Seller related exclusively to the Business set forth on Schedule 1.3.

1.4		Backlog. All outstanding customer orders that have been received in connection with the Business by Seller (collectively, the “Customer Orders”). Schedule 1.4 hereto sets forth a true and complete list of all Customer Orders that have been received as of the Closing Date. At the Closing, Seller will be deemed, without further action, to have assigned such Customer Orders to Purchaser, and Purchaser will be deemed, without further action, to have assumed all of Seller’s obligations under such Customer Orders.

1.5		Customer Data. Data in Seller’s possession relating to any and all customers to which Seller has sold products of the Business or provided services relating to the Business over the three years prior to the Closing Date, whether or not there are any “open” sales orders from such customers (collectively, “Customer Data”). A listing of such customers to which Seller has sold products in the Business since January 1, 2008 is set forth on Schedule 1.5. Such Customer Data shall include, to the extent possessed by Seller, but not be limited to, name, address, e-mail information, all telephone and facsimile numbers, and any and a tangible documents, files, and records in Seller’s possession regarding such Customer’s activity. Notwithstanding the foregoing, Customer Data shall not include any information (A) with regard to any customers that did not purchase any products or services of the Business, or (B) any transactions between Seller or any of its subsidiaries and such customer relating to any business other than the Business.

1.6		Vendor Data. Data in Seller’s possession relating to, and all right, title and interest in and to, any tooling, molds, equipment and proprietary specifications owned by Seller and Data that Seller is in the possession of relating to any and all vendors from which Seller has purchased goods or services for the Business prior to the Closing Date, whether or not there are any “open” purchase orders issued to such vendors, as well as names and other information concerning any vendor that provides goods or services that are material to operation of the Business (collectively, “Vendor Data”). A listing of all vendors from which Seller has purchased material amounts of goods or services in the Business since January 1, 2008 is set forth on Schedule 1.6. Vendor Data shall include, but not be limited to, name, address, e-mail information, all telephone and facsimile numbers, and

CONFIDENTIAL

		any and all tangible documents, files and records in Seller’s possession regarding such vendor’s transactions with Seller solely as they relate to the Business. Notwithstanding the foregoing, Vendor Data shall not include any information with regard to any vendors, or any transactions between Seller or any of its subsidiaries and such vendor, relating to any business other than the Business.

1.7		Intellectual Property. Any and all Intellectual Property that Seller uses exclusively in the Business or had planned to use exclusively in the Business prior to the Closing Date, including without limitation in connection with the development, design, manufacture, testing, marketing, sale or distribution of Seller’s goods and services related to the Business, including but not limited to the registered Intellectual Property specifically set forth on Schedule 1.7 hereto. As used herein, the term “Intellectual Property” includes, but is not limited to, product designs, manufacturing flow sheets, cost and pricing data, promotion lists, marketing data and other compilations of names and requirements, processes, methods, know how, trade secrets, patents, copyrights, trade names, trademarks and service marks, and all applications therefor, owned by Seller and used exclusively in the Business, and any and all other data in Seller’s possession reasonably required to manufacture and sell the goods and services of Seller related to the Business. For the purposes of clarification, the Intellectual Property comprising Purchased Assets shall not include the Endwave trade name or any Endwave logo (to which Purchaser shall have a limited license as set forth in this Agreement) or any other Intellectual Property that is used by any business of Seller other than the Business.

1.8		Receivables. Any and all accounts receivable, notes and other amounts receivable from any customer or vendor payable to Seller and arising from the conduct of the Business before the Closing, whether or not in the ordinary course (“Receivables”). A list of the Receivables as of March 31, 2009, showing separately those Receivables that as of such date had been outstanding for (a) 0 to 30 days, (b) 31 to 60 days, (c) 61 to 90 days, (d) 91 to 120 days and (e) more than 120 days is attached hereto as Schedule 1.8.

1.9		Claims. All claims, causes of action, choses in action, rights of recovery and rights of setoff of any kind (including rights to insurance proceeds and rights under and pursuant to all warranties, representations and guarantees made by suppliers of products, materials or equipment, or components thereof) arising out of the Business and inuring to the benefit of Seller except to the extent such claims, causes of action, choses in action, rights of recovery and rights of setoff relate to the Excluded Assets. There are no such claims Known to Seller as of the date of this Agreement.

1.10		Promotional and Marketing Materials. All sales, marketing and promotional literature, cost and pricing data, promotion list, marketing data and other compilations of names and requirements, customer lists and other sales-related materials of Seller used exclusively in connection with the Business as of the Closing.

1.11		Rights Under Agreements. All of Seller’s rights under all contracts, licenses, sublicenses, agreements, leases, commitments, purchase orders, bids and offers related exclusively to the Business and not included in the Customer Orders, other than those relating to the Excluded Liabilities or Excluded Assets (“Assumed Contracts”).

CONFIDENTIAL

		Schedule 1.11 lists all material Assumed Contracts. At the Closing, Seller will be deemed, without further action, to have assigned such Assumed Contracts to Purchaser, and Purchaser will be deemed, without further action, to have assumed all of Seller’s obligations under such Assumed Contracts.

1.12		Permits. All of Seller’s rights pursuant to municipal, state and federal franchises, permits, licenses, agreements, waivers and authorizations used by Seller exclusively in connection with, or required for, the Business, but only to the extent such rights are by their terms transferable (“Permits”). All Permits that are material to the operation of Seller’s business are listed in Schedule 1.12.

1.13		EDSI. All of Seller’s right, title and interest as of the Closing in and to its shares of capital stock of EDSI.

1.14		All Other Rights. All of Seller’s right, title and interest as of the Closing in, to and under all other assets of every kind and nature used exclusively or intended to be used exclusively in the operation of the Business, including, without limitation, any other data or know-how wherever found or of whatever kind not described above reasonably required to manufacture and sell the goods and services of Seller related to the Business as well as all books and records, and all files, documents, papers and agreements in Seller’s possession pertaining to the Purchased Assets and the Assumed Liabilities, subject to Seller’s right to retain or obtain copies of the same if and as it so chooses.

1.15		Excluded Assets. Seller is not selling, and Purchaser is not acquiring, any assets that do not constitute Purchased Assets as defined in Section 1 including, without limitation: (a) any assets that are used in any business of Seller other than the Business, including Seller’s telecommunications business; (b) the corporate minute books, tax records, financial records and stock records of Seller; (c) the employment records of Seller (except to the extent that the transfer of such records would violate applicable privacy and other laws and regulations); and (d) all cash and cash equivalents of Seller and EDSI (collectively the “Excluded Assets”).

		All schedules delivered by Seller to Purchaser prior to Closing described in this Section 1 shall be as of the most recent practicable date (which date shall appear on each schedule). Within 10 days following the Closing, Seller shall deliver to Purchaser updated schedules containing information effective as of the Closing Date.

2		LIABILITIES.

2.1		Liabilities Assumed. Upon the terms and subject to the conditions of this Agreement, at the Closing, Purchaser shall assume and agrees to discharge, pay and perform the following liabilities, debts and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured of Seller: (a) the trade accounts payable of Seller incurred in the course of the Business (the “Trade Payables”), each as specifically identified, described and quantified on Schedule 2.1(a), (b) liabilities, obligations and commitments of Seller arising from warranty claims associated with the products of the Business (“Warranty Claims”); (c) any obligations under the Assumed Contracts and

CONFIDENTIAL

		Customer Orders (whether or not consent to assignment of any such Assumed Contract or Customer Order is ever obtained); (d) any claims of Transferred Employees made in respect of post-Closing employment by Seller, Parent or Purchaser or any of their subsidiaries including, without limitation, all claims for salary, wages and vacation benefits related to periods or arising after the Closing; (e) workers’ compensation claims by Transferred Employees arising in the course of employment by Seller, Parent or Purchaser or any of their subsidiaries after the Closing; and (f) the obligations listed in Schedule 2.1(f) (collectively, the “Assumed Liabilities”).

2.2		Liabilities Not Assumed. Except for the Assumed Liabilities, Seller agrees that Purchaser will not assume or perform, and Seller shall remain responsible for any and all liabilities and obligations of Seller, whether known or unknown, accrued, fixed or contingent, secured or unsecured, of any kind whatsoever, and regardless of when such liabilities or obligations arise or are asserted, including, but not limited to: (1) any claims of current and former employees of Seller or any of its subsidiaries made in respect of such employment by Seller or any of its subsidiaries including, without limitation, all claims for salary, wages and vacation benefits related to periods or arising prior to the Closing; (2) workers’ compensation claims arising in the course of employment by Seller or any of its subsidiaries prior to the Closing; (3) Plans (as defined below) offered to employees of Seller; (4) any loans or indebtedness owed by Seller to any financial institution or other person other than Trade Payables; (5) any Environmental Claims (as defined herein) or liabilities arising under any Environmental Laws (as defined herein), in either case arising out of use of any location other than the Building (as defined below) in Seller’s business; (6) any product liability claims (other than Warranty Claims) on account of any product shipped by Seller before the Closing; and (7) any obligation or liability of every kind arising from or related to any of the Excluded Assets. Seller agrees that it is liable for, and acknowledges its obligation to pay, any and all monies due and payable to its employees that have accrued as of the Closing Date. With respect to Taxes (as defined below), Seller specifically agrees to retain, and shall be responsible for paying, performing and discharging when due, and Purchaser shall not assume or have any responsibility for:

			(A) All Taxes now or hereafter owed by Seller for any period, including but not limited to Seller Taxes (as defined below);

			(B) All other Taxes relating to the Purchased Assets, the Business or the Assumed Liabilities for any period prior to the Closing; and

			(C) Taxes of Seller or any other person by reason of being a member of a consolidated, combined, unitary or affiliated group that includes Seller or any of its present or past affiliates prior to the Closing, by reason of a tax sharing, tax indemnity or similar agreement entered into by Seller or any of its present or past affiliates or any other person or by reason of transferee or successor liability arising in respect of a transaction undertaken by Seller or any of its present or past affiliates. Any tax sharing agreement between Seller and EDSI shall be automatically terminated as of the Closing Date. For the purposes of this Agreement, “Taxes” means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties,

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additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Authority or other taxing authority, including taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, withholding, social security, workers’ compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs’ duties, tariffs, and similar charges.

3		PURCHASE PRICE AND TERMS OF PAYMENT.

3.1		Purchase Price at Closing. As consideration for the Purchased Assets, Purchaser shall:

	(a)		assume and pay, perform or otherwise discharge, as the same shall become due in accordance with their respective terms, all of the Assumed Liabilities;

	(b)		at Closing, pay Twenty-Eight Million Dollars ($28,000,000) (the “Purchase Price”) by wire transfer of immediately available funds to the account or accounts designated by Seller;

3.2		Closing. The closing of the purchase and sale of the Purchased Assets shall take place at a closing (the “Closing”) to be held at the offices of Microsemi Corporation, 2381 Morse Avenue, Irvine, California 92604 on April 30, 2009 (the “Closing Date”).

3.3		Instruments of Transfer. The transfer of the Purchased Assets and Assumed Liabilities from Seller to Purchaser at the Closing shall be effected by the execution and delivery of the Bill of Sale (as defined below) and other instruments of transfer as are reasonably necessary to effect such transfer and are reasonably acceptable in form and substance to Seller and Purchaser and their respective legal counsel.

3.4		Bulk Sales Compliance. Purchaser waives any compliance with the provisions and procedures of Article 6 of the Uniform Commercial Code as currently enacted in California (the “Bulk Sales Law”), and any similar laws applicable to the transactions contemplated hereby.

3.5		Allocation of the Purchase Price. As soon as practicable after Closing, Purchaser shall retain Global View Advisors LLC to value the Purchased Assets and issue a written report setting forth its recommended allocation of the Purchase Price across the Purchased Assets. Such report shall be issued no later than ninety (90) days after the Closing and shall be subject to the reasonable approval of both Purchaser and Seller. If such report is not approved by both Purchaser and Seller, the parties will work together in good faith to agree upon an allocation of the Purchase Price. Seller shall reimburse Purchaser for 50% of the fees paid by Purchaser to such third party in connection with such report. Purchaser, Parent and Seller shall use the allocation set forth in the report (if accepted by both parties) or the allocation mutually agreed by Purchaser and Seller (if not set forth in such report) in filing their respective Internal Revenue Service Forms 8594 and all applicable Tax returns. Neither Purchaser, Parent nor Seller will take any position

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		(whether in audit, Tax returns or otherwise) that is inconsistent with such allocation unless required to do so by law.

4		REPRESENTATIONS AND WARRANTIES OF SELLER.

		Seller hereby represents and warrants to Purchaser that except as set forth in the corresponding section of the Disclosure Schedule delivered to Purchaser on the date hereof (the “Disclosure Schedule”), each of the following statements is true and correct:

4.1		Organization and Good Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; has all necessary corporate power and authority to conduct the Business as it is now conducted; to own and use the properties and assets used therein; and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or licensed and in good standing would have a material adverse effect on the Business. Other than EDSI, Seller does not own or control any subsidiaries or other entities that, in turn, own or have previously owned or operated the Business, in whole or in part, or any of the Purchased Assets. EDSI is a corporation duly organized, validly existing and in good standing under the laws of the State of California; has all necessary corporate power and authority to conduct the Business as it is now conducted; to own and use the properties and assets used therein; and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified or licensed and in good standing would have a material adverse effect on the Business. EDSI does not own or control any subsidiaries or other entities that, in turn, own or have previously owned or operated the Business, in whole or in part, or any of the Purchased Assets.

