Mercury Computer Systems (MRCY)

Q. Employee Benefit Plan

The Company maintains a qualified 401(k) plan (the “401(k) Plan) for it’s U.S. employees. The 401(k) Plan covers U.S. employees who have attained the age of 21. Employee contributions to the 401(k) Plan may range from 1% to 15% of eligible compensation. During fiscal years 2006, 2005 and 2004, the Company matched employee contributions up to 3% of eligible compensation. The Company may also make optional contributions to the plan for any plan year at its discretion. Expense recognized by the Company for matching contributions related to the 401(k) plan was $1,963, $1,789 and $736 during the years ended June 30, 2006, 2005 and 2004, respectively.

The Company also maintains a non-qualified benefit plan (the “Pension Plan”) for its French employees. The Pension Plan covers all full-time French employees and the benefits provided by the Pension Plan are

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generally based on years of service and compensation history. This plan is unfunded. As of June 30, 2006 and 2005, the unfunded liability of the Pension Plan was $418 and $316, respectively which is recorded as accrued compensation in the consolidated balance sheet.

The Company has a deferred compensation plan that allows eligible employees to defer up to 35% of their total compensation. The employee may elect to receive his or her account balance as a lump sum payment or as an annuity to be paid over a period not to exceed 10 years beginning upon retirement or termination of employment. At June 30, 2006 and 2005, the Company had a liability of $1,563 and $1,281, respectively, relating to amounts owed under the deferred compensation plan that were classified as long-term liabilities in the consolidated balance sheet and had an asset of $1,306 and $1,136, respectively, classified as other non-current assets in the consolidated balance sheet. Increases or decreases in the value of the deferred compensation plan assets are recorded as selling, general and administrative expense in the consolidated statement of operations, while increases or decreases in the value of the deferred compensation plan liabilities are recorded as other income (expense).

M.    Employee Benefit Plan

The Company maintains a qualified 401(k) plan. The 401(k) plan covers employees who have attained the age of 21. Employee contributions to the 401(k) Plan may range from 1% to 15% of eligible compensation. During fiscal years 2005, 2004 and 2003, the Company matched employee contributions up to 3% of eligible compensation. The Company may also make optional contributions to the plan for any plan year at its discretion. Expense recognized by the Company for matching contributions related to the 401(k) plan was $1,789, $736 and $1,396 during the years ended June 30, 2005, 2004 and 2003, respectively.

The Company has a deferred compensation plan that allows eligible employees to defer up to 35% of their total compensation. The employee may elect to receive his or her account balance as a lump sum payment or as an annuity to be paid over a period not to exceed 10 years beginning upon retirement or termination of employment. At June 30, 2005 and 2004, the Company had a liability of $1,281 and $1,122, respectively, relating to amounts owed under the deferred compensation plan that were classified as long-term liabilities in the consolidated balance sheet.