AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

by and among:

C ISCO S YSTEMS , I NC .,

a California corporation;

W ONDER A CQUISITION C ORP .,

a Delaware corporation; and

W EB E X C OMMUNICATIONS , I NC .,

a Delaware corporation

 

Dated as of March 15, 2007

 

 

TABLE OF CONTENTS

 

 

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TABLE OF CONTENTS

(continued)

 

 

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TABLE OF CONTENTS

(continued)

 

 

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Defined Terms Index

 

AGREEMENT AND PLAN

OF MERGER

T HIS A GREEMENT AND P LAN OF M ERGER (“Agreement”) is made and entered into as of March 15, 2007, by and among: Cisco Systems, Inc., a California corporation (“ Parent ”); Wonder Acquisition Corp., a Delaware corporation and a wholly owned subsidiary of Parent (“ Acquisition Sub ”); and WebEx Communications, Inc., a Delaware corporation (the “ Company ”). Certain capitalized terms used in this Agreement are defined in Exhibit A.

R ECITAL

The respective Boards of Directors of Parent, Acquisition Sub and the Company have approved the acquisition by Parent of the Company upon the terms and subject to the conditions set forth in this Agreement.

Concurrently with the execution and delivery of this Agreement, a stockholder of the Company is executing and delivering to Parent a voting and tender agreement.

A GREEMENT

The parties to this Agreement, intending to be legally bound, agree as follows:

SECTION 1. THE OFFER

1.1 Tender Offer .

(a) Unless this Agreement shall have previously been terminated in accordance with Section 7, as promptly as practicable, but in any event within ten business days after the date of this Agreement, Acquisition Sub shall, and Parent shall cause Acquisition Sub to, commence (within the meaning of Rule 14d-2 under the Exchange Act) a tender offer (the “ Offer ”) for all of the outstanding Company Shares, at a price of $57.00 per share, net to the seller in cash, without interest.

(b) As promptly as practicable on the later of (i) the earliest date as of which Acquisition Sub is permitted under applicable Law to accept for payment and pay for Company Shares tendered pursuant to the Offer, and (ii) the earliest date as of which each of the conditions set forth in Annex I (the “ Offer Conditions ”) shall have been satisfied or waived, Acquisition Sub shall accept for payment, purchase and pay for all Company Shares tendered pursuant to the Offer (and not validly withdrawn). The obligation of Acquisition Sub to accept for payment, purchase and pay for Company Shares tendered pursuant to the Offer shall be subject only to the satisfaction or waiver, by Parent and Acquisition Sub, of each of the Offer Conditions (and shall not be subject to any other conditions).

(c) Notwithstanding anything to the contrary contained in this Agreement, neither Parent nor Acquisition Sub shall (without the prior written consent of the Company): (i) change or waive the Minimum Condition (as defined in Annex I); (ii) reduce the number of

 

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Company Shares subject to the Offer; (iii) reduce the price per share to be paid pursuant to the Offer; (iv) extend or otherwise change the expiration date of the Offer (except to the extent required or permitted pursuant to Section 1.1(d)); (v) change the form of consideration payable in the Offer; or (vi) amend, modify or add to the Offer Conditions, or amend, modify or supplement any of the other terms of the Offer in any manner adversely affecting any of the holders of Company Shares.

(d) Unless extended as provided in this Agreement, the Offer shall expire on the date (the “ Initial Expiration Date ”) that is 20 business days after the commencement of the Offer (determined pursuant to Rule 14d-1(g)(3) under the Exchange Act). If any of the Offer Conditions has not been satisfied or waived by the Initial Expiration Date and this Agreement shall not have previously been terminated in accordance with Section 7, then Acquisition Sub shall, and Parent shall cause Acquisition Sub to, extend (and re-extend) the Offer and its expiration date beyond the Initial Expiration Date for one or more consecutive increments of not more than 10 business days each; provided, Acquisition Sub shall not be required to extend the Offer beyond the End Date. The Offer may not be terminated prior to its expiration date (as such expiration date may be extended and re-extended in accordance with this Agreement), except in accordance with Section 7.

(e) Acquisition Sub and Parent may make available a “subsequent offering period” in accordance with Rule 14d–11 under the Exchange Act. For the sake of clarity and unless the context otherwise clearly requires, the term “Offer” as used in this Agreement shall not include any “subsequent offering period” made available by Parent and Acquisition Sub in accordance with Rule 14d–11 under the Exchange Act.

(f) The Company hereby grants to Acquisition Sub an option (the “ Top-Up Option ”), exercisable only on the terms and conditions set forth in this Section 1.1(f), to purchase at a price per share equal to the price paid to any holder of Company Shares in the Offer, up to that number of newly issued Company Shares (the “ Top-Up Shares ”) equal to the lowest number of Company Shares that, when added to the number of Company Shares directly or indirectly owned by Parent at the time of exercise of the Top-Up Option shall constitute one share more than 90% of the Company Shares outstanding immediately after the issuance of the Top-Up Shares; provided, however, that the Top-Up Option shall not be exercisable for a number of Company Shares in excess of the number of Company Shares authorized and unissued at the time of exercise of the Top-Up Option. The Top-Up Option shall be exercisable only once at any time prior to the earlier of the Effective Time and the termination of this Agreement in accordance with its terms, and only at such time as Parent and Acquisition Sub, directly or indirectly, own at least 80% of the outstanding Company Shares (determined on a fully diluted basis but disregarding any unvested stock options and other unvested rights to acquire Company Shares that will not have vested at any time prior to the End Date (assuming that all applicable vesting conditions are satisfied and after giving effect to any acceleration of vesting that may occur as a result of the Offer)). The obligation of the Company to issue and deliver the Top-Up Shares upon the exercise of the Top-Up Option is subject to the condition that no legal restraint that has the effect of preventing the exercise of the Top-Up Option or the issuance and delivery of the Top-Up Shares in respect of such exercise shall be in effect. The parties shall cooperate to ensure that the issuance and delivery of the Top-Up Shares comply with all applicable Laws,

 

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including compliance with an applicable exemption from registration of the Top-Up Shares under the Securities Act. In the event Acquisition Sub wishes to exercise the Top-Up Option, Acquisition Sub shall give the Company two business days’ prior written notice, specifying (i) the number of Company Shares directly or indirectly owned by Parent at the time of such notice, (ii) the number of Company Shares that Acquisition Sub intends to purchase pursuant to the Top-Up Option and (iii) a place and a time for the closing of such purchase. The Company shall, as soon as practicable following receipt of such notice, deliver written notice to Acquisition Sub specifying, based on the information provided by Acquisition Sub in its notice, the number of Top-Up Shares. At the closing of the purchase of Top-Up Shares, the purchase price owed by Acquisition Sub to the Company therefor shall be paid to the Company in cash, by wire transfer or cashier’s check, against delivery to Acquisition Sub of a stock certificate in its name (or the name of its nominee) for the Top-Up Shares.