4.2		Authority and Binding Effect. Seller has all the necessary corporate power and authority to enter into, and perform its obligations under, this Agreement, the Bill of Sale, the Indemnification Agreement (as defined below) and the Transition Services Agreement (as defined below) (collectively with this Agreement, “Transaction Documents”). The Transaction Documents and the performance by Seller of its obligations therein have been duly authorized by all necessary corporate action of Seller. This Agreement has been duly executed and delivered, and upon execution and delivery of the other Transaction Documents, by Seller the same will constitute the valid and binding agreements of Seller, each enforceable against Seller in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights, and (ii) general principles of equity (regardless of whether any such agreement is sought to be enforced in a proceeding at law or in equity). No other action is required to be taken by Seller, nor is it necessary for Seller to obtain any action, approval or consent by or from any third persons, governmental or other entities, to enable Seller to enter into or perform Seller’s obligations under the Transaction Documents, except those consents of third parties to the assignment and assumption of the Assumed Contracts as identified in Section 4.2 of the Disclosure Schedule or as otherwise disclosed or obtained in connection herewith.

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4.3		Purchased Assets. At the Closing, Seller will convey and transfer to Purchaser, all of the Purchased Assets, free and clear of any and all Encumbrances (other than the Assumed Liabilities). All of the Purchased Assets are in the exclusive possession and control of Seller, and Seller has the unencumbered right to use and sell to Purchaser all of the Purchased Assets without interference from others. No actions, proceedings or transactions have been commenced or undertaken by Seller that (A) would interfere with the consummation of the transactions contemplated by this Agreement; of (B) give or would give rights to any other person, other than Purchaser, to acquire any of the Purchased Assets (other than purchases of products and services by customers of the Business). The Purchased Assets constitute all of the rights, properties and assets (tangible or intangible) that are necessary for the conduct of the Business, including but not limited to the design and manufacture of all the products of the Business, prior to the Closing Date. Seller has the complete and unrestricted power and unqualified right to sell, assign, transfer, convey and deliver the Purchased Assets to Purchaser. The documents of transfer to be executed and delivered by Seller at the Closing will be sufficient to convey the Purchased Assets to Purchaser, free and clear of all Encumbrances, other than the Assumed Liabilities.

4.4		Contracts, Agreements and Commitments. Seller has supplied Purchaser with a true and correct copy of each Assumed Contract in Schedule 1.11. Seller has performed in all material respects the obligations required to be performed by it under any material Assumed Contract as of the date hereof. To Seller’s Knowledge, there have been no defaults or claims of defaults and there are no facts or conditions which have occurred or are anticipated to occur which, through the passage of time or the giving of notice, or both, would constitute a material default under such material contracts or would cause the acceleration of any material obligation of Seller thereunder or the creation of a lien or encumbrance upon any of the Purchased Assets. Seller has not waived any material right which it has under any such material contact. For the purposes of this Agreement, “Seller’s Knowledge” and words of similar import mean the actual knowledge of Edward A. Keible, Jr., John Mikulsky, Brett Wallace, David Hall, Daniel Teuthorn and Curt Sacks after due inquiry.

4.5		Taxes and Tax Returns. Seller has duly filed all Tax reports and returns which are required by law to have been filed by it and has paid when due all federal, state and local Taxes due from such authorities on or prior to the date hereof, which relate to the Business or the Purchased Assets or may result in the imposition of any Encumbrance on any of the Purchased Assets. Seller has properly withheld and paid, or accrued for payment when due, to appropriate federal, state and local authorities, all amounts required to be, withheld from its employees’ wages, salaries and other compensation and has paid or accrued all employment Taxes as required under applicable laws. True and correct copies of Seller’s Federal, State and local income tax returns and reports for the tax years 2006 and 2007 have been made available to Purchaser prior to the date hereof.

4.6		Compliance with Laws. Since January 1, 2004, except as set forth in Section 4.6 of the Disclosure Schedule, Seller and EDSI have complied in all material respects with all applicable United States federal, state, municipal and foreign and other political subdivision or Governmental Authority statutes, ordinances, regulations, judgments and

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orders applicable to the Business except for such instances of noncompliance that, either individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the Business. Seller and EDSI collectively hold all material Permits necessary for the ownership of the Purchased Assets and the conduct of the Business, all of which are in full force and effect and are listed in Schedule 1.12.

4.7		Litigation and Proceedings. There is no action, suit, proceeding or investigation, or any counter or cross-claim in an action brought by or on behalf of Seller, whether at law or in equity, or before or by any governmental department commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, that is pending or, to Seller’s Knowledge, threatened, against Seller or EDSI, which (i) would reasonably be expected to have a material adverse effect on Seller’s ability to perform its obligations under this Agreement or complete any of the transactions contemplated hereby, or (ii) which would reasonably be expected to result in a material judgment, liability or claim against Purchaser or the Purchased Assets prior to, or subsequent to, the Closing Date. Neither Seller nor EDSI is subject to any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over Seller or any of its assets which would reasonably be expected to have a material adverse effect on Seller’s ability to perform its obligations under this Agreement or complete any of the transactions contemplated hereby.

4.8		No Conflict. The execution, delivery and performance of this Agreement by Seller do not and will not (a) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or By-Laws of Seller, or (b) except as described in Section 4.8 of the Disclosure Schedule, conflict with, result in any material breach of, constitute a material default (or event which with the giving of notice or lapse of time, or both, would become a material default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any encumbrance on any of the material Purchased Assets pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Seller or EDSI is a party or by which any of the Purchased Assets is bound or affected.

4.9		Governmental Consents and Approvals. The execution, delivery and performance of this Agreement by Seller do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any national, federal, state, provincial, county, municipal or local government, foreign or domestic, or the government of any political subdivision of any of the foregoing, or any entity, authority, agency, ministry or other similar body exercising executive, legislative, judicial, regulatory or administrative authority or functions of or pertaining to government, including any authority or other quasi-governmental entity established to perform any of such functions (“Governmental Authority”), the absence of which would have a material adverse effect on the Business.

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4.10		Financial Information; Books and Records. True and complete copies of the following have been provided by Seller to Purchaser prior to the date hereof: (i) the unaudited balance sheet of the Business as of March 31, 2009 and (ii) the unaudited statements of operations of the Business for the year ended December 31, 2008 and the quarter ended March 31, 2009 (collectively, the “Financial Statements”). The foregoing documents (A) were prepared in accordance with the books of account and other financial records of Seller and (B) except as set forth in Section 4.10 of the Disclosure Schedule, present fairly in all material respects the financial condition and results of operations of the Business as of the dates thereof or for the periods covered thereby and were prepared in accordance with United States generally accepted accounting principles. Since December 31, 2008, there have not been any material write-offs, write-downs or write-ups of the value of any inventory or other assets of Seller comprising Purchased Assets outside the ordinary course of business, any creation, assumption, or notice of any material liability in connection with the Business (other than the acceptance of new Customer Orders and execution of Assumed Contracts) or the Purchased Assets, or to Seller’s Knowledge any other material adverse change in the financial or other condition of Business or the Purchased Assets.

4.11		Absence of Undisclosed Liabilities. There are no liabilities of the Business of the type that would be required to be recorded or disclosed as “liabilities” on a balance sheet prepared in accordance with United States generally accepted accounting principles, and there are no other material liabilities of the Business, other than: (i) liabilities reflected in the Financial Statements, (ii) liabilities incurred in the ordinary course of business after March 31, 2009 consistent with past practice, and (iii) liabilities set forth in Section 4.11 of the Disclosure Schedule.

4.12		Customers. Except as set forth in Section 4.12 of the Disclosure Schedule, Seller has not received any notice and has no Knowledge that any significant customer of the Business has ceased, or will cease, to use the products, equipment, goods or services of the Business, or has substantially reduced, or will substantially reduce, the use of such products, equipment, goods or services at any time.

4.13		Vendors. Seller has not received any notice and has no Knowledge that any vendor will not sell raw materials, supplies, merchandise and other goods to Purchaser at any time after the Closing on terms and conditions substantially similar to those used in its current sales to the Business, subject only to general and customary price increases.

4.14		Labor Matters. Except as set forth in Section 4.14 of the Disclosure Schedule, (a) Seller is not a party to any collective bargaining agreement or other labor union contract applicable to persons employed by Seller in connection with the Business, and, to Seller’s Knowledge, currently there are no organizational campaigns, petitions or other unionization activities seeking recognition of a collective bargaining unit with respect to Seller’s employees employed in connection with the Business; (b) there are no controversies, strikes, slowdowns or work stoppages pending or, to Seller’s Knowledge, threatened between Seller and any of its employees employed in connection with the Business, and Seller has not experienced any such controversy, strike, slowdown or work stoppage within the past three years; (c) Seller has not breached or otherwise failed to

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		comply in any material respect with the provisions of any collective bargaining or union contract, and there are no grievances outstanding against Seller under any such agreement or contract which would have a material adverse effect on the Business; (d) there are no unfair labor practice complaints pending against Seller before the National Labor Relations Board or any other Governmental Authority or any current union representation questions involving employees of Seller employed in connection with the Business which would have a material adverse effect on the Business; (e) Seller is currently in compliance in all materials respects with all applicable laws relating to the employment of labor, including those related to wages, hours, collective bargaining and the payment and withholding of taxes and other sums as required by the appropriate Governmental Authority and has withheld and paid to the appropriate Governmental Authority or is holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of Seller employed in connection with the Business and is not liable for any arrears of wages, taxes, penalties or other sums for failure to comply with any of the foregoing; (f) Seller has paid in full to all employees of Seller employed in connection with the Business or adequately accrued for in accordance with GAAP all wages, salaries, commissions, bonuses, benefits and other compensation due to or on behalf of such employees; (g) there is no claim with respect to payment of wages, salary or overtime pay that has been asserted or is now pending or, to Seller’s Knowledge, threatened before any Governmental Authority with respect to any persons currently or formerly employed by Seller in connection with the Business; (h) Seller is not a party to, or otherwise bound by, any consent decree with, or citation by, any Governmental Authority relating to employees of Seller employed in connection with the Business or Seller’s employment practices with respect thereto; (i) there is no charge or proceeding with respect to a violation of any occupational safety or health standard that is now pending or, to Seller’s Knowledge, threatened with respect to Seller’s operation of the Business; and (j) there is no charge of discrimination in employment or employment practices for any reason, including age, gender, race, retaliation, religion or other legally protected category, with respect to employees of Seller employed in connection with the Business, which is now pending or, to Seller’s Knowledge, threatened before the United States Equal Employment Opportunity Commission or any other Governmental Authority in any jurisdiction in which Seller has employed or currently employs any person in connection with the Business.

4.15		Employees. Schedule 4.15 lists the name, place of employment, the current annual salary rates, the date of employment and position of each current salaried employee or officer of Seller whose name appears on Schedule 4.15. Except as set forth in Schedule 4.15, all officers, management employees and technical employees of Seller employed in connection with the Business are under written obligation to Seller to maintain in confidence all confidential or proprietary information acquired by them in the course of their employment and all technical employees of Seller employed in connection with the Business are under written obligation to assign to Seller all inventions made by them within the scope of their employment during such employment. EDSI has no employees.

4.16		Employee Benefit Matters. Purchaser will not be liable under any employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) or any bonus, stock option, stock purchase, restricted stock, incentive,

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		deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, or any employment, termination, severance or other contracts or agreements, whether legally enforceable or not, to which Seller is a party, with respect to which Seller has any obligation or which is maintained, contributed to or sponsored by Seller for the benefit of any current or former employee, officer or director of Seller who performs or performed services with the Business (collectively, the “Plans”). EDSI has no such plans, programs or arrangements.

4.17		Intellectual Property.

	(a)		Seller owns and possesses, and upon consummation of the transactions contemplated hereby, Purchaser will hold, right, title and interest in the Intellectual Property, free and clear of all Encumbrances.

	(b)		Seller has taken all reasonably necessary action to protect the Intellectual Property, including but not limited to the fact that Seller enforces a policy of requiring each employee, contractor and consultant to execute a confidentiality and assignment agreement in the form or forms previously provided to Purchaser for review. No written claim by any third party contesting the validity, enforceability, use or ownership by Seller of any Intellectual Property has been made, is currently pending or, to Seller’s Knowledge, is threatened, against Seller. Seller has not received any notice of any infringement or misappropriation by, or conflict with, any third party with respect to any of the Intellectual Property.

	(c)		To the Seller’s Knowledge, the Business has not infringed, misappropriated or otherwise conflicted with any material Intellectual Property rights of any third parties. The Intellectual Property constitutes all of the patents, copyrights, technology, inventions, product drawings, trade secrets, know-how, customer lists, manufacturing processes, process data, product designs, bills of materials and other proprietary information or rights necessary for the conduct of the Business as heretofore conducted.

