TomoTherapy Inc

For the three months ended March 31, 2011, the Company recorded income tax expense resulting in an effective income tax rate of (9.7)%. The effective tax rate differed significantly from the statutory rate primarily due to maintaining a valuation allowance for deferred tax assets that are not more-likely-than-not to be realized and recording disproportionate tax expense of $0.7 million that, as of the end of the prior year, related to the available for sale component of accumulated other comprehensive income. The disproportionate tax expense was not recognized in income prior to the current period as a result of the Company’s policy of clearing disproportionate tax effects from accumulated other comprehensive income when the related component ceases to exist. Due to a complete liquidation of its short-term investment portfolio in the current period, the related disproportionate tax effect was recognized in income. For the three months ended March 31, 2010, the Company recorded income tax benefit resulting in an effective income tax rate of 0.7%. There were no material changes in unrecognized tax benefits during the three months ended March 31, 2011, nor does the Company anticipate a material change in total unrecognized tax benefits within the next 12 months.

On or about March 11, 2011, an alleged Tomo shareholder, Andrew M. Storch, filed a purported class action complaint on behalf of himself and all other similarly situated Tomo shareholders in the Circuit Court of Dane County, Wisconsin, captioned Storch v. TomoTherapy Incorporated, et al., Case No. 11 CV 1183. The lawsuit relates to the Agreement and Plan of Merger, dated as of March 6, 2011, among Tomo, Accuray Incorporated, a Delaware corporation (Accuray), and Jaguar Acquisition, Inc., a Wisconsin corporation (Merger Sub), and names as defendants Tomo and certain directors and officers of Tomo (which, together with Tomo, we refer to as the TomoTherapy defendants). Thereafter, four more alleged Tomo shareholders filed complaints in the same court on behalf of the same purported class and against the same defendants, under the following captions: Janz v. TomoTherapy Incorporated, et al., Case No. 11 CV 1184 (filed on March 11, 2011); Haselwander v. TomoTherapy Incorporated, et al., Case No. 11 CV 1189 (filed on March 14, 2011); Reiter v. TomoTherapy Incorporated, et al., Case No. 11 CV 1203 (filed on March 15, 2011); and Shuen v. TomoTherapy Incorporated, et al., Case No. 11 CV 1208 (filed on March 15, 2011). The Reiter and the Shuen complaints also named Accuray and Merger Sub as defendants (collectively, the Accuray defendants).

On April 4, 2011, all five actions were consolidated under the caption In re TomoTherapy Incorporated Shareholder Litigation, Lead Case No. 11 CV 1183. Plaintiffs have moved to dismiss Accuray as a defendant from the consolidated action. On April 18, 2011, plaintiffs filed a consolidated complaint, which alleges, among other things, that Tomo’s directors breached their fiduciary duties in connection with the negotiation, consideration and approval of the merger agreement between Tomo and Accuray by, among other things, conducting a flawed sales process and agreeing to sell Tomo for inadequate consideration and on otherwise inappropriate terms. The complaint also alleges that the defendants filed with the SEC a Form S-4 Registration Statement that misstates or omits material information regarding the proposed transaction. The complaint further alleges that Tomo aided and abetted the alleged breaches of fiduciary duty by Tomo’s directors. Based on these allegations, the consolidated complaint seeks equitable relief, including an injunction of the merger, and costs and expenses of the litigation, including attorneys’ fees.

The TomoTherapy defendants filed a motion to dismiss the consolidated complaint on April 25, 2011. A hearing on the motion to dismiss is scheduled to be held on May 12, 2011. Based on the facts known to date, the TomoTherapy defendants consider the claims asserted to be without merit and intend to vigorously defend against them.

The announcement and pending nature of the Merger Agreement could cause disruptions in our business, including by adversely affecting our relationships with customers, suppliers and employees and diverting the attention of our management. For example, our employees may experience uncertainty about their future role with us or Accuray, and this may adversely affect our ability to attract and retain key personnel. In addition, potential customers may hesitate to buy our treatment systems, and our distributors may hesitate to sell our treatment systems, due to uncertainty as to whether or not the Merger will be completed and how we will be operated by Accuray following the Merger. Any such disruptions could have a material adverse effect on our business, financial condition and results of operations. Further, the Merger Agreement includes certain restrictions on our freedom to operate our business prior to the completion of the Merger, which could have a material adverse effect on our ability to take certain actions and pursue certain opportunities that we might otherwise view as advisable.

Further, non-completion of the transaction may result in negative publicity and a negative impression of TomoTherapy in the investment community. If the Merger Agreement is terminated and our Board of Directors determines to seek another merger or business combination, it may not be able to find a party willing to pay an equivalent or more attractive price than that which would have been paid in the Merger. Finally, any disruptions to our business resulting from the announcement and pending nature of the Merger, including any adverse changes in our relationships with customers, suppliers and employees, could continue or accelerate in the event of a failed transaction. There can be no assurance that, if the Merger is not completed, these relationships, our business, financial condition and results of operations will not be adversely affected in a material way, as compared to the condition prior to the announcement of the Merger.