1.2 Actions of Parent and Acquisition Sub .

(a) As promptly as practicable, but in any event within ten business days after the date of this Agreement, Parent and Acquisition Sub shall file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (such Tender Offer Statement, as it may be amended from time to time, being referred to herein as the “ Schedule TO ”), which shall contain an offer to purchase and a related letter of transmittal and other documents relating to the Offer (the Schedule TO and such offer to purchase, letter of transmittal and other documents, together with any supplements or amendments thereto, being referred to collectively as the “ Offer Documents ”). Prior to the filing of the Offer Documents (including any amendment or supplement thereto) with the SEC or dissemination thereof to the stockholders of the Company, or responding to any comments of the SEC with respect to the Offer Documents, Parent and Acquisition Sub shall provide the Company and its counsel a reasonable opportunity to review and comment on such Offer Documents or response (including the proposed final version thereof), and Parent and Acquisition Sub shall give reasonable and good faith consideration to any comments made by Company or its counsel.

(b) Each of Parent, Acquisition Sub and the Company shall (to the extent required by applicable federal securities Laws): (i) promptly correct any information provided by it for use in the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect; and (ii) take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Company Shares. Parent and Acquisition Sub shall promptly provide the Company and its counsel with a copy of any written comments and a written summary of any oral comments received by Parent or Acquisition Sub, or by counsel for Parent or Acquisition Sub, from the SEC or its staff with respect to the Offer Documents.

(c) Parent shall provide or cause to be provided to Acquisition Sub all of the funds necessary to purchase any Company Shares that Acquisition Sub becomes obligated to purchase pursuant to the Offer. Prior to the closing of the Offer, Parent (after consultation with and reasonable approval of the Company) shall select a reputable bank or trust company to act as paying agent for the Offer.

 

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1.3 Actions of the Company .

(a) On the date of the commencement of the Offer, the Company shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the Offer (such Solicitation/Recommendation Statement, as it may be amended from time to time, being referred to herein as the “ Schedule 14D-9 ”) and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 under the Exchange Act. Subject to Section 5.2(d), the Schedule 14D-9 shall contain a recommendation by the Company’s Board of Directors (the “ Company Board ”) that the Company’s stockholders accept the Offer, tender their Company Shares pursuant to the Offer and, if required by applicable Law, adopt this Agreement. Prior to the filing of the Schedule 14D-9 (including any amendment or supplement thereto) with the SEC or mailing thereof to the stockholders of the Company, or responding to any comments of the SEC with respect to the Schedule 14D-9, the Company shall provide Parent a reasonable opportunity to review and comment on such Schedule 14D-9 or response (including the proposed final version thereof), and the Company shall give reasonable and good faith consideration to any comments made by Parent. The Company shall cooperate with Parent in mailing or otherwise disseminating the Schedule 14D-9 with the appropriate Offer Documents to the Company’s stockholders.

(b) Each of the Company, Parent and Acquisition Sub shall (to the extent required by applicable federal securities Laws): (i) promptly correct any information provided by it for use in the Schedule 14D-9 if and to the extent that such information shall have become false or misleading in any material respect; and (ii) take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to the holders of Company Shares. The Company shall promptly provide Parent and Acquisition Sub and their counsel with a copy of any written comments and a written summary of any oral comments received by the Company or its counsel from the SEC or its staff with respect to the Schedule 14D-9.

(c) In connection with the Offer, the Company shall cause its transfer agent to furnish to Acquisition Sub a list, as of a recent date, of the record holders of Company Shares and their addresses, as well as mailing labels containing such names and addresses. The Company will furnish Acquisition Sub with such additional information (including any security position listings in the Company’s possession) and assistance as Acquisition Sub may reasonably request for purposes of communicating the Offer to the record and beneficial holders of Company Shares. All information furnished in accordance with this Section 1.3(c) shall be held in confidence by Parent and Acquisition Sub in accordance with the requirements of the confidentiality agreement, dated March 4, 2007, between Parent and the Company (the “ Confidentiality Agreement ”), and shall be used by Parent and Acquisition Sub only in connection with the Offer and the Merger.

1.4 Board of Directors .

(a) If requested by Parent, following the purchase by Acquisition Sub pursuant to the Offer of a number of Company Shares equal to or greater than the Minimum Condition, the Company will, subject to compliance with applicable Laws, use reasonable efforts to take all actions necessary to cause persons designated by Parent to become directors of the

 

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Company so that the total number of such persons equals that number of directors, rounded up to the next whole number, which represents the product of (x) the total number of directors on the Company Board multiplied by (y) the percentage that the number of Company Shares so purchased by Acquisition Sub pursuant to the Offer bears to the total number of Company Shares outstanding at the time Acquisition Sub purchases Company Shares pursuant to the Offer; provided, however , that in no event shall Parent be entitled to designate a majority of the Company Board unless it is the beneficial owner of Company Shares entitling it to exercise at least a majority of the voting power of the outstanding Company Shares. The Company will use its reasonable efforts to secure the resignation of directors, and, in the event such resignations are not secured, the Company shall increase the size of the Company Board, in each case to the extent necessary to permit Parent’s designees to be elected to the Company Board in accordance with this Section 1.4(a); provided, however , that prior to the Effective Time, the Company Board shall always have at least three Continuing Directors.