	(d)		Seller has not granted any right, license or permission to any person to exercise any rights under, practice or otherwise exploit any of the Intellectual Property comprising Purchased Assets other than the Assumed Contracts.

4.18

Real Property.

	(a)		Except as set forth in Section 4.18 of the Disclosure Schedule, the Building, Seller’s San Jose, California headquarters and Seller’s Thailand facilities and contract manufacturer’s facilities comprise the only locations at which Seller has operated the Business prior to Closing (“Seller’s Facilities”).

	(b)		To Seller’s Knowledge, the zoning of the Building permits Seller to conduct the Business. To Seller’s Knowledge, neither the whole nor any part of the Building is subject to any governmental decree or order to be sold nor have any proceedings for the condemnation, expropriation or other taking of all or any

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portion of such real property or improvements been instituted or, to Seller’s Knowledge, threatened by any Governmental Authority, with or without payment therefor.

4.19

Environmental Matters. (i) To Seller’s Knowledge, the Seller’s Facilities are being and has been operated by Seller in compliance with all Environmental Laws, except for non-compliance that would not have a material adverse effect on the Business as a whole, (ii) to Seller’s Knowledge, Seller and EDSI have, and at all times have had, all permits, licenses and other approvals and authorizations required under applicable Environmental Laws for its operation of Seller’s Facilities, (iii) except for non-compliance that would not have a material adverse effect on the Business as a whole, Seller has not received any written notice from any Governmental Authority that Seller or any of its Affiliates may be a potentially responsible party in connection with any waste disposal site or facility used, directly or indirectly, by or otherwise related to Seller’s Facilities, (iv) no reports have been filed, or, to Seller’s Knowledge, have been required to be filed, by Seller or EDSI concerning the release of any Regulated Substance or the violation of any Environmental Law near, below, above on in Seller’s Facilities, (v) to Seller’s Knowledge, no Regulated Substance has been unlawfully disposed of, transferred, released or transported by Seller or any of its subsidiaries from Seller’s Facilities since such Facilities were occupied by Seller and EDSI, other than as permitted under applicable Environmental Law pursuant to appropriate regulations, permits or authorizations, except for non-compliance that would not have a material adverse effect on the Business as a whole, (vi) there have been no environmental investigations, studies, audits, tests, reviews, or other analyses conducted by or which are in the possession of Seller relating to Seller’s Facilities, except to the extent that true copies thereof have been delivered to Purchaser prior to the date hereof, (vii) to Seller’s Knowledge, there are no underground storage tanks on, in or under Seller’s Facilities and no underground storage tanks have been closed or removed from such facilities during Seller’s and EDSI’s occupancy of Seller’s Facilities, (viii) to Seller’s Knowledge, Seller and EDSI have has not presently incurred, and Seller’s Facilities are not presently subject to, any material liabilities (fixed or contingent) relating to any Environmental Claim in connection with such facilities which would have a material adverse effect on the Business as a whole, (ix) to Seller’s Knowledge, all documents filed by or on behalf of Seller or EDSI with any Governmental Authority pursuant to any Environmental Law in connection with Seller’s Facilities were, when filed, true, correct and complete in all material respects, and (x) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or other proceedings pending or, to Seller’s Knowledge, threatened against Seller or EDSI or, to Seller’s Knowledge, any predecessor or affiliate of Seller or EDSI with respect to Seller’s Facilities relating to any Environmental Claim, and neither Seller nor, to Seller’s Knowledge, any predecessor or affiliate of Seller has received any written notices, demand letters or requests for information from governmental agencies, arising out of, in connection with, or resulting from, a violation, or alleged violation, of any Environmental Law which proceedings violation or liability is unresolved or would not be reasonably likely to have a material adverse effect on the Business as a whole. “Environmental Claims” means (a) any judicial or administrative enforcement actions, proceedings, claims or orders (including consent orders and decrees) instituted or, to Seller’s Knowledge, threatened by any Governmental Authority

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		pursuant to any Environmental Law concerning Seller’s Facilities; or (b) any suits, arbitrations, legal proceedings, actions or claims instituted, made or threatened (including notices of non-compliance, notices of violations and notices to comply) that relate to any damage, contribution, cost recovery, compensation, loss or injury resulting from the Release or threatened Release (whether sudden or non-sudden or accidental or non-accidental) of, or exposure to, any Regulated Substances, or the violation or alleged violation of any Environmental Law, or the generation, manufacture, use, storage, transportation, treatment, or disposal of Regulated Substances. “Environmental Laws” means any and all federal, state and local laws, statutes, orders, ordinances, rules, regulations or decrees and the like relating to (i) environmental matters, including without limitation those relating to fines, injunctions, penalties, damages, contribution, cost recovery compensation, losses or injuries resulting from the unlawful Release or threatened Release of Regulated Substances, (ii) the generation, use, storage, transportation, treatment or disposal of Regulated Substances, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal, health or welfare, in any manner applicable to the Business or Seller’s Facilities, each as in effect on or prior to the Closing Date, and all rules and regulations promulgated under each of the foregoing, as they are enacted and in effect on or prior to the Closing Date. “Regulated Substances” means (i) any chemical, material or substance now defined as or included in the definition of “hazardous substance,” “hazardous waste,” “hazardous material,” “extremely hazardous waste,” “restricted hazardous waste,” “infectious waste,” “toxic substance,” or any other formulations intended to define, list or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity or other words of similar import under any applicable Environmental Laws or publications promulgated pursuant thereto, and any other chemical, material or substance, exposure to which is prohibited or regulated by any Governmental Authority or Environmental Law, or which is reasonably likely to pose a hazard to the health and safety of the owners, occupants or any other persons in the vicinity of the Building, (ii) any oil, petroleum or petroleum derived substance, (iii) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources, (iv) any radioactive materials, (v) asbestos in any form which is or could become friable, (vi) urea formaldehyde foam insulation, (vii) polychlorinated biphenyls, or (viii) pesticides. “Release” means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching, or migration of Regulated Substances into the indoor or outdoor environment (including without limitation, the abandonment or disposal of any storage tanks, barrels, containers or other closed receptacles containing any Regulated Substance), or into or out of the Building, including the movement of any Regulated Substances through the air, soil, surface water, or groundwater of the Building.

4.20		Projections. The financial projections relating to the Business provided by Seller to Purchaser were prepared by Seller in good faith based on information available to management as of the date of such projections; provided, however, Seller does not warrant the accuracy of the information (although Seller does not have Knowledge of any inaccuracy) used in creating such projections or that any results projected in such projections will actually be achieved.

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4.21		No Additional Representations. Purchaser acknowledges that neither the Seller nor any of its employees or other representatives have made or shall not be deemed to have made any representation, warranty, covenant or agreement, express or implied, with respect to the Seller, the Business or the Purchased Assets, other than those explicitly set forth herein.

4.22		Product Related Claims. Section 4.22 of the Disclosure Schedule contains (a) a summary of all product returns and repair/replacement work performed by or on behalf of Seller pursuant to any Product Warranties (as defined herein) or otherwise with regard to products and services of the Business for the period from October 1, 2007 to December 31, 2008 (or such longer period as indicated on Section 4.22 of the Disclosure Schedule) and (b) a listing of all pending claims for product returns and repair/replacement work with regard to the Business. Seller does not have knowledge of any facts or circumstances which would cause product returns, replacement or repair work relating to any product sold by the Business to deviate materially from the historical return, repair or replacement work set forth in Section 4.22 of the Disclosure Schedule. Seller has no knowledge of, and has not received any notice with respect to, any product liability claim or claims based on failure of products sold by the Business (other than claims for product return, replacement or repair not deviating materially from historical return, replacement or repair work) and/or any notice of any epidemic failure with respect to such products. To Seller’s Knowledge, no products manufactured or sold by Seller have a design or manufacturing defect that renders the type, series or class of product reasonably likely to either (a) result in injuries to persons or property or (b) give rise to an obligation to recall such type, series or class of product. Seller has no Knowledge of any or actual alleged breach by Seller of, or non-performance by Seller under, any Assumed Contract or Customer Order prior to the Closing, or any liability as a result thereof accruing under any Assumed Contract or Customer Order with respect to any period prior to the Closing.

4.23		Solvency Representation. Both immediately before, and immediately after giving effect to, the transactions contemplated by this Agreement: (i) the fair value of the Seller’s assets would exceed its liabilities (including contingent liabilities); (ii) the present fair saleable value of Seller’s assets would be greater than the amount required to pay its probable liabilities on its existing debts (including contingent liabilities) as such debts become absolute and mature; (iii) Seller would be able to pay its liabilities (including contingent liabilities) as they mature; (iv) Seller is “solvent” (within the meaning of applicable laws relating to fraudulent transfers) and would not have unreasonably small capital for the business in which it is engaged and in which it is proposed to be engaged following consummation of the transactions contemplated by this Agreement. Seller does not intend to incur, and Seller does not believe that it has incurred or will incur as a result of the transactions contemplated by this Agreement, debts beyond Seller’s ability to pay such debts as such debts mature.

4.24		Fair Value Representation. The Strategic Transaction Committee of the Board of Directors of Seller, which has been vested with the full authority of the Board of Directors to approve and consummate the transactions contemplated by this Agreement, has determined, after consultation with its financial advisors, that the transactions contemplated under this Agreement are in the best interest of the Seller and its

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		stockholders and the cash and other consideration received in connection with the transactions contemplated by this Agreement are fair to the Seller and its stockholders.

5		REPRESENTATIONS AND WARRANTIES OF PURCHASER AND PARENT.

		Purchaser and Parent, jointly and severally, hereby represent and warrant to Seller as follows:

5.1		Organization and Related Matters. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has all necessary corporate power and authority to conduct its business as it is now conducted and to own and use the properties and assets used therein, and is duly qualified to do business and is in good standing as a foreign corporation in all states in which the failure to be so qualified or licensed and in good standing would have a material adverse effect on Purchaser or its business.

5.2		Authority and Binding Effect. Each of Purchaser and Parent has all the necessary corporate power and authority to enter into, and perform its obligations under, this Agreement. This Agreement and the performance by each of Purchaser and Parent of its obligations herein have been duly authorized by all necessary corporate action of Purchaser. This Agreement has been duly executed, and upon delivery by Purchaser and Parent will constitute the valid and binding agreement of Purchaser and Parent, enforceable against Purchaser and Parent in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting creditors’ rights, and (ii) general principles of equity relating to the availability of equitable remedies (regardless of whether any such agreement is sought to be enforce in a proceeding at law or in equity).

5.3		No Conflicts. The execution, delivery and performance of this Agreement by Purchaser and Parent do not and will not (i) violate, conflict with or result in the breach of any provision of the Certificate of Incorporation or By-Laws of Purchaser or Parent (or similar organizational documents), or (ii) to the best of Purchaser’s and Parent’s knowledge, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any encumbrance on any of the assets of Purchaser or Parent pursuant to, any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which Purchaser or Parent is a party or by which any of its assets is bound or affected or (iii) violate any law applicable to Purchaser or Parent.

5.4		Litigation and Proceedings. There is no action, suit, proceeding or investigation, or any counter or cross-claim in an action brought by or on behalf of Purchaser or Parent, whether at law or in equity, or before or by any governmental department commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, that is pending or, to Purchaser’s and Parent’s knowledge, threatened, against Purchaser or Parent that would reasonably be expected to have a material adverse effect

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on Purchaser’s or Parent’s ability to perform its obligations under this Agreement or complete any of the transactions contemplated hereby. Neither Purchaser nor Parent is subject to any judgment, order, writ, injunction, decree or award of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality having jurisdiction over Purchaser or Parent which would reasonably be expected to have a material adverse effect on Purchaser’s or Parent’s ability to perform its obligations under this Agreement or complete any of the transactions contemplated hereby.

6		ADDITIONAL OBLIGATIONS OF THE PARTIES.

		Following the Closing, Purchaser and Seller agree to take the following actions:

6.1		Termination of Security Interest and Liens. Seller shall cause to be removed, at Seller’s sole cost and expense and at no expense to Purchaser (unless agreed to in writing by Purchaser prior to the Closing), any Encumbrances to which any of the Purchased Assets are subject that arose in connection with the conduct of the Business prior to the Closing and are discovered after the Closing (except those related to the Assumed Liabilities).

6.2		Further Assurances. Purchaser and Seller shall execute and deliver such instruments and take such other actions as may reasonably be required in order to carry out the intent of this Agreement and to evidence and effectuate the transactions contemplated herein. Seller shall hold in trust for Purchaser and as promptly as reasonably practicable following receipt turn over to Seller any money or other property or consideration that Seller receives on account of any Receivable constituting part of the Purchased Assets. Seller shall provide prompt notice to Purchaser relating to any written notice it receives with respect to any Purchased Asset or Assumed Liability. In connection therewith Seller shall use commercialy reasonable efforts to assist Purchaser to obtain or cause to be obtained at the earliest practicable date, all consents, approvals, licenses and permits, if any, required in order to consummate the Sale of Business and the transactions contemplated by this Agreement and in order not to violate any material agreement, contract, instrument or applicable law or regulation, license or permit, to which Seller is a party or to which it the Purchased Assets are subject, including to the extent that after the Closing it is discovered that any such consent, approval, license or permit is required in connection with the Sale of the Business. To the extent that a consent of any third party is required to enable Seller to assign any Assumed Contract, Customer Order, or Permit that is not obtained prior to the Closing, Seller shall use commercially reasonable efforts to assist Purchaser to obtain such third party’s consent to the assignment of such item. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an assignment of any such item if an attempted assignment thereof, without the consent of a party thereto, would constitute a breach or other contravention thereof or in any way adversely affect the rights that are sought to be assigned or transferred to Purchaser pursuant to this Agreement. If such consent is not obtained, or if an attempted assignment thereof would adversely affect the rights intended to be assigned to Purchaser thereunder, then Seller and Purchaser shall cooperate in a mutually agreeable arrangement until such item has expired or the consent to the assignment to Purchaser of such item has been obtained. Under such arrangement, Purchaser would obtain the

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		benefits and assume the obligations thereunder in accordance with this Agreement (such as a subcontracting, sublicensing or subleasing arrangements under which Seller would enforce for the benefit of Purchaser any and all rights of Seller against a third person thereto and Purchaser would assume Seller’s obligations). Seller shall promptly pay and deliver to Purchaser, when received, all monies and other benefits received by Seller in respect of any such item.

6.3		Employees.

(a) Schedule 4.15 attached hereto sets forth a list of the employees of Seller to whom Purchaser intends to utilize in connection with the Business immediately after the Closing Date (the “Transferred Employees”). On the Closing Date, Parent shall make an offer of employment to each Transferred Employee (such employment to become effective on May 16, 2009) at a salary level equal to or greater than the salary such employee received for his employment with Seller during 2009 and will offer such employee all such other benefits commensurate with Purchaser’s standard practice for all comparably-situated employees. From the Closing Date to May 15, 2009, the Transferred Employees shall be employed by Seller on the terms and subject to the conditions of the Transition Services Agreement and the Employee Transition Services Agreement attached thereto. Purchaser’s obligations under this Section 6.3 shall not constitute a contract for the benefit of any third party and the parties do not intend to provide, by virtue of this Agreement or any of the other Transaction Documents, any right to any Transferred Employee. All offers made hereunder shall be offers of “employment at-will” and shall contain provisions (i) releasing Parent and its employees, directors and affiliates from any liability on account of any claim that any such Transferred Employee has, or may have, against Seller, including, without limitation, claims for accrued vacation, overtime, sick pay and all other benefits and (ii) releasing such employee’s employment records owned by Seller to Parent and Purchaser. In connection with any such offer, any such Transferred Employee must execute all of Parent’s employment-related documents such as its employee handbook, a job application and Parent’s standard confidentiality and assignment of inventions agreement, and must undergo background, drug and other verification typically conducted by Parent for comparably-situated employees.

(b) Seller hereby authorizes Parent to offer such employment to the Transferred Employees and waives any rights Seller may have to prohibit the Transferred Employees from being employed by Parent, and shall not offer new employment to any Transferred Employees who accept such employment with Parent for so long as such Transferred Employees remain employed by Parent.

(c) Seller shall be responsible to make all payments to the Transferred Employees on account of their employment with Seller prior to Closing, including accrued wages, accrued and unused vacation pay, sick pay and all other benefits (including any retiree medical benefits) on account of employment prior to the Closing.

(d) After any Transferred Employee is hired by Parent, Seller shall make copies of any and all employment records of such Transferred Employee available to Purchaser.

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6.4

Taxes.

(a) Seller shall pay all taxes of any kind or nature arising from the conduct of the Business by Seller prior to the Closing. Seller shall pay any other taxes resulting directly from consummation of the transactions contemplated hereby, including without limitation all excise, sales, use, value added, transfer (including real property transfer), stamp, documentary, filing, recordation, registration and other similar taxes, together with any interest, additions, fines, costs or penalties thereon and any interest in respect of any additions, fines, costs or penalties.

(b) Seller shall include the income (or loss) of EDSI (including with respect to any federal Tax return, deferred items triggered into income by Reg § 1.1502-13 and any excess loss account taken into income under Reg § 1.1502-19) on Seller’s consolidated federal income tax returns and Seller’s California combined report for all periods through the end of the Closing Date and shall pay any Taxes attributable to such income. Purchaser and EDSI shall furnish Tax information to Seller for inclusion in such returns in accordance with past custom and practice. The income (or loss) of EDSI shall be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of EDSI as of the end of the Closing Date. Purchaser agrees to indemnify Seller for any additional Tax owed by Seller (including Tax owed by Seller due to this indemnification payment) resulting from any transaction engaged in by EDSI not in the ordinary course of business occurring on the Closing Date after Purchaser’s purchase of the EDSI stock. At Seller’s request, Purchaser shall cause EDSI to make or join with Seller in making any election on such returns if the making of such election does not have a material adverse impact on Purchaser for any Tax period following the Closing.

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6.5		Non-Compete. During the three (3) year period commencing on the Closing Date, Seller shall not, directly or indirectly or through any affiliated entity, (A) solicit the business of any current or former customers of the Business for the purpose of competing with the Business, (B) solicit the employment of any employees of the Business (during the term of their employment by Parent), and (C) own an interest in a company (other than ownership of up to 5% of the outstanding stock of any public company) that provides goods or services reasonably similar to the Business; provided, however, that clauses (A) and (C) of this sentence shall expire and be of no further force and effect at such time after the Closing as Seller (i) enters into any merger, reorganization or consolidation of Seller into or with another corporation or entity in which the holders of Seller’s outstanding securities immediately preceding such merger, reorganization or consolidation do not own voting securities of the surviving or resulting corporation or entity in approximately the same proportions, relative to each other, as immediately before such transaction, or (ii) sells all or substantially all of its assets to another corporation or entity. Notwithstanding subsections 6.5 (i) and (ii) above Seller’s obligations under this Section 6.5, including clauses (A) and (C) of the first sentence hereof, shall remain in effect for the period provided therein if the entity that has purchased substantially all of the assets of Seller or the entity that is the party to the merger, reorganization or consolidation transaction was not engaged in a business activities reasonably similar to the Business for a period of at least nine months prior to the closing date of the transaction outlined in subsections 6.5(i) or 6.5(ii) above In the event a provision of this Section 6.5 is more restrictive than allowed by the laws of the State of California, said provision shall be deemed amended and shall be fully enforceable to the extent permitted by such law. Seller acknowledges and agrees that any violation of this Section 6.5 would not be fully compensated by money damages alone and Purchaser and Parent shall be entitled to seek equitable relief to restrain any actual or threatened violation of this Section 6.5. Notwithstanding the foregoing and notwithstanding the consummation of any transaction described in clauses (i) and (ii) above, during the non-competition period specified above, Seller shall not use any designs for products of the Business or derivatives thereof to compete with Purchaser or Parent in the high reliability end-markets (defense, space and homeland security).

6.6		Confidentiality. Neither party shall disclose this Agreement or the transactions contemplated hereby or any dealings between the parties in connection with the subject matter hereof, except to the extent as may, in the judgment of such party, be required (a) by laws, regulations, stock exchange listing requirements or legal process or (b) to notify, after the Closing, Customers, Vendors or other similar third parties of the Sale of Business to the extent necessary to carry out the purposes of this Agreement. After the Closing, Parent, Purchaser and Seller may make public statements or news releases announcing the closing of the transaction contemplated hereunder and may report the transaction in filings with Governmental Authorities, which statements and reports shall contain any and all information that Parent, Purchaser or Seller, as the case may be, in its sole discretion, deems important to announce. Except as provided above, or as may be required by applicable laws, regulations or stock exchange listing requirements, in the judgment of either party after considering advice of its legal counsel, neither Seller, on the one hand, nor Purchaser or Parent, on the other hand, nor its respective affiliates, shall issue any press release or otherwise publicly disclose this Agreement or the transactions

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		contemplated hereby or any dealings between the parties in connection with the subject matter hereof without the prior approval of the other, which shall not be unreasonably withheld.

6.7		Product Warranty Work. Purchaser shall perform repair and/or replacement warranty work on behalf of Seller in accordance with the terms and conditions of Seller’s warranties as set forth in Schedule 6.7 (“Product Warranties”) with respect to products of the Business that were manufactured and/or sold by Seller prior to the Closing.

6.8		Incidental Right to Use Seller’s Marks. Purchaser and its distribution channels shall be permitted, but not required, (a) to continue to use all purchased packaging materials (e.g., boxes) bearing the Seller’s mark, name and/or logo, but only until such materials have been used, (b) to sell or resell Inventory bearing Seller’s mark, name and/or logo manufactured by Seller until such Inventory shall have been sold, and (c) repair, reship, refurbish or resell product manufactured by the Seller and bearing Seller’s logo in the course of the warranty work contemplated in Section 6.7.

6.9		Covenant Regarding Seller’s Patents. Seller covenants not to sue or bring any other legal action against Purchaser or any successor, assign, distributor, reseller or customer of Purchaser related to or on account of any patent owned by Seller (including any continuation or re-issuance thereof) or filed by Seller prior to the Closing Date and not transferred to Purchaser hereunder being infringed, actually or allegedly, by any product family that is part of the Business as conducted prior to Closing or any derivative works. This covenant shall be irrevocably attached to any such patent, and Seller shall not transfer any patent covered hereunder without an express assumption in writing of this covenant.

6.11		Escrow Agreement. In the event that any time after the Closing Date until the second anniversary of the Closing Date, the Board of Directors of Seller determines to wind up Seller’s operations and liquidate, then prior to taking any such action, Seller and Parent shall enter into an Escrow Agreement to secure the Seller’s obligations under the Indemnification Agreement. Such Escrow Agreement in mutually-acceptable and customary form with an escrow agent, which Escrow Agreement shall expire on the second anniversary of the Closing and shall place into the escrow account formed thereby an amount to negotiated in good faith by the parties based on the circumstances and likelihood and probable magnitude of any indemnifiable claims thereunder at that time of such negotiations, but in no event not less than $2,000,000, which amount shall be deposited by Seller with the escrow agent to hold and distribute pursuant to the terms of the Escrow Agreement. Seller will not declare any cash dividend, repurchase any shares of its capital stock or distribute any cash to its stockholders upon liquidation prior to the second anniversary of this Agreement except in accordance with applicable Delaware law.

6.11		Return of Letter of Credit and Security Deposit. Purchaser or Parent shall return to Seller the letter of credit and security deposit deposited by Seller with the Landlord by the date that is two weeks after the Closing.

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7		SURVIVAL OF REPRESENTATIONS AND OTHER ITEMS

7.1		Survival. All of the representations and warranties set forth in this Agreement or in the Bill of Sale shall survive until the second anniversary of the Closing Date. The covenants and agreements set forth in this Agreement or in the Bill of Sale shall survive the Closing Date.

8		CONDITIONS TO OBLIGATIONS OF PURCHASER.

		At or prior to the Closing (A) each of the parties shall have delivered the following documents and/or (B) each of the following conditions shall have been satisfied, or waived (in writing) by Purchaser:

8.1		Certificates of Good Standing of EDSI. Purchaser shall have received from Seller a Certificate of Good Standing for EDSI from the Secretary of State of California, dated as of a recent date.

8.2		Bill of Sale. Seller shall have executed and delivered a Bill of Sale and Assignment and Assumption Agreement in the form agreed upon by Seller and Purchaser.

8.3		Transition Services Agreement. Seller shall have executed and delivered a Transition Services Agreement in the form agreed upon by Seller and Purchaser.

8.4		Lease. 88 12 LLC, dba Garaventa Properties (collectively “Landlord”) shall have consented to the assignment of the lease between Seller and Landlord for Seller’s Folsom, California facility (the “Building”).

8.5		Other Documents. Seller shall have executed and delivered an Indemnification Agreement substantially in the form attached hereto as Exhibit A (“Indemnification Agreement”). Seller shall have delivered an certificate of secretary in the form agreed upon by Seller and Purchaser and the opinion of counsel in in the form agreed upon by Seller and Purchaser.

9		CONDITIONS TO OBLIGATIONS OF SELLER.

		At or prior to the Closing (A) each of the parties shall have delivered the following documents and/or (B) each of the following conditions shall have been satisfied, or waived (in writing) by Seller:

9.1		Bill of Sale. Purchaser shall have executed and delivered the Bill of Sale.

9.2		Payment of Purchase Price. Purchaser shall have tendered payment of the Purchase Price.

9.3		Indemnification Agreement. Parent shall have executed and delivered the Indemnification Agreement.

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10		EXPENSES/BROKER’S FEES.

10.1		Expenses; Brokers. Each of the parties shall pay all its own costs and expenses incurred or to be incurred by it in connection with the Sale of the Business and the performance of its respective obligations under this Agreement. Each party hereto represents and warrants that it has not utilized the services of, and that it does not and will not have any liability to, any broker or finder in connection with this Agreement or transactions contemplated hereby, except that Seller has utilized the services of Needham & Company in connection with the transactions contemplated by this Agreement. Seller shall pay all fees and other expenses of Needham & Company incurred in connection with such services.

11		MISCELLANEOUS.

11.1		Notices. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given, if delivered in person or mailed, certified, return-receipt requested, postage prepaid addressed to each of the parties at the address for such party as set forth in the Preamble of this Agreement. Any party hereto may from time to time, by written notice to the other parties, designate a different address, which shall be substituted for the one specified above for such party. If any notice or other document is sent by certified or registered mail, return receipt requested, postage prepaid, properly addressed as aforementioned, the same shall be deemed served or delivered seventy-two (72) hours after mailing thereof. If any notice is sent by facsimile machine (“fax”) to a party, it will be deemed to have been delivered on the date the fax thereof is actually received, provided the original thereof is sent by mail, in the manner set forth above, within twenty-four (24) hours after the fax is sent.

11.2		Binding Effect; Assignment. This Agreement shall be binding upon the heirs, executors, representatives, successors and assigns of the respective parties hereto. No party may assign this Agreement, or assign its rights or delegate its duties hereunder, without the prior written consent of the other party hereto; provided, however, that upon written notice to Seller, Purchaser may assign this Agreement to any entity that is controlled and wholly owned, directly or indirectly, by Microsemi Corporation.

11.3		Counterparts. This Agreement may be executed in facsimile and in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

11.4		Headings. The subject headings of the sections and subsections of this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.

11.5		No Waiver; Cumulative Remedies. No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder.

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		The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

11.6		Entire Agreement; No Third-Party Beneficiaries. This Agreement, including the Schedules and Exhibit and other documents attached or referred to herein, which form a part hereof, embodies the entire agreement and understanding of the parties hereof, and supersedes all prior or contemporaneous agreements or understandings (whether written or oral) among the parties, in respect to the subject matter contained herein. The Mutual Non-disclosure Letter Agreement between Microsemi Corporation and Seller (the “NDA”) shall survive the execution of this Agreement and the Closing Date; provided, however, Microsemi Corporation’s confidentiality obligations under the NDA as they relate to the Business or the Purchased Assets shall terminate immediately upon the Closing. This Agreement and the obligations hereunder are not intended to confer any rights or remedies to any third party and is not intended to operate, in anyway, as an agreement for the benefit of any third-party.

11.7		Governing Law. This Agreement is deemed to have been made in the State of California, and its interpretation, its construction and the remedies for its enforcement or breach are to be applied pursuant to, and in accordance with, the laws of the State of California without reference to conflict of laws provisions thereunder.

11.8		Alternate Dispute Resolution (ADR). The parties agree that they shall attempt to settle any dispute arising out of this Agreement, the execution thereof or in connection therewith, through friendly consultation and negotiation in the spirit of mutual cooperation, and if settlement cannot be reached within a reasonable time, then the dispute shall first be submitted to a mutually acceptable neutral advisor for non-binding mediation (“Mediation”). Neither party shall unreasonably withhold acceptance of such advisor, and selection thereof shall be made within thirty (30) days after written notice by one party requesting such Mediation. Any disputes arising hereunder which the parties cannot resolve in good faith within three (3) months of the date of the written request for Mediation, shall be submitted to the Judicial Arbitration and Mediation Services (“JAMS”) for arbitration in accordance with its rules and procedures (“Arbitration” and collectively with Mediation, “ADR”). Any ADR shall occur in Orange County, California. The parties are authorized in such arbitration proceedings to conduct discovery in accordance with the California Code of Civil Procedure §§ 1280 et seq. The arbitrator shall give a detailed reasoned opinion. The parties agree that the arbitral award shall be final and binding upon both parties. The parties expressly waive their appeal rights under California Code of Civil Procedure § 1294(b), (c) and (d). The arbitral award may be enforced in any other jurisdiction by suit on the judgment or in any other manner provided by law. During ADR, the terms and conditions of this Agreement shall be performed continuously by both parties except for matters in dispute. Each party shall be responsible for all its own costs associated with the preparation and representation by attorneys, or any other persons retained thereby, to assist it in connection with any such ADR. All costs charged by JAMS or any other the mutually agreed upon ADR entity shall be equally shared by the parties pending the arbitration award. The arbitrator may include in the arbitration award costs, expenses and reasonable attorneys’ fees in favor of the prevailing party or parties. Notwithstanding anything to the contrary herein stated,

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		each party’s right to seek injunctive relief in any court of competent jurisdiction against any person or entity as provided herein shall not be deemed waived or diminished for any reason whatsoever. Each party for itself irrevocably submits to the jurisdiction of JAMS in Orange County, California, over any ADR, irrevocably waives the defense of an inconvenient forum or improper venue to the maintenance of such an ADR proceeding, and agrees to accept and not to contest service of process by certified mail as to any ADR proceeding, which method of service is deemed adequate by the parties hereto.

11.9		Severability; Amendment. Any provision of this Agreement which is illegal, invalid or unenforceable shall be ineffective to the extent of such illegality, invalidity or unenforceability, without affecting in any way the remaining provisions hereof. This Agreement may not be amended except by execution and delivery of an instrument in writing signed by officers of Seller and Purchaser on behalf of Seller and Purchaser.

11.10		Joint and Several Liability and Guarantee. Parent and Purchaser shall be jointly and severally liable for all of Purchaser’s and Parent’s obligations to Seller under this Agreement and all other Transaction Documents and Parent hereby guarantees Purchaser’s performance of such obligations.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representatives, to be effective as of the date first above stated.


SHR Corporation		Endwave Corporation

By:	/s/ James J. Peterson	By:	/s/ Edward A. Keible Jr.

Title:	President and Chief Executive Officer	Title:	President and Chief Executive Officer

Microsemi Corporation

By:	/s/ James J. Peterson

Title:	President and Chief Executive Officer

Asset Purchase Agreement

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SCHEDULES


Schedule 1.1		Inventory

Schedule 1.2		Equipment

Schedule 1.3		List of Prepaid Expenses and Other Current Assets

Schedule 1.4		List of Customer Orders

Schedule 1.5		List of Customers

Schedule 1.6		List of Vendors

Schedule 1.7		List of Registered Intellectual Property

Schedule 1.8		List of Receivables

Schedule 1.11		List of Assumed Contracts

Schedule 1.12		List of Permits

Schedule 2.1(a)		Trade Payables

Schedule 2.1(f)		Other Assumed Liabilities

Disclosure Schedule

Schedule 4.15		Transferred Employees

Schedule 6.7		Seller’s Product Warranties

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EXHIBIT


Exhibit A		Indemnification Agreement

EX-2.3 3 f53332exv2w3.htm EX-2.3 exv2w3

Exhibit 2.3

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“Agreement”), dated as of April 30, 2009 is by and between Microsemi Corporation, a Delaware corporation with offices at 2381 Morse Avenue, Irvine, California 92614 (“Parent”), and Endwave Corporation, a Delaware corporation with offices at 130 Baytech Drive, San Jose, California 95134 (“Seller”).

RECITALS:

WHEREAS, the parties and SHR Corporation, a wholly-owned subsidiary of Parent (“Purchaser”), have entered into that certain Asset Purchase Agreement (the “Purchase Agreement”), dated as of the date hereof (all terms appearing in initial capital letters and not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement); and

WHEREAS, in connection with the execution of the Purchase Agreement the parties desire to execute and deliver this Agreement.

AGREEMENT

ARTICLE 1 Indemnification and Remedies

1.1 Seller’s Agreement to Indemnify. Seller shall indemnify and hold harmless Parent and its subsidiaries and their respective officers, directors, agents, representatives, stockholders and employees (collectively, the “Purchaser Indemnified Persons”) from and against any and all claims, losses, costs, damages, liabilities, deficiencies, interest, awards, judgments, penalties and expenses, including, without limitation, reasonable attorneys’ fees, other professionals’ and experts’ fees, costs of investigation and court costs (hereinafter collectively referred to as “Damages”), arising from any of the following:

(a) any Environmental Claims or liabilities arising under any Environmental Laws, in either case arising out of use of any location other than the Building in Seller’s business;

(b) any product liability claims (other than Warranty Claims) or claims of infringement of third party intellectual property rights on account of any product of the Business shipped by Seller before the Closing; or

(c) any liabilities of Seller that are not Assumed Liabilities and any liabilities that are related to the Excluded Assets.

1.2 Parent’s Agreement to Indemnify. Parent shall indemnify and hold harmless Seller and its subsidiaries and their respective officers, directors, agents, representatives, stockholders and employees (collectively, the “Seller Indemnified Persons”) from and against any and all Damages arising from any of the following:

(a) any Environmental Claims or liabilities arising under any Environmental Laws, in either case arising out of use of the Building after the Closing;

(b) any Warranty Claims;

(c) any product liability claims (other than Warranty Claims) or claims of infringement of third party intellectual property rights on account of any product of the Business shipped after the Closing;

(d) any other liabilities that are Assumed Liabilities; or

(e) the failure of Purchaser and Parent to return to Seller the letter of credit and security deposit deposited by Seller with the Landlord by the date that is two weeks after the Closing, or any draw upon such letter of credit or claiming of such security deposit by Landlord.

1.3 Notice of Claim.

(a) As used herein, (i) “Indemnified Person” shall mean a Purchaser Indemnified Person with regard to any claim for indemnification under Section 1.1 and a Seller Indemnified Person with regard to any claim for indemnification under Section 1.2, (ii) “Indemnifying Person” shall mean Seller with regard to any claim for indemnification under Section 1.1 and Parent with regard to any claim for indemnification under Section 1.2, and (iii) the term “Claim” means a claim for indemnification of any Indemnified Person for Damages under this Article 1.

(b) Parent may give notice of a Claim under this Agreement, whether for its own Damages or for Damages incurred by any other Purchaser Indemnified Person. Parent shall give written notice of a Claim (a “Notice of Claim”) executed by an officer of Parent to the Seller promptly after a Purchaser Indemnified Person becomes aware of the existence of any potential claim by such Purchaser Indemnified Person under this Article 1, arising from or relating to:

(i) any Damages for which a Purchaser Indemnified Person is entitled to indemnification pursuant to Section 1.1; or

(ii) the assertion, whether orally or in writing, against Parent or any other Purchaser Indemnified Person of a claim, demand, suit, action, arbitration, investigation, inquiry or proceeding brought by a third party against Parent or such other Purchaser Indemnified Person (in each such case, a “Third-Party Claim”) that results or is reasonably likely to result in Damages for which a Purchaser Indemnified Person is entitled to indemnification pursuant to Section 1.1.

(c) Seller may give notice of a Claim under this Agreement, whether for its own Damages or for Damages incurred by any other Seller Indemnified Person. Seller shall give a Notice of Claim executed by an officer of Seller to the Parent promptly after a Seller Indemnified Person becomes aware of the existence of any potential claim by such Seller Indemnified Person under this Article 1, arising from or relating to:

(i) any Damages for which a Seller Indemnified Person is entitled to indemnification pursuant to Section 1.2; or

(ii) the assertion, whether orally or in writing, against Seller or any other Seller Indemnified Person of a Third-Party Claim that results or is reasonably likely to result in Damages for which a Seller Indemnified Person is entitled to indemnification pursuant to Section 1.2.

(d) The period during which claims may be initiated (the “Claims Period”) for indemnification shall commence at the Closing Date and terminate at the second anniversary of the Closing Date. Any Claims for Damages specified in any Notice of Claim delivered in accordance with this Agreement prior to expiration of the applicable Claims Period with respect to facts and circumstances existing prior to expiration of the applicable Claims Period shall remain outstanding until such Claims for Damages have been resolved or satisfied, notwithstanding the expiration of such Claims Period. Until the expiration of the applicable Claims Period, no delay on the part of Parent in giving the Seller a Notice of Claim shall relieve Seller, and no delay on the part of Seller in giving the Parent a Notice of Claim shall relieve Parent, from any of its obligations under this Article 1, except in the case of Third-Party Claims to the extent that the Indemnifying Person demonstrates that the defense of such Third-Party Claim is prejudiced by the failure to give such notice.

(e) Defense of Third-Party Claims. The Indemnifying Person shall be entitled to participate in the defense of any Third-Party Claim for which it may be obligated to indemnify any Indemnified Person and, to the extent that it wishes (unless (i) the Indemnifying Person is also a Person against whom the Third-Party Claim is made and the Indemnified Person determines in good faith that joint representation would be inappropriate or (ii) the Indemnifying Person fails to provide reasonable assurance to the Indemnified Person of its financial capacity to defend such Third-Party Claim and provide indemnification with respect to such Third-Party Claim), to assume the defense of such Third-Party Claim with counsel satisfactory to the Indemnified Person. After notice from the Indemnifying Person to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person shall not, so long as it diligently conducts such defense, be liable to the Indemnified Person under this Article 1 for any fees of other counsel or any other expenses with respect to the defense of such Third-Party Claim, in each case subsequently incurred by the Indemnified Person in connection with the defense of such Third-Party Claim, other than reasonable costs of investigation. If the Indemnifying Person assumes the defense of a Third-Party Claim, no compromise or settlement of such Third-Party Claims may be effected by the Indemnifying Person without the Indemnified Person’s consent unless (A) there is no finding or admission of any violation of law or any violation of the rights of any other person or entity; (B) the sole relief provided is monetary damages that are paid in full by the Indemnifying Person; and (C) the Indemnified Person shall have no liability with respect to any compromise or settlement of such Third-Party Claims

effected without its consent. If notice is given to an Indemnifying Person of the assertion of any Third-Party Claim pursuant to this Agreement and the Indemnifying Person does not, within ten (10) days after the Indemnified Person’s notice is given, give notice to the Indemnified Person of its election to assume the defense of such Third-Party Claim, the Indemnifying Person will be bound by any determination made in such Third-Party Claim or any compromise or settlement effected by the Indemnified Person.

(f) Notwithstanding the foregoing, if an Indemnified Person determines in good faith that there is a reasonable probability that a Third-Party Claim may adversely affect it or subsidiary or affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the Indemnified Person may, by notice to the Indemnifying Person, assume the exclusive right to defend, compromise or settle such Third-Party Claim, but in such event the Indemnifying Person will not be bound by or obligated to indemnify any Indemnified Person for any determination of any Third-Party Claim so defended for the purposes of this Agreement or any compromise or settlement effected without its consent.

(g) With respect to any Third-Party Claim subject to indemnification under this Article 1: (i) both the Indemnified Person and the Indemnifying Person, as the case may be, shall keep the other party fully informed of the status of such Third-Party Claim and any related proceedings at all stages thereof where such party is not represented by its own counsel, and (ii) the parties agree (each at its own expense) to render to each other such assistance as they may reasonably require of each other and to cooperate in good faith with each other in order to ensure the proper and adequate defense of any Third-Party Claim.

(h) With respect to any Third-Party Claim subject to indemnification under this Article 1, the parties agree to cooperate in such a manner as to preserve in full (to the extent possible) the confidentiality of all confidential information and the attorney-client and work-product privileges. In connection therewith, each party agrees that: (i) it will use its best efforts, in respect of any Third-Party Claim in which it has assumed or participated in the defense, to avoid production of confidential information (consistent with applicable law and rules of procedure), and (ii) all communications between any party hereto and counsel responsible for or participating in the defense of any Third-Party Claim shall, to the extent possible, be made so as to preserve any applicable attorney-client or work-product privilege.

1.4 Contents of Notice of Claim. Each Notice of Claim by Parent and Seller, as the case may be, given pursuant to Section 1.3 shall contain a description, in reasonable detail (to the extent reasonably available to the Indemnified Person), of the facts, circumstances or events giving rise to the alleged Damages based on the Indemnified Person’s good faith belief thereof, including the identity and address of any third-party claimant (to the extent reasonably available to the Indemnified Person) and copies of any formal demand or complaint, the amount of Damages, the date each such item was incurred, paid or properly accrued, or the basis for such anticipated liability, and the specific nature of the breach to which such item is related.

1.5 Resolution of Notice of Claim. Each Notice of Claim shall be resolved as follows:

(a) Uncontested Claims. If, within 20 business days after a Notice of Claim is received by the Indemnifying Person, the Indemnifying Person does not contest such Notice of Claim in writing to the Indemnified Person, as provided in Section 1.5(b), then the Indemnifying Person shall be conclusively deemed to have consented to the recovery by the Indemnified Persons of the full amount of Damages specified in the Notice of Claim in accordance with this Article 1, and, without further notice, to have stipulated to the entry of a final judgment for Damages against the Indemnifying Person for such amount in any court having jurisdiction over the matter where venue is proper.

(b) Contested Claims. If the Indemnifying Person gives the Indemnified Person written notice contesting all or any portion of a Notice of Claim (a “Contested Claim”) within the 20 business day period specified in Section 1.5(a), then such Contested Claim shall be resolved by either (i) a written settlement agreement executed by Parent and the Seller or (ii) in the absence of such a written settlement agreement within 30 days following receipt by the Indemnifying Person of the written notice from the Indemnified Person by binding arbitration between Parent and Seller in accordance with the terms and provisions of Section 11.8 of the Purchase Agreement (which Section shall be deemed to be incorporated herein by reference).

1.6 Tax Consequences of Indemnification Payments. All payments, if any, made to an Indemnified Person pursuant to any indemnification obligations under this Article 1 shall be treated as adjustments to the purchase price for tax purposes and such agreed treatment shall govern for purposes of the Purchase Agreement, unless otherwise required by law.

1.7 Limitation of Liability. Each Indemnifying Person’s obligation hereunder shall not exceed the Purchase Price (other than Seller’s obligation with respect to any Excluded Assets and Purchaser’s obligation with regard to the matters described in Sections 1.2(d) and (e), which shall not be limited). No claim shall be asserted by Parent hereunder unless and until the aggregate amount of indemnifiable Damages suffered by the Purchaser Indemnified Parties shall exceed $150,000, and in such case the Purchaser Indemnified Parties shall be entitled to recover only such amount of Damages as exceeds $150,000.

ARTICLE 2 Miscellaneous

The provisions of Sections 11.1, 11.2, 11.3, 11.4, 11.5, 11.7, 11.8 and 11.9 are incorporated hereto by reference as if fully set forth herein. This Agreement embodies the entire agreement and understanding of the parties hereof with respect to the subject matter contained herein and supersedes all prior or contemporaneous agreements or understandings (written or oral) with respect thereto.

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their duly authorized representatives, to be effective as of the date first above stated.


Microsemi Corporation		Endwave Corporation

By:	/s/ James J. Peterson	By:	/s/ Edward A. Keible Jr.
Title:	President and Chief Executive Officer	Title:	President and Chief Executive Officer

Indemnification Agreement

EX-10.14 4 f53332exv10w14.htm EX-10.14 exv10w14

Exhibit 10.14

Endwave Corporation

SENIOR EXECUTIVE OFFICER SEVERANCE AND RETENTION PLAN

Section 1. Introduction.

The purpose of this Plan is to encourage Eligible Executive Officers to remain as valued employees of the Company. This Plan supersedes any other severance or retention benefit plan, policy or practice maintained by the Company, in which the Eligible Executive Officers would otherwise be entitled to participate. This Plan amends and restates, and supersedes in its entirety, the Company’s “Executive Officer Severance and Retention Plan” dated June 5, 2003, as amended through October 15, 2008. Some of the capitalized terms used in this Plan document are defined in Section 6 of this Plan. This Plan document is also the Summary Plan Description for the Plan.

Section 2. Eligibility For Benefits.

(a) General Provisions. An Eligible Executive Officer will be eligible to receive Severance Benefits under this Plan in the event his employment with the Company is (a) terminated by the Company for a reason other than Cause or (b) voluntarily terminated by the Eligible Executive Officer for Good Reason within 60 days after the initial occurrence of the circumstances giving rise to Good Reason during the term of this Plan or within six months following any Change in Control that occurs during the term of this Plan. An Eligible Executive Officer will be eligible to receive Retention Benefits under this Plan if (1) the Eligible Executive Officer is employed by the Company upon the occurrence of any Change in Control that occurs during the term of this Plan or (2) his employment is terminated by the Company without Cause in connection with, and prior to, such Change in Control. Notwithstanding the foregoing, in the event a Board Composition Change occurs, an Eligible Executive Officer will be eligible to receive Retention Benefits under this Plan even if he is not so employed upon the occurrence of a Change in Control, as long as he was employed by the Company immediately prior to such Board Composition Change. In order to be eligible to receive Benefits under this Plan, an Eligible Executive Officer must execute a general waiver and release in the form attached as Exhibit A and such waiver and release must have become effective as specified in Section 4(c) prior to the payment of such Benefits.

(b) Exceptions. An Eligible Executive Officer will not be entitled to any Benefits if:

(1) His employment with the Company is terminated for Cause at any time.

(2) His employment is voluntarily terminated for a reason other than Good Reason or is terminated by reason of his death, retirement, failure to return from a leave of absence or disability.

(3) The Eligible Executive Officer is offered an identical or substantially equivalent or comparable position with the Company or an affiliate of the Company. For purposes of the foregoing, a “substantially equivalent or comparable position” is one that offers

the employee substantially the same level of responsibility and compensation: provided, however, that if any aspect of the new position would constitute Good Reason, the foregoing shall not preclude the Eligible Executive Officer from being entitled to Benefits under the Plan due to a termination for Good Reason.

(4) The Eligible Executive Officer is offered immediate reemployment by a successor to the Company or an affiliate of the Company or by a purchaser of its assets, as the case may be, following a change in ownership of the Company or an affiliate of the Company or a sale of substantially all the assets of a division or business unit of the Company or an affiliate of the Company: provided, however, that if any aspect of the new position would constitute Good Reason, the foregoing shall not preclude the Eligible Executive Officer from being entitled to Benefits under the Plan due to a termination for Good Reason. For purposes of the foregoing, “immediate reemployment” means that the Eligible Executive Officer ‘s employment with the successor to the Company or an affiliate of the Company or the purchaser of its assets, as the case may be, results in uninterrupted employment such that the Eligible Executive Officer does not suffer a lapse in pay as a result of the change in ownership of the Company or an affiliate of the Company or the sale of its assets.

Section 3. Amount Of Benefit.

(a) Retention Benefits. An Eligible Executive Officer’s Retention Benefit will be the acceleration of vesting of all stock options granted to the Eligible Executive Officer by the Company as provided in this Section 3(a). Upon a Change in Control, each such option automatically will become exercisable (without right of repurchase) for that number of shares equal to the number of shares that would be purchasable under the option (without right of repurchase) at the end of the period beginning upon such Change in Control and ending on the date specified in the following table if the Eligible Executive Officer were employed by the Company or its successor at the end of such period:


Title of Eligible Executive Officer
upon Change in Control		Acceleration Period
Edward A. Keible, Jr.		Greater of (a) 24 months and (b) 4 months for each full year of employment by the Company

John J. Mikulsky		Greater of (a) 18 months and (b) 3 months for each full year of employment by the Company

(b) Severance Benefits. An Eligible Executive Officer’s Severance Benefits will be the benefits set forth in paragraphs (1) through (3) below.

(1) The Company will provide a severance payment based on the Eligible Executive Officer’s base salary (and not commissions, bonuses or other variable pay) determined in accordance with the following table:


	Severance Payment Amount
	Termination Occurs in	Termination Occurs Prior to, and
Title of Eligible Executive Officer	Connection with, or Six Months	not in Connection with, a Change
upon Termination of Employment	after, a Change in Control	in Control
Edward A. Keible, Jr.	Greater of (a) 24 months and (b) 4 months for each full year of employment by the Company	Greater of (a) 12 months and (b) 2 months for each full year of employment by the Company

John J. Mikulsky	Greater of (a) 18 months and (b) 3 months for each full year of employment by the Company	Greater of (a) 9 months and (b) 1.5 months for each full year of employment by the Company

(2) If the Eligible Executive Officer is, immediately prior to termination of employment, enrolled in the Company’s health and/or dental plan and timely elects to continue coverage under such health or dental plan at the time of the Eligible Executive Officer’s termination of employment under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company will pay the COBRA premiums for such health and/or dental insurance coverage for the Eligible Executive Officer and his then-covered dependents for the period of time following termination of employment determined in accordance with the following table:


Title of Eligible Executive Officer
upon Termination of Employment		COBRA Benefits Period
Edward A. Keible, Jr.		Greater of (a) 12 months and (b) 2 months for each full year of employment by the Company

John J. Mikulsky		Greater of (a) 9 months and (b) 1.5 months for each full year of employment by the Company

No provision of this Plan will affect the continuation coverage rules under COBRA, except that the Company’s payment of any applicable premiums during the COBRA benefits period set forth in the foregoing table will be credited, except for purposes of COBRA premium assistance under the American Recovery and Reinvestment Act of 2009 (the “ARRA”), as payment by the Eligible Executive Officer for purposes of his or her payment required under COBRA. The period during which an Eligible Executive Officer must elect to continue the Company’s group medical or dental coverage at his or her own expense under COBRA, the length of time during which COBRA coverage will be made available to the Eligible Executive Officer, and all other rights and obligations of the Eligible Executive Officer under COBRA (except the obligations of the Company hereunder) will be applied in the same manner that such rules apply in the absence of this Plan. At the conclusion of the COBRA benefits period set forth in the foregoing table, the Eligible Executive Officer will be responsible for the entire payment of premiums required under COBRA for the remainder of the COBRA period, if any, except to the extent that the Eligible Executive Officer qualifies under the ARRA as an “assistance eligible individual” who is entitled to COBRA premium assistance without recapture. For purposes of this Section 3(b)(2), (i) references to COBRA shall be deemed to refer also to analogous provisions of state law and (ii) any applicable insurance premiums that are paid by the Company shall not include any amounts payable by an Eligible Executive Officer under an Internal Revenue Code Section 125 health care reimbursement plan, which amounts, if any, are the sole responsibility of the Eligible Executive Officer. All other benefits (such as life insurance and disability coverage) terminate as of the employee’s termination date, except to the extent that any conversion privilege is available thereunder.

(3) The acceleration of vesting of all stock options granted to the Eligible Executive Officer by the Company as provided below. Upon termination of employment, each such option automatically will become exercisable (without right of repurchase) for that number of shares equal to the number of shares that would be purchasable under the option (without right of repurchase) at the end of the period beginning upon termination of employment and ending on the date specified in the following table if the Eligible Executive Officer were employed by the Company or its successor at the end of such period:


Title of Eligible Executive Officer upon
Termination of Employment		Acceleration Period
Edward A. Keible, Jr.		Greater of (a) 24 months and (b) 4 months for each full year of employment by the Company

John J. Mikulsky		Greater of (a) 18 months and (b) 3 months for each full year of employment by the Company

In the event of a termination of employment in connection with, or within six months after, a Change in Control, the acceleration of vesting provided by this paragraph (3) is intended to be in addition to the acceleration of vesting that would have occurred upon the Change in Control pursuant to Section 3(a).

(c) Income Tax Liabilities and Withholding. All income tax liabilities with respect to payments under this Plan will be solely those of the affected Eligible Executive Officer and not the Company or any other party. The Company will have no obligation to structure Benefit payments or otherwise administer this Plan in a manner as to reduce or eliminate such liabilities. Payments under this Plan will be subject to withholdings and deductions as may be required by law.

(d) Certain Tax Provisions Affecting Amount of Payments. Anything in this Plan to the contrary notwithstanding, in the event it is determined that any payment by the Company to an Eligible Executive Officer hereunder (a “Payment”) would cause the Eligible Executive Officer to be liable for an excise tax pursuant to Section 4999 of the Code, then the aggregate present value of all amounts payable as Benefits shall be reduced to the Reduced Amount. The “Reduced Amount” will be an amount, expressed in present value, that maximizes the aggregate present value of Benefits without causing any Payment to create an excise tax liability under Section 4999 of the Code. For purposes of this Section 3(d), present value will be determined in accordance with Section 280G(d)(4) of the Code.

(e) Certain Reductions. The Company in its sole discretion, shall have the authority to reduce an Eligible Executive Officer’s Benefits, in whole or in part, by any other severance benefits, pay and benefits provided during a period following written notice of a plant closing or mass layoff, pay and benefits in lieu of such notice, or other similar benefits payable to the Eligible Executive Officer by the Company or an affiliate of the Company that become payable in connection with the Eligible Executive Officer’s termination of employment pursuant to (i) any applicable legal requirement, including without limitation, the Worker Adjustment and Retraining Notification Act, the California Plant Closing Act, or any other similar state law, (ii) a written employment or severance agreement with the Company, or (iii) any Company policy or practice providing for the Eligible Executive Officer to remain on the payroll for a limited period of time after being given notice of termination of the Eligible Executive Officer’s employment, and the Plan Administrator shall so construe and implement the terms of the Plan. Any such reductions that the Company determines to make pursuant to this Section 3(e) shall be made such that any Benefit under the Plan shall be reduced solely by any similar type of benefit under such legal requirement, agreement, policy or practice (i.e. any cash severance Benefits under the Plan shall be reduced solely by any cash payments or severance benefits under such legal requirement, agreement, policy or practice, and any continued insurance benefits under the Plan shall be reduced solely by an continued insurance benefits under such legal requirement, agreement, policy or practice). The Company’s decision to apply such reductions to the Benefits of one Eligible Executive Officer and the amount of such reductions shall in no way obligate the

Company to apply the same reductions in the same amounts to the Benefits of any other Eligible Executive Officer, even if similarly situated. In the Company’s sole discretion, such reductions may be applied on a retroactive basis, with severance Benefits previously paid being re-characterized as payments pursuant to the Company’s statutory obligation.

Section 4. Time Of Payment; Right of Offset.

(a) Time of Payment. Eligible Executive Officers will receive acceleration of vesting Benefits upon a Change in Control (in the case of Retention Benefits pursuant to Section 3(a)) or upon termination of employment (in the case of Severance Benefits pursuant to Sections 3(b)(3)). Subject to adjustment pursuant to this Section 4, severance payments pursuant to Section 3(b)(1) will be made in the form of equal installment payments on the Company’s regularly scheduled payroll payment dates. COBRA Benefit payments pursuant to Section 3(b)(2) will be made at times deemed appropriate by the Plan Administrator.

(b) Acceleration of Severance Payments. Notwithstanding the payment schedule set forth in Section 4(a), the timing of Severance payments may be accelerated in the following circumstances:

(1) Acceleration of Portion of In-Process Severance Payments upon a Change in Control. If an Eligible Executive Officer’s employment terminates prior to the effective date of a Change in Control and the Company has commenced to pay but has not yet completed paying all severance payments that would be made to the Eligible Executive Officer in accordance with the schedule set forth in Section 4(a) at the time a subsequent Change in Control occurs, then upon the effective date of such Change in Control the Company will pay the Exempted Amount (as defined below) to such Eligible Executive Officer in a lump sum.

(2) Acceleration of Portion of Severance Payments upon Termination of Employment after a Change in Control. If an Eligible Executive Officer’s employment terminates on or after the effective date of a Change in Control then upon the effective date of such termination of employment (subject, however, to the release described in Section 2(a) first becoming effective) the Company will pay the Exempted Amount (as defined below) to such Eligible Executive Officer in a lump sum upon termination of employment.

(3) Resumption of Installment Payments. The Company will pay the Remaining Amount, if any, according to the installment schedule set forth in Section 4(a), beginning at the time the Exempted Amount would have been paid in full if such amount were paid in accordance with the installment schedule set forth in Section 4(a).

(4) Definition of “Exempted Amount” and “Remaining Amount.” For the purposes of this Section 4(b):

(A) “Exempted Amount” means the lesser of (a) the total of all severance payments owed but not yet made to the Eligible Executive Officer on the effective date of a Change in Control (in the case of Section 4(b)(1)) or termination of employment (in the case of Section 4(b)(2)) and (b) the maximum amount of severance payments described in the last sentence of Section 4(c)(1). .

(B) “Remaining Amount” means the positive difference, if any, between (i) the total of all severance payments owed but not yet made to the Eligible Executive Officer on the effective date of a Change in Control (in the case of Section 4(b)(1)) or termination of employment (in the case of Section 4(b)(2)) and (ii) the Exempted Amount.

(1) Any Benefits provided under the Plan that constitute “deferred compensation” within the meaning of Section 409A of the Code and any state law of similar effect (collectively “Section 409A”) shall not commence in connection with an Eligible Executive Officer’s termination of employment unless and until the Eligible Executive Officer has also incurred a “separation from service” (as such term is defined in Treasury Regulations Section 1.409A-1(h) (“Separation from Service”), unless the Company reasonably determines that such amounts may be provided to the Eligible Executive Officer without causing the Eligible Executive Officer to incur the adverse personal tax consequences under Section 409A.

(2) (i) no Benefit payment will be made, and no Benefit will be effective, under this Plan prior to the last day of any waiting period or revocation period as required by applicable law in order for the general waiver and release required by Section 2(a) of this Plan to be effective, and (ii) if the Company determines that payments of any Benefits provided to an Eligible Executive Officer pursuant to the Plan (any such payments, the “Plan Payments”) constitute “deferred compensation” under Section 409A and if the Eligible Executive Officer is a “specified employee” of the Company, as such term is defined in Section 409A(a)(2)(B)(i) (a “Specified Employee”), then, solely to the extent necessary to avoid the adverse personal tax consequences under Section 409A, the timing of the Plan Payments will be delayed as follows: on the earliest to occur of (1) the date that is six (6) months and one (1) day after the date of the Eligible Executive Officer’s Separation From Service, and (2) the date of the Eligible Executive Officer’s death (such earliest date, the “Delayed Initial Payment Date”), the Company shall (A) pay the Eligible Executive Officer a lump sum amount equal to the sum of the Plan Payments that the Eligible Executive Officer would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the Plan Payments had not been delayed pursuant to this Section 4(a) and (B) commence paying the balance of the Plan Payments in accordance with the applicable payment schedule. Prior to the imposition of any delay on the Plan Payments as set forth above, it is intended that (i) each installment of the Plan Payments be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i), (ii) all Plan Payments satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) and 1.409A-1(b)(9)(iii), (iii) the Plan Payments consisting of COBRA premiums also satisfy, to the greatest extent possible, the exemption from the application of Section 409A provided under Treasury Regulations Section 1.409A-1(b)(9)(v), and (iv) the Exempted amount may be paid pursuant to Section 4(b).

(3) In no event shall payment of any Plan Payments under the Plan be made prior to an Eligible Executive Officer’s termination date or prior to the effective date of the release described in Section 2(a). If the Company determines that any Plan Payments constitute “deferred compensation” under Section 409A, and the Eligible Executive Officer’s Separation from Service occurs at a time during the calendar year when the release described in Section 2(a) could become effective in the calendar year following the calendar year in which the Eligible

Executive Officer’s Separation from Service occurs, then regardless of when the release is returned to the Company and becomes effective, the release will not be deemed effective any earlier than the latest permitted effective date (the “Release Deadline”). If the Company determines that any Plan Payments constitute “deferred compensation” under Section 409A, then except to the extent that payments may be delayed until the Delayed Initial Payment Date pursuant to Section 4(c)(2), on the first regular payroll date following the effective date of an Eligible Executive Officer’s release, the Company shall (A) pay the Eligible Executive Officer a lump sum amount equal to the sum of the Plan Payments that the Eligible Executive Officer would otherwise have received through such payroll date but for the delay in payment related to the effectiveness of the release and (B) commence paying the balance, if any, of the Plan Payments in accordance with the applicable payment schedule.

(d) Right of Offset. If an Eligible Executive Officer is indebted to the Company at the time any cash Benefits are payable, the Company reserves the right to offset any such Benefits under this Plan by the amount of such indebtedness.

Section 5. Right To Interpret, Amend and Terminate Plan; Other Arrangements; Binding Nature Of Plan.

(a) Exclusive Discretion. The Plan Administrator will have the exclusive discretion and authority (1) to establish rules, forms and procedures for the administration of this Plan, (2) to construe and interpret this Plan and (3) to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of this Plan including, but not limited to, the eligibility to participate in this Plan and the amount of Benefits paid under this Plan. Such rules, interpretations, computations and other actions of the Plan Administrator will be binding and conclusive on all persons.

(b) Term Of Plan; Amendment Or Termination; Binding Nature Of Plan.

(1) Subject to the provisions of Section 5(b)(2), this Plan will be effective until six months after the first Change in Control has occurred; provided, however, that the Company’s obligations to provide Benefits hereunder shall survive until all such Benefits have been paid.

(2) This Plan may not be amended without the written consent of the Plan Administrator and each Eligible Executive Officer affected by such amendment. This Plan will constitute a contractual right to the Benefits to which such Eligible Executive Officer is entitled hereunder, enforceable by the Eligible Executive Officer against the Company.

(3) Any action amending or terminating this Plan will be in writing and executed by an officer of the Company duly authorized by the Plan Administrator and any Eligible Executive Officers whose consent is required.

(c) Other Severance and Retention Arrangements. The Company reserves the right to make other arrangements regarding severance and retention benefits in special circumstances.

(d) Binding Effect On Successor To Company. This Plan will be binding upon any successor to or assignee of the Company or its business or assets, whether direct or indirect, by

Change in Control or otherwise. Any such successor or assignee will be required to perform the Company’s obligations under this Plan. In such event, the term “Company,” as used in this Plan, will mean the Company as hereinafter defined and any successor or assignee as described above which by reason hereof becomes bound by the terms and provisions of this Plan.

Section 6. Definitions.

Capitalized terms used in this Plan have the following meanings:

(a) Benefits means Retention Benefits and Severance Benefits.

(b) Board Composition Change means the occurrence of a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the two-year period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the stockholders of the Company was approved by a vote of a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office.

(c) Cause means misconduct, including but not limited to: (1) conviction of any felony or any crime involving moral turpitude or dishonesty; (2) participation in a fraud or act of dishonesty against the Company; (3) any conduct that, based upon a good faith and reasonable factual investigation and determination by the Company’s Board of Directors, demonstrates a gross unfitness to serve; (4) any conduct that, based upon a good faith and reasonable factual investigation and determination by the Company’s Board of Directors, consists of willful and repetitive acts having the effect of injuring the business or reputation of the Company or any of its affiliates; or (5) intentional, material violation of any contract between the Company and an Eligible Executive Officer or any statutory duty owed by an Eligible Executive Officer to the Company that is not corrected within 30 days after written notice to the Eligible Executive Officer. A physical or mental disability will not constitute “Cause.”

(d) Change in Control means any of the following:

(1) a merger or consolidation of the Company after which the Company’s stockholders immediately prior to the merger or consolidation do not have beneficial ownership of at least 50% of the outstanding voting securities of the new or continuing entity or its parent entity (taking into account only such stockholders’ ownership of the Company prior to such merger or consolidation and not any other ownership of the new or continuing entity or its parent entity);

(2) a transaction or series of related transactions to which the Company is a party and in which a majority of the outstanding shares of the Company’s capital stock are sold, exchanged or otherwise disposed of, after which the Company’s stockholders immediately prior to the first of such transactions do not have beneficial ownership of at least 50% of the outstanding voting securities of the Company or of the entity for which shares of the Company’s capital stock were exchanged (in either such case, taking into account only such stockholders’ ownership of the Company prior to the time such transaction or transactions commenced and not

any other ownership of any entity for which shares of the Company’s capital stock were exchanged); and

(3) a transaction or series of related transactions in which the Company sells, licenses or otherwise transfers for value all or substantially all of its assets to a single purchaser or group of associated purchasers.