(b) In connection with the election or appointment of Parent’s designees under Section 1.4(a), the Company shall take all actions required to be taken by the Company pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder and shall include in the Schedule 14D-9 (or in a separate statement) the information required to be provided by the Company pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder. Parent shall supply to the Company in writing, and shall be solely responsible for, all information required pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 thereunder with respect to Parent and Acquisition Sub and their respective officers, directors and Affiliates and with respect to the persons designated by Parent to serve as directors of the Company.

1.5 Actions by Directors . Following the election or appointment of Parent’s designees pursuant to Section 1.4(a), and until the Effective Time, the approval of a majority of the Continuing Directors shall be required to authorize (i) any amendment to or termination of this Agreement by the Company, (ii) any amendment to the Company’s certificate of incorporation or bylaws, (iii) any extension of time for the performance of any of the obligations or other acts of Parent or Acquisition Sub, (iv) any waiver of compliance with any covenant of Parent or Acquisition Sub or any condition to any obligation of the Company or any waiver or exercise of any right of the Company under this Agreement, and (v) any Adverse Recommendation Change with respect to the Merger. The authorization of any such matter by a majority of the Continuing Directors shall constitute the authorization of such matter by the Company Board, and no other action on the part of the Company or any other director of the Company shall be required to authorize such matter.

 

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SECTION 2. THE MERGER; EFFECTIVE TIME

2.1 Merger of Acquisition Sub into the Company. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the Delaware General Corporation Law (the “ DGCL ”), at the Effective Time (as defined in Section 2.3), Acquisition Sub shall be merged with and into the Company (the merger of Acquisition Sub into the Company being referred to herein as the “ Merger ”), and the separate existence of Acquisition Sub shall cease. The Company will continue as the surviving corporation in the Merger (the “ Surviving Corporation ”).

2.2 Effect of the Merger. The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL.

2.3 Effective Time. As soon as practicable after the satisfaction or waiver of the conditions set forth in Section 6, the parties hereto shall cause a properly executed certificate of merger (or, if appropriate, a certificate of ownership and merger) conforming to the requirements of the DGCL (the “ Certificate of Merger ”) to be filed with the Secretary of State of the State of Delaware. The Merger shall take effect at the time the Certificate of Merger is filed with the Secretary of State of the State of Delaware (the “ Effective Time ”). At 10:00 a.m. (California time) on the date on which the Certificate of Merger is to be so filed, a closing shall be held at the offices of Fenwick & West LLP, 801 California Street, Mountain View, California 94041 (or such other place or time as Parent and the Company may jointly designate) for the purpose of confirming the satisfaction or waiver of each of the conditions set forth in Section 6.

2.4 Certificate of Incorporation and Bylaws; Directors . Unless otherwise jointly determined by Parent and the Company prior to the Effective Time:

(a) the Certificate of Incorporation of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to Exhibit B;

(b) subject to Section 5.10(a), the Bylaws of the Surviving Corporation shall be amended and restated as of the Effective Time to conform to the Bylaws of Acquisition Sub as in effect immediately prior to the Effective Time; and

(c) the directors of the Surviving Corporation immediately after the Effective Time shall be the respective individuals who are directors of Acquisition Sub immediately prior to the Effective Time.

2.5 Conversion of Company Shares. Subject to Section 2.8, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Acquisition Sub, the Company or any stockholder of the Company:

(a) any Company Shares then held by the Company (or held in the Company’s treasury) shall cease to exist, and no consideration shall be delivered in exchange therefor;

 

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(b) any Company Shares then held by Parent, Acquisition Sub or any other subsidiary of Parent shall cease to exist, and no consideration shall be delivered in exchange therefor;

(c) except as provided in clauses “(a)” and “(b)” above, each Company Share then outstanding (excluding any Appraisal Shares, as defined in Section 2.8(c)) shall be converted into the right to receive $57.00 in cash, without interest, or such greater cash amount as may have been paid to any holder of Company Shares pursuant to the Offer (the “ Merger Consideration ”); and

(d) each share of Common Stock, par value $0.001 per share, of Acquisition Sub then outstanding shall be converted into one share of the common stock of the Surviving Corporation.

2.6 Closing of the Company’s Transfer Books. At the Effective Time: (a) all Company Shares outstanding immediately prior to the Effective Time shall cease to exist as provided in Section 2.5 and all holders of certificates representing Company Shares that were outstanding immediately prior to the Effective Time shall cease to have any rights as stockholders of the Company; and (b) the stock transfer books of the Company shall be closed with respect to all Company Shares outstanding immediately prior to the Effective Time. No further transfer of any such Company Shares shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any of such Company Shares (a “ Company Stock Certificate ”) is presented to the Paying Agent (as defined in Section 2.7) or to the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 2.7.

2.7 Payment for Company Shares.

(a) Prior to the Effective Time, Parent (after consultation with and reasonable approval of the Company) shall select a reputable bank or trust company to act as paying agent for the Merger (the “ Paying Agent ”). Promptly after the Effective Time, Parent shall cause to be made available to the Paying Agent cash amounts sufficient to enable the Paying Agent to make payments pursuant to Section 2.5 to holders of Company Shares outstanding immediately prior to the Effective Time.

(b) Promptly after the Effective Time, Parent shall cause the Paying Agent to mail to each person who was, immediately prior to the Effective Time, a holder of record of Company Shares a form of letter of transmittal (mutually agreed to by Parent and the Company) and instructions for use in effecting the surrender of Company Stock Certificates in exchange for payment therefor. Parent shall ensure that, upon surrender to the Paying Agent of a Company Stock Certificate, together with a properly executed letter of transmittal, the holder of such Company Stock Certificate (or, under the circumstances described in Section 2.7(e), the transferring of the Company Shares represented by such Company Stock Certificate) shall promptly receive in exchange therefor the amount of cash to which such Person is entitled pursuant to this Agreement.