(e) Code means the Internal Revenue Code of 1986, as may be amended from time to time, and the regulations and other applicable guidance promulgated thereunder.

(f) Company means Endwave Corporation, a Delaware corporation, and any successor as provided in Section 5(d) of this Plan.

(g) Eligible Executive Officer means Edward A. Keible, Jr. and John J. Mikulsky.

(h) Good Reason means, with respect to an Eligible Executive Officer:

(1) a material reduction in the Eligible Executive Officer’s rate of compensation (base salary and bonus target), except a reduction applicable proportionally to all Eligible Executive Officers;

(2) a substantial diminution in the Eligible Executive Officer’s job responsibilities and authority (but not merely title) with respect to the Company;

(3) a requirement that the Eligible Executive Officer relocate to a worksite that is more than 50 miles from his prior worksite; or

(4) a material breach by the Company or any successor to the Company of any material provisions of this Plan, including, but not limited to, the failure or refusal of any successor to the Company to assume the Company’s obligations under this Plan pursuant to Section 5(d).

In order to terminate employment for Good Reason, (i) the Eligible Executive Officer must provide written notice to the Company of the occurrence of one or more of the foregoing events within 30 days following the initial occurrence of the event, and (ii) the Company shall not be required to provide any Benefits under the Plan if it is able to remedy such event(s) within a period of 30 days following such notice.

(i) Payment has the meaning given to such term in Section 3(d) of this Plan.

(j) Plan means this Endwave Corporation Senior Executive Officer Severance and Retention Plan.

(k) Plan Administrator means the Compensation Committee of the Board of Directors of the Company.

(l) Plan Sponsor means the Company as “Plan Sponsor” within the meaning of ERISA.

(m) Reduced Amount has the meaning given to such term in Section 3(d) of this Plan.

(n) Retention Benefits means the benefits calculated pursuant to Section 3(a) of this Plan.

(o) Severance Benefits means the benefits calculated pursuant to Section 3(b) of this Plan.

Section 7. No Implied Employment Contract.

This Plan does not give any employee or other person any right to be retained in the employ of the Company. The Company’s right to discharge any employee or other person at any time and for any reason is hereby reserved.

Section 8. Legal Construction.

This Plan is intended to be governed by and will be construed in accordance with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and, to the extent not preempted by ERISA, the laws of the State of California.

Section 9. Claims, Inquiries And Appeals.

(a) Applications For Benefits And Inquiries. Any application for Benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing by an applicant (or his authorized representative) at the following address. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan.

Endwave Corporation
Attn: Plan Administrator for the
Executive Officer Severance and Retention Plan
130 Baytech Drive
San Jose, CA 95134

(b) Denial Of Claims. In the event that any application for Benefits is denied in whole or in part, the Plan Administrator must provide the applicant with written or electronic notice of the denial of the application, and of the applicant’s right to review the denial. Any electronic notice will comply with the regulations of the U.S. Department of Labor. The notice of denial will be set forth in a manner designed to be understood by the applicant and will include the following: (i) the specific reason or reasons for the denial; (ii) references to the specific Plan provisions upon which the denial is based; (iii) a description of any additional information or material that the Plan Administrator needs to complete the review and an explanation of why such information or material is necessary; and (iv) an explanation of the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the applicant’s right to bring a civil action under Section 502(a) of ERISA following a denial on review of the claim, as described in Section 9(d) below. This notice of denial will be given to the applicant within 90 days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional 90 days for processing the application. If an extension of time for processing is

10.

required, written notice of the extension will be furnished to the applicant before the end of the initial 90-day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application.

(c) Request For A Review. Any person (or that person’s authorized representative) for whom an application for Benefits is denied, in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within 60 days after the application is denied. A request for a review shall be in writing and shall be addressed to:

Endwave Corporation
Attn: Plan Administrator for the
Executive Officer Severance and Retention Plan
130 Baytech Drive
San Jose, CA 95134

A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the applicant feels are pertinent. The applicant (or his representative) shall have the opportunity to submit (or the Plan Administrator may require the applicant to submit) written comments, documents, records, and other information relating to his claim. The applicant (or his representative) shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his claim. The review shall take into account all comments, documents, records and other information submitted by the applicant (or his representative) relating to the claim, without regard to whether such information was submitted or considered in the initial Benefit determination.

(d) Decision On Review. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the applicant within the initial sixty (60) day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the review. The Plan Administrator will give prompt, written or electronic notice of its decision to the applicant. Any electronic notice will comply with the regulations of the U.S. Department of Labor. In the event that the Plan Administrator confirms the denial of the application for Benefits in whole or in part, the notice will set forth, in a manner calculated to be understood by the applicant, the following: (i) the specific reason or reasons for the denial; (ii) references to the specific Plan provisions upon which the denial is based; (iii) a statement that the applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to his claim; and (iv) a statement of the applicant’s right to bring a civil action under Section 502(a) of ERISA.

(e) Rules And Procedures. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing Benefit claims. The Plan Administrator may require an applicant who wishes to submit additional information in connection with an appeal from the denial of Benefits to do so at the applicant’s own expense.

11.

(f) Exhaustion Of Remedies. No legal action for Benefits under the Plan may be brought until the applicant (i) has submitted a written application for Benefits in accordance with the procedures described by Section 9(a) above, (ii) has been notified by the Plan Administrator that the application is denied, (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 9(c) above, and (iv) has been notified that the Plan Administrator has denied the appeal. Notwithstanding the foregoing, if the Plan Administrator does not respond to an applicant’s claim or appeal within the relevant time limits specified in this Section 9, the applicant may bring legal action for Benefits under the Plan pursuant to Section 502(a) of ERISA.

Section 10. Basis Of Payments To And From Plan.

All Benefits under the Plan will be paid by the Company. The Plan will be unfunded, and Benefits hereunder will be paid only from the general assets of the Company.

Section 11. Other Plan Information.

(a) Employer And Plan Identification Numbers. The Employer Identification Number assigned to the Company (which is the “Plan Sponsor” as that term is used in ERISA) by the Internal Revenue Service is 95-4333817. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 515.

(b) Ending Date For Plan’s Fiscal Year. The date of the end of the fiscal year for the purpose of maintaining the Plan’s records is December 31.

(c) Agent For The Service Of Legal Process. The agent for the service of legal process with respect to the Plan is the Chairman of the Compensation Committee, Endwave Corporation, 130 Baytech Drive, San Jose, CA 95134.

Section 12. Statement Of Erisa Rights.

Participants in this Plan (which is a welfare benefit plan sponsored by Endwave Corporation) are entitled to certain rights and protections under ERISA. Each Eligible Executive Officer is considered a participant in the Plan and, under ERISA, is entitled to:

(a) Receive Information About the Plan and Benefits.

(1) Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as worksites, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series), if applicable, filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration;

(2) Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 Series), if applicable, and an updated (as necessary) Summary Plan Description. The Plan Administrator may make a reasonable charge for the copies; and

12.

(3) Receive a summary of the Plan’s annual financial report, if applicable. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report.

(b) Prudent Actions by Plan Fiduciaries. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of Plan participants and beneficiaries. No one, including the employer of the participants or any other person, may fire a participant or otherwise discriminate against participants in any way to prevent a participant from obtaining a Plan Benefit or exercising his rights under ERISA.

(c) Enforce Participant Rights. If a participant’s claim for a Plan Benefit is denied or ignored, in whole or in part, the participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.

Under ERISA, there are steps a participant can take to enforce the above rights. For instance, if a participant requests a copy of Plan documents or the latest annual report from the Plan, if applicable, and does not receive them within thirty (30) days, he may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the participant up to $110 a day until he receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator.

If a participant has a claim for Benefits that is denied or ignored, in whole or in part, he may file suit in a state or Federal court.

If a participant is discriminated against for asserting his rights, the participant may seek assistance from the U.S. Department of Labor, or he may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If the participant is successful, the court may order the person the participant has sued to pay these costs and fees. If the participant loses, the court may order the participant to pay these costs and fees, for example, if it finds his claim is frivolous.

(d) Assistance with Questions. If a participant has any questions about the Plan, the participant should contact the Plan Administrator. If a participant has any questions about this statement or about his rights under ERISA, or if a participant needs assistance in obtaining documents from the Plan Administrator, the participant should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. Participants may also obtain certain publications about their rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

13.

Section 13. Execution.

To record the amendment and restatement of the Plan as set forth herein, the Company has caused its duly authorized officer to execute the same this ___ day of ___, 2009.


	Endwave Corporation
	By:	/s/ Edward A. Keible, Jr.
		Edward A. Keible, Jr.
		Chief Executive Officer

Exhibit A

RELEASE AGREEMENT

I understand and agree completely to the terms set forth in the Endwave Corporation Executive Officer Severance and Retention Plan (the “Plan”).

I understand that this Release Agreement, together with the Plan, constitutes the complete, final and exclusive embodiment of the entire agreement between Endwave Corporation (the “Company”) and me with regard to the subject matter hereof. I am not relying on any promise or representation by the Company that is not expressly stated therein. Certain capitalized terms used in this Release Agreement are defined in the Plan.

I hereby acknowledge my continuing obligations not to use or disclose confidential or proprietary information of the Company without prior written authorization from a duly authorized representative of the Company.

Except as otherwise set forth in this Release Agreement, in consideration of the benefits I will receive under the Plan that I am not otherwise entitled to receive, I hereby generally and completely release the Company and its parents, subsidiaries, successors, predecessors and affiliates, and its and their partners, members, current and former directors, officers, employees, stockholders, shareholders, agents, attorneys, predecessors, insurers, affiliates and assigns, from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to and including the date I sign this Release Agreement. This general release includes, but is not limited to: (a) all claims arising out of or in any way related to my employment with the Company or the termination of that employment; (b) all claims related to my compensation or benefits from the Company, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, or any other ownership interests in the Company; (c) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (d) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (e) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990 (as amended), the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974 (as amended), the federal Family and Medical Leave Act, and the California Fair Employment and Housing Act (as amended).

I understand that I am not releasing any claim that cannot be waived under applicable state or federal law. I am not releasing any rights that I have to be indemnified (including any right to reimbursement of expenses) arising under applicable law, the certificate of incorporation or by-laws (or similar constituent documents of the Company), any indemnification agreement between me and the Company, or any directors’ and officers’ liability insurance policy of the Company. Nothing in this Agreement shall prevent me from filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, or the California Department of Fair Employment and Housing, except

that I hereby acknowledge and agree that I shall not recover any monetary benefits in connection with any such proceeding with regard to any claim released in this Agreement. Nothing in this Agreement shall prevent me from challenging the validity of the release in a legal or administrative proceeding.

I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA, and that the consideration given under the Plan for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Release Agreement; (b) I should consult with an attorney prior to signing this Release Agreement (although I may choose voluntarily not to do so); (c) I have 21 [or 45, if more than one employee is terminated; also needs disclosure form] days to consider this Release Agreement (although I may choose voluntarily to sign this Release Agreement earlier); (d) I have seven days following the date I sign this Release Agreement to revoke the Release Agreement by providing written notice to an office of the Company; and (e) this Release Agreement shall not be effective until the date upon which the revocation period has expired unexercised, which shall be the eighth day after I sign this Release Agreement.

In giving the release herein, which includes claims which may be unknown to me at present, I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any unknown or unsuspected claims hereunder.

I hereby represent that I have been paid all compensation owed and for all hours worked, have received all the leave and leave benefits and protections for which I am eligible, pursuant to the Family and Medical Leave Act or otherwise, and have not suffered any on-the-job injury for which I have not already filed a claim.


		Employee Name (print):




		Signature:


		Date:

EX-31.1 5 f53332exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

CERTIFICATION

I, Edward A. Keible, Jr., certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 of Endwave Corporation;

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 with respect to the period covered by this report;

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;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(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;

(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;

(c)		Evaluated the effectiveness of the registrant’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

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant’s internal control over financial reporting; and

5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2009


		/s/ Edward A. Keible, Jr.

		Edward A. Keible, Jr.
		Vice Chairman and
		Chief Executive Officer
		(Principal Executive Officer)

EX-31.2 6 f53332exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

CERTIFICATION

I, Curt P. Sacks, certify that:

1.		I have reviewed this Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 of Endwave Corporation;

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 with respect to the period covered by this report;

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;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

(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;

(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;

(c)		Evaluated the effectiveness of the registrant’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

(d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant’s internal control over financial reporting; and

5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2009


		/s/ Curt P. Sacks

		Curt P. Sacks
		Chief Financial Officer and Senior Vice President
		(Principal Financial and Accounting Officer)

EX-32.1 7 f53332exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted), Edward A. Keible, Jr., Chief Executive Officer of Endwave Corporation (the “Company”), and Curt P. Sacks, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2009, to which this Certification is attached as Exhibit 32.1 (the “Quarterly Report”) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In Witness Whereof, the undersigned have set their hands hereto as of the 14th day of August, 2009.


/s/ EDWARD A. KEIBLE, JR.		/s/ CURT P. SACKS

Edward A. Keible, Jr.		Curt P. Sacks
Chief Executive Officer		Chief Financial Officer

This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Endwave Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing irrespective of any general incorporation language contained in such filing.

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