 

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(c) On or after the nine month anniversary of the Effective Time, the Surviving Corporation shall be entitled to cause the Paying Agent to deliver to the Surviving Corporation any funds made available to the Paying Agent which have not been disbursed to holders of Company Stock Certificates, and thereafter such holders shall be entitled to look to Parent and the Surviving Corporation with respect to the cash amounts payable upon surrender of their Company Stock Certificates. Neither the Paying Agent nor the Surviving Corporation shall be liable to any holder of a Company Stock Certificate for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar Law.

(d) If any Company Stock Certificate shall have been lost, stolen or destroyed, then, upon the making of an affidavit of that fact by the Person claiming such Company Stock Certificate to be lost, stolen or destroyed (and, if required by the Surviving Corporation, the posting by such Person of a bond in such reasonable amount as the Surviving Corporation may direct as indemnity against any claim that may be made against it with respect to such Company Stock Certificate), Parent shall cause the Paying Agent to pay in exchange for such lost, stolen or destroyed Company Stock Certificate the cash amount payable in respect thereof pursuant to this Agreement.

(e) In the event of a transfer of ownership of Company Shares which is not registered in the transfer records of the Company, payment may be made with respect to such Company Shares to a transferee of such Company Shares if the Company Stock Certificate representing such Company Shares is presented to the Paying Agent, accompanied by all documents reasonably required by the Paying Agent to evidence and effect such transfer and to evidence that any applicable stock transfer taxes relating to such transfer have been paid.

(f) The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, in connection with the exchange of cash for Company Shares.

(g) If any Company Shares outstanding immediately prior to the Effective Time are unvested or a subject to a repurchase option, risk of forfeiture or other condition under any restricted stock purchase or similar agreement with the Company, then the amounts payable with respect to such Company Shares pursuant to the Merger shall be withheld by Parent and shall be paid promptly following the date that such shares would have otherwise vested pursuant to such original vesting schedule or conditions.

 

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2.8 Appraisal Rights.

(a) Notwithstanding anything to the contrary contained in this Agreement, any Company Shares that constitute Appraisal Shares (as defined in Section 2.8(c)) shall not be converted into or represent the right to receive Merger Consideration in accordance with Section 2.5, and each holder of Appraisal Shares shall be entitled only to such rights with respect to such Appraisal Shares as may be granted to such holder in Section 262 of the DGCL. From and after the Effective Time, a holder of Appraisal Shares shall not have and shall not be entitled to exercise any of the voting rights or other rights of a stockholder of the Surviving Corporation. If any holder of Appraisal Shares shall fail to perfect or shall otherwise lose such holder’s right of appraisal under Section 262 of the DGCL, then such Appraisal Shares shall automatically be converted into and shall represent only the right to receive (upon the surrender of the certificate or certificates representing such Appraisal Shares) Merger Consideration in accordance with Section 2.5.

(b) The Company (i) shall give Parent written notice of any demand by any stockholder of the Company for appraisal of such stockholder’s Company Shares pursuant to the DGCL, and (ii) shall give Parent the right to direct all negotiations and proceedings with respect to any such demand.

(c) For purposes of this Agreement, “ Appraisal Shares ” shall refer to any Company Shares outstanding immediately prior to the Effective Time that are held by stockholders who are entitled to demand and who properly demand appraisal of such Company Shares pursuant to, and who comply with the applicable provisions of, Section 262 of the DGCL.

2.9 Tax Consequences. The parties intend the Offer and Merger to constitute a taxable sale of the Company Shares by the Company stockholders. Parent makes no representations or warranties to the Company or to any holder of Company Shares or other Company securities regarding the tax treatment of the Merger, or any of the tax consequences to the Company or any holder of Company Shares or other Company securities of this Agreement, the Offer, the Merger or any of the other transactions or agreements contemplated hereby.

2.10 Withholding Rights. Parent, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the cash otherwise deliverable under this Agreement, and from any other payments otherwise required pursuant to this Agreement, to any holder of Company Shares or other Company securities such amounts in cash or, if applicable, shares, as Parent, the Surviving Corporation or the Paying Agent is required to deduct and withhold with respect to any such deliveries and payments under the Code or any provision of state, local, provincial or foreign tax law. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement as having been delivered and paid to such holders in respect of which such deduction and withholding was made.

2.11 Further Action. If, at any time after the Effective Time, any further action is reasonably necessary to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, rights and powers of the Company

 

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and Acquisition Sub, the directors and officers of the Surviving Corporation shall take such lawful and necessary action on behalf of the Company and Acquisition Sub.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

Except as set forth in the letter delivered by the Company to Parent in connection with this Agreement (the “ Company Letter ”), the Company represents and warrants to Parent and Acquisition Sub as follows:

3.1 Organization, Standing and Corporate Power. Each of the Company and its subsidiaries:

(a) is a corporation or other legal entity duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization (except, in the case of good standing, for entities organized under the Laws of any jurisdiction that does not recognize such concept),

(b) has all requisite corporate, company, partnership or other organizational power and authority to carry on its business as now being conducted and

(c) is duly qualified or licensed to do business and is in good standing in each jurisdiction (except, in the case of good standing, any jurisdiction that does not recognize such concept) in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, other than where the failure to be so organized, existing, qualified or licensed or in good standing (except, in the case of clause (a) above, with respect to the Company), individually or in the aggregate, is not reasonably likely to have a Material Adverse Effect on the Company.

The Company has made available to Parent complete and correct copies of the Company’s amended and restated certificate of incorporation (the “ Company Certificate ”) and the Amended and Restated Bylaws of the Company (the “ Company Bylaws ”) and the certificate of incorporation and bylaws (or similar organizational documents) of each of its subsidiaries, in each case as amended to the date of this Agreement. The Company has made available to Parent complete and correct copies of the minutes (or, in the case of draft minutes, the most recent drafts thereof) of all meetings of the stockholders, the Company Board and each committee of the Company Board and each of its subsidiaries held since January 1, 2004. The Company (i) has made available to Parent complete and correct copies of all resolutions of the Company Board, and each committee thereof, in respect of this Agreement and the transactions contemplated hereby adopted on or prior to the date of this Agreement, and (ii) will make available to Parent complete and correct copies of all such resolutions adopted after the date hereof.

3.2 Subsidiaries. Section 3.2 of the Company Letter sets forth a complete and correct list of each Subsidiary of the Company. All the outstanding shares of capital stock of, or other equity or voting interests in, each such Subsidiary are owned by the Company, by one or more wholly owned subsidiaries of the Company or by the Company and one or more wholly

 

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owned subsidiaries of the Company, free and clear of all pledges, claims, liens, charges, options, security interests or other encumbrances of any kind or nature whatsoever (collectively, “ Liens ”), except for transfer restrictions imposed by applicable securities Laws, and are duly authorized, validly issued, fully paid and nonassessable. Except for the capital stock of, or other equity or voting interests in, its subsidiaries, the Company does not own, directly or indirectly, any capital stock of, or other equity or voting interests in, any person.

3.3 Capital Structure.

(a) The authorized capital stock of the Company consists of 250,000,000 Company Shares and 5,000,000 shares of preferred stock, par value $0.001 per share (the “ Company Preferred Stock ”). At the close of business on March 12, 2007, (i) 50,026,061 Company Shares (excluding treasury shares) were issued and outstanding, (ii) no Company Shares were held by the Company as treasury shares, (iii) 5,681,294 Company Shares were subject to outstanding options to acquire Company Shares pursuant to the Activetouch, Inc. Amended and Restated 1998 Stock Plan and the Company 2000 Stock Incentive Plan (the “ Company Stock Plans ”) (such options, together with any other stock options granted after March 12, 2007, under the Company Stock Plans pursuant to the terms of this Agreement or as disclosed in the Company Letter, the “ Company Options ”), (iv) 607,919 Company Shares were subject to outstanding stock appreciation rights under the Company Stock Plans (such stock appreciation rights, together with any other stock appreciation rights granted after March 12, 2007, under the Company Stock Plans pursuant to the terms of this Agreement or as disclosed in the Company Letter, the “ Company SARs ”), (v) 644,974 Company Shares were subject to outstanding restricted stock units under the Company Stock Plans (such restricted stock units, together with any other restricted stock units granted after March 12, 2007, under the Company Stock Plans pursuant to the terms of this Agreement or as disclosed in the Company Letter, the “ Company RSUs ”) and (vi) 731,445 Company Shares were reserved and available for issuance pursuant to the Company 2000 Employee Stock Purchase Plan (the “ Purchase Plan ”). Other than the Company Stock Plans and the Purchase Plan, there is no plan or other Contract providing for the grant of options exercisable for or into Company Shares by the Company or any of its subsidiaries. No shares of Company Preferred Stock are issued or outstanding. No Company Shares are owned by any Subsidiary of the Company. The Company has delivered to Parent (1) a complete and correct list, as of the close of business on February 14, 2007, of all outstanding Company Options and Company SARs, the number of shares subject to each such Company Stock Option and Company SAR, the grant date, exercise price per share, vesting schedule and expiration date of each such Company Stock Option and Company SAR and the name of the holder thereof and whether or not each such Company Stock Option is intended to qualify as an “incentive stock option” under Section 422 of the Code, (2) a complete and correct list, as of the close of business on February 28, 2007, of all Company RSUs, the number of shares subject to each such Company RSU, the grant date, vesting schedule and expiration date of each such Company RSU and the name of the holder of each such Company RSU and (3) the forms of Company Stock Option, Company SAR and Company RSU grant agreements pursuant to which any such awards were granted. As of the date of this Agreement, other than the Company Options, Company SARs, Company RSUs and rights under the Purchase Plan, there are no outstanding rights of any person to receive Company Shares under the Company Stock

 

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Plans, the Purchase Plan or otherwise, on a deferred basis or otherwise. As of the last day of the most recent payroll period ending prior to the date of this Agreement, the aggregate amount credited to the accounts of participants in the Purchase Plan was $2,948,628 and the aggregate amount credited to such accounts for such payroll period was $329,832.

(b) Except as set forth in Section 3.2(a), as of the close of business on March 12, 2007, no shares of capital stock of, or other equity or voting interests in, the Company, or securities convertible into, or exchangeable or exercisable for, or options, warrants, shares of deferred stock, restricted stock awards, stock appreciation rights, phantom stock awards or other rights to acquire any such stock or interests, or other similar rights that are linked to the value of the Company Shares or the value of the Company or any part thereof, were issued, reserved for issuance or outstanding. Since March 12, 2007 until the date of this Agreement, (i) there have been no issuances by the Company of shares of capital stock of, or other equity or voting interests in, the Company, other than issuances of Company Shares pursuant to the exercise of Company Options, Company SARs, Company RSUs or rights under the Purchase Plan, in each case outstanding as of the date of this Agreement, and only if and to the extent required by their terms as in effect on such date and (ii) there have been no issuances by the Company of securities convertible into, or exchangeable or exercisable for, or options, warrants, shares of deferred stock, restricted stock awards, stock appreciation rights, phantom stock awards or other rights to acquire, any such stock or interests, or other similar rights that are linked to the value of Company Shares or the value of the Company or any part thereof, other than rights under the Purchase Plan.

(c) All outstanding Company Shares are, and all shares of Company Shares that may be issued pursuant to the Company Stock Plans and the Purchase Plan will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no (i) bonds, debentures, notes or other indebtedness of the Company or any of its subsidiaries or (ii) except as set forth in this Section 3.2, securities or other instruments or obligations of the Company or any of its subsidiaries, in each case, which has or which by its terms may have at any time (whether actual or contingent) the right to vote (or which is convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company or any of its subsidiaries may vote. Except as set forth in this Section 3.2, there are no securities, options, warrants, calls, rights or Contracts of any kind to which the Company or any of its subsidiaries is a party, or by which the Company or any of its subsidiaries is bound, obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of, or other equity or voting interests in, or securities convertible into, or exchangeable or exercisable for, shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right or Contract. With respect to the Company Options, (1) each Company Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (2) each grant of a Company Stock Option was duly authorized no later than the date on which the grant of such Company Stock Option was by its terms to be effective (the “ Grant Date ”) by all necessary corporate action, including, as applicable, approval by the Company Board (or a duly constituted and

 

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authorized committee thereof), or a duly authorized delegate thereof and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (3) each such grant was made in accordance with the terms of the applicable Company Stock Plan, the Exchange Act and all other applicable Laws and regulatory rules or requirements, including the rules of The NASDAQ Stock Market LLC and any other exchange on which Company securities are traded, (4) the per share exercise price of each Company Stock Option was greater than or equal to the fair market value of a share of Company Shares on the applicable Grant Date and (5) each such grant was properly accounted for in all material respects in accordance with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company’s SEC Documents in accordance with the Exchange Act and all other applicable Laws. Except pursuant to the exercise or tax withholding provisions of the agreements under which Company Options, Company SARs and Company RSUs were granted, there are no outstanding contractual or other obligations of the Company or any of its subsidiaries to (I) repurchase, redeem or otherwise acquire any shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries or (II) vote or dispose of any shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries. The Company is not a party to any voting agreements with respect to any shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries and, to the knowledge of the Company, as of the date of this Agreement there are no irrevocable proxies and no voting agreements with respect to any shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries.

(d) Neither the Company nor any of its subsidiaries has any (i) indebtedness for borrowed money, (ii) indebtedness evidenced by any bond, debenture, note, mortgage, indenture or other debt instrument or debt security, (iii) accounts payable to trade creditors and accrued expenses not arising in the ordinary course of business, (iv) amounts owing as deferred purchase price for the purchase of any property or (v) guarantees with respect to any indebtedness or obligation of a type described in clauses (i) through (iv) above of any other person (other than, in the case of clauses (i), (ii) and (iv), accounts payable to trade creditors and accrued expenses arising in the ordinary course of business) (collectively, “ indebtedness ”, which term shall exclude any indebtedness of the Company or any wholly owned Subsidiary to any wholly owned Subsidiary or of any wholly owned Subsidiary to the Company).

3.4 Authority; Noncontravention.

(a) The Company has the requisite corporate power and authority to execute and deliver this Agreement, to consummate the Merger and the other transactions contemplated by this Agreement, subject, in the case of the Merger if required by applicable Law, to obtaining the affirmative vote of the holders of a majority of the outstanding Company Shares in favor of adopting this Agreement (the “ Stockholder Approval ”), and to comply with the provisions of this Agreement. The execution and delivery of this Agreement by the Company, the consummation by the Company of the Merger and the other transactions contemplated by this Agreement and the compliance by the Company with the provisions of this Agreement have been duly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement, to comply

 

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with the terms of this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement, subject, in the case of the Merger if required by applicable Law, to obtaining the Stockholder Approval. This Agreement has been duly executed and delivered by the Company and, assuming the due execution and delivery of this Agreement by Parent and Sub, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that such enforceability may be (i) limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general application affecting or relating to the enforcement of creditors’ rights generally and (ii) subject to general principles of equity, whether considered in a proceeding at Law or in equity. The Company Board, at a meeting duly called and held at which all directors of the Company were present, duly and unanimously adopted resolutions (1) approving and declaring advisable this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement, (2) declaring that it is in the best interests of the Company’s stockholders that the Company enter into this Agreement and consummate the transactions contemplated by this Agreement on the terms and subject to the conditions set forth in this Agreement, (3) declaring that the terms of the Offer and the Merger are fair to the Company’s stockholders, and (4) approving the Company Board Recommendation.

(b) The execution and delivery of this Agreement, the consummation of the Offer, the Merger and the other transactions contemplated by this Agreement and compliance by the Company with the provisions of this Agreement do not and will not conflict with, or result in any violation or breach of, or default (with or without notice or lapse of time or both) under, or give rise to a right of, or result in, termination, cancellation or acceleration of any obligation or to a loss of a benefit under, or result in the creation of any Lien in or upon any of the properties or assets of the Company or any of its subsidiaries under, or give rise to any increased, additional, accelerated or guaranteed rights or entitlements under (including any right of a holder of a security of the Company or any of its subsidiaries to require the Company or any of its subsidiaries to acquire such security), any provision of (I) the Company Certificate or the Company Bylaws or the certificate of incorporation or bylaws (or similar organizational documents) of any of its subsidiaries, (II) any loan or credit agreement, bond, debenture, note, mortgage, indenture, guarantee, lease or other contract, commitment, agreement, instrument, legally binding arrangement, understanding, obligation, undertaking or license, whether oral or written (each, including all amendments thereto, a “ Contract ”) or Permit to which the Company or any of its subsidiaries is a party or bound by or any of their respective properties or assets are bound by or subject to or (III) subject to the governmental filings and other matters referred to in the second following sentence, any (A) Federal, state or local, domestic or foreign, statute, law, code, ordinance, rule or regulation of any Governmental Entity (each, a “ Law ”) or (B) Federal, state or local, domestic or foreign, judgment, injunction, order, writ or decree of any Governmental Entity (each, a “ Judgment ”), in each case, applicable to the Company or any of its subsidiaries or their respective properties or assets, other than, in the case of clauses (II) and (III), any such conflicts, violations, breaches, defaults, rights, terminations, cancellations, accelerations, losses, Liens or entitlements that, individually or in the aggregate, have not had and are not reasonably likely to (x) result in a Material Adverse Effect or (y) result in an impairment in any material respect the ability of the Company to perform its obligations under this Agreement. No consent, approval, order or authorization of, registration, declaration or

 

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filing with, or notice to, any Federal, state or local, domestic or foreign, government or any court, administrative agency or commission or other governmental or regulatory authority or agency, domestic or foreign (a “ Governmental Entity ”), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company, the consummation of the Offer, the Merger or any of the other transactions contemplated by this Agreement or the compliance by the Company with the provisions of this Agreement, except for (I) the filing of a premerger notification and report form by the Company under the HSR Act, the termination or expiration of the waiting period thereunder, and the provision of such information as may be requested by the Department of Justice or the Federal Trade Commission in connection therewith, and the filings and receipt, termination or expiration, as applicable, of such other approvals or waiting periods required under any other applicable competition, merger control, antitrust or similar Law, (II) the filing with the SEC of (w) the Schedule 14D-9, (x) a proxy statement relating to the adoption of this Agreement by the Company’s stockholders, if required by applicable Law (as amended or supplemented from time to time, the “ Proxy Statement ”), (y) an information statement required in connection with the Offer under Rule 14f-1 under the Exchange Act (as amended or supplemented from time to time, the “ Information Statement ”) and (z) such reports under the Exchange Act as may be required in connection with this Agreement, the Offer, the Merger and the other transactions contemplated by this Agreement, (III) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company or any of its subsidiaries is qualified to do business, (IV) any filings required under the rules and regulations of The NASDAQ Stock Market LLC and (V) such other consents, approvals, orders, authorizations, registrations, declarations, filings and notices the failure of which to be obtained or made, individually or in the aggregate, have not had and are not reasonably likely to (x) result in a Material Adverse Effect or (y) result in an impairment in any material respect the ability of the Company to perform its obligations under this Agreement.

3.5 SEC Documents.

(a) The Company has made available to Parent, or the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database of the SEC contains in a publicly available format, complete and correct copies of all reports, schedules, forms, statements and other documents filed with or furnished to the SEC by the Company since January 1, 2004 (together with all information incorporated therein by reference, the “ SEC Documents ”). Since January 1, 2004, the Company has filed with or furnished to the SEC each report, schedule, form, statement or other document or filing required by Law to be filed or furnished at or prior to the time so required. No Subsidiary of the Company is required to file or furnish any report, schedule, form, statement or other document with, or make any other filing with, or furnish any other material to, the SEC. As of their respective dates, each of the SEC Documents complied as to form in all material respects with the requirements of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (collectively, the “ Securities Act ”) and the Exchange Act, in each case, applicable to such SEC Document at the time it was filed or furnished to the SEC, and none of the SEC Documents at the time it was filed or furnished contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they

 

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were made, not misleading. Except to the extent that information contained in any SEC Document filed or furnished and publicly available prior to the date of this Agreement (a “ Filed SEC Document ”) has been revised or superseded by a later filed or furnished Filed SEC Document, none of the SEC Documents contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company has made available to Parent copies of all comment letters received by the Company from the SEC since January 1, 2004, and relating to the SEC Documents, together with all written responses of the Company thereto. As of the date of this Agreement, there are no outstanding or unresolved comments in such comment letters received by the Company from the SEC. As of the date of this Agreement, to the knowledge of the Company, none of the SEC Documents is the subject of any ongoing review by the SEC. The financial statements (including the related notes) of the Company included in the SEC Documents complied, at the time the respective statements were filed, as to form in all material respects with the applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been or will be prepared in accordance with generally accepted accounting principles in effect from time to time in the United States of America (“ GAAP ”) (except, in the case of unaudited statements, as permitted by the rules and regulations of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in accordance with GAAP in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments). Except (i) as set forth or fully reserved against in the most recent audited financial statements (including the notes thereto) included in the Filed SEC Documents (the “ Baseline Financials ”), (ii) for liabilities incurred after the date of the Baseline Financials but prior to the date of this Agreement in the ordinary course of business consistent (including in type and amount) with past practice and (iii) for liabilities incurred on or after the date of this Agreement that, individually or in the aggregate, are not reasonably likely to have a Material Adverse Effect, the Company and its subsidiaries have no material liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise).

(b) The Company is in compliance in all material respects with the provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder (collectively, “ SOX ”) applicable to it. To the knowledge of the Company, there have been no violations of provisions of the Company’s code of ethics.

(c) The principal executive officer of the Company and the principal financial officer of the Company each has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of SOX, as applicable, with respect to the SEC Documents, and the statements contained in such certifications were true and accurate as of the date they were made. For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in SOX. Neither the Company nor any of its subsidiaries has outstanding, or has since the adoption of SOX arranged

 

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any outstanding, “extensions of credit” to directors or executive officers within the meaning of Section 402 of SOX.

(d) Neither the Company nor any of its subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract (including any Contract relating to any transaction or relationship between or among the Company and any of its subsidiaries, on the one hand, and any unconsolidated affiliate, including any structured finance, special purpose or limited purpose entity or person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC)), where the purpose or intended or known result or effect of such joint venture, partnership or Contract is to avoid disclosure of any material transaction involving, or material liabilities of, the Company or any of its subsidiaries in the Company’s or any of its subsidiaries published financial statements or other SEC Documents.

(e) The Company’s “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Exchange Act and 15d-15(f) of the Exchange Act) is sufficient to provide reasonable assurance (A) regarding the reliability of the Company’s financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, (B) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (C) that receipts and expenditures of the Company are made only in accordance with the authorizations of management and directors of the Company, and (D) regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

(f) The Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act and Rule 15d-15(e) of the Exchange Act) are designed to ensure that (A) information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and (B) all such information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(g) Since January 1, 2004, neither the Company nor any of its Subsidiaries nor, to Company’s knowledge, any director, officer, employee, auditor or accountant of the Company or any of its Subsidiaries has received written notice of any material complaint, allegation, or claim regarding improper, wrongful or fraudulent accounting or auditing practices, procedures, methodologies or methods of the Company or any of its Subsidiaries or their respective internal accounting controls or any material inaccuracy in the Company’s financial statements that was investigated by the Company Board or a committee thereof or reported to the Company’s independent public accountants. Since January 1, 2004 no attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported to the Company Board or any committee thereof evidence of a material violation of securities laws, breach of fiduciary duty or a material violation of applicable Law by the Company or any of its officers, directors, employees or agents, acting in the course

 

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of performance of their duties on behalf of the Company, that would, or would be reasonably likely to, result in a material liability to the Company and its Subsidiaries, taken as a whole.

3.6 Information Supplied. None of the information included or incorporated by reference in the Schedule 14D-9, the Information Statement or the Proxy Statement (and none of the information supplied by the Company specifically for inclusion or incorporation by reference in the Offering Documents) will, in the case of the Schedule 14D-9, the Information Statement and the Offer Documents, at the respective times the Schedule 14D-9, the Information Statement and the Offer Documents are filed with the SEC or first published, sent or given to the Company’s stockholders or, in the case of the Proxy Statement, at the time the Proxy Statement is first mailed to the Company’s stockholders or at the time of the Stockholders Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by the Company with respect to statements made or incorporated by reference in Schedule 14D-9, the Information Statement or the Proxy Statement based on information supplied by Parent or Sub specifically for inclusion or incorporation by reference therein. The Schedule 14D-9, the Information Statement and the Proxy Statement will comply as to form in all material respects with the requirements of the Exchange Act and the rules and regulations promulgated thereunder.

3.7 No Material Adverse Effect; Absence of Certain Changes or Events.

(a) Since December 31, 2006, there has not been any Material Adverse Effect on the Company.

(b) Since December 31, 2006 to the date of this Agreement, the Company and its subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice and there has not been:

(i) any declaration, setting aside or payment of any dividend on, or other distribution (whether in cash, stock or property) in respect of, any of the Company’s or any of its subsidiaries’ capital stock or other equity or voting interests, except for dividends by a direct or indirect wholly owned Subsidiary of the Company to its parent,

(ii) any split, combination or reclassification of any of the Company’s or any of its subsidiaries’ capital stock or other equity or voting interests or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of, or other equity or voting interests in, the Company or any of its subsidiaries,

(iii) any grant by the Company or any of its subsidiaries to, or any agreement with, any current or former director, officer, employee, contractor or consultant of the Company or any of its subsidiaries (collectively, “ Company Personnel ”) of any bonus opportunity, severance, or vesting acceleration, or any loan or any increase in any type of compensation or benefits, except for grants of normal bonus opportunities and normal increases of base compensation or benefits, in each case, prior to the date of this Agreement in the ordinary

 

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course of business consistent with past practice, or (2) any payment by the Company or any of its subsidiaries to any Company Personnel of any bonus, except for bonuses paid or accrued prior to the date of this Agreement in the ordinary course of business consistent with past practice,

(iv) any material change in financial or tax accounting methods, principles or practices by the Company or any of its subsidiaries, except insofar as may have been required by GAAP or applicable Law,

(v) any material tax election or change in any material tax election or any settlement or compromise of any material income tax liability,

(vi) any material write-down by the Company or any of its subsidiaries of any of the material assets of the Company or any of its subsidiaries,

(vii) any licensing or other agreement with regard to the acquisition or disposition of any material Intellectual Property or rights thereto, other than nonexclusive licenses granted in the ordinary course of the business of the Company and its subsidiaries consistent with past practice;

(viii) any damage, destruction or loss, whether or not covered by insurance, affecting the assets, properties or business of the Company or any of its Subsidiaries that is, or is reasonably likely to be, material to the business of the Company and its Subsidiaries, taken as a whole;

(ix) incurrence, creation or assumption of any material Lien (other than a Permitted Lien) or any material liability or obligation as guaranty or surety with respect to obligations of others, or

(x) commencement or settlement of any material litigation.

(c) Since December 31, 2006, each of the Company and its subsidiaries has continued all pricing, sales, receivables and payables practices in accordance with the ordinary course of business consistent with past practice.

3.8 Litigation. Section 3.8 of the Company Letter sets forth as of the date of this Agreement, a complete and correct list of each material claim, action, suit or judicial, administrative or regulatory proceeding or investigation pending or, to the knowledge of the Company, threatened by or against the Company or any of its subsidiaries (a) for money damages, (b) that seeks injunctive relief, (c) that, if resolved in a manner adverse to the Company, is reasonably likely to give rise to any legal restraint on or prohibition against or limit the Surviving Corporation’s ability to operate the business of the Company and the subsidiaries substantially as it was operated immediately prior to the date of this Agreement or (d) that, if resolved in a manner adverse to the Company, is reasonably likely to have a Material Adverse Effect on the Company. There is no Judgment of any Governmental Entity or arbitrator outstanding against, or, to the knowledge of the Company, investigation, proceeding, notice of violation, order of forfeiture or complaint by any Governmental Entity involving, the Company

 

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or any of its subsidiaries that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. There is no claim, action, suit or judicial, administrative or regulatory proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries that, if resolved in a manner adverse to the Company, would reasonably be expected to have a Material Adverse Effect on the Company.

3.9 Contracts.

(a) Section 3.9 of the Company Letter contains a complete and correct list, as of the date of this Agreement, of:

(i) each Contract pursuant to which the Company or any of its subsidiaries has agreed not to compete with any person in any area or to engage in any activity or business, or pursuant to which any benefit or right is required to be given or lost, or any penalty or detriment is incurred, as a result of so competing or engaging;

(ii) each Contract to which the Company or any of its subsidiaries is a party providing for exclusivity or any similar requirement or pursuant to which the Company or any of its subsidiaries is restricted in any way, or which after the Effective Time could restrict Parent or any of its subsidiaries in any way, with respect to the development, manufacture, marketing or distribution of their respective products or services or otherwise with respect to the operation of their businesses, or pursuant to which any benefit or right is required to be given or lost, or any penalty or detriment is incurred, as a result of non-compliance with any such exclusive or restrictive requirements or which requires the Company or any of its subsidiaries to refrain from granting license or franchise rights to any other person;

(iii) each Contract to which the Company or any of its subsidiaries is a party with (1) any affiliate of the Company or any of its subsidiaries, (2) any Company Personnel or (3) any person known by the Company to be an affiliate of any director or officer of the Company (other than, in each case, (I) offer letters or employment agreements that are terminable at will by the Company or any of its subsidiaries both without any penalty and without any obligation of the Company or any of its subsidiaries to pay severance or other compensation or benefits (other than accrued base salary, accrued commissions, accrued bonuses, accrued vacation pay, accrued floating holidays and legally mandated benefits), (II) invention assignment and confidentiality agreements relating to the assignment of inventions to the Company or any of its subsidiaries not involving the payment of money and (III) Benefit Plans and Benefit Agreements);

(iv) each Contract under which the Company or any of its subsidiaries has incurred any indebtedness, other than such Contracts of the Company or any of its subsidiaries pursuant to which the aggregate principal amount of indebtedness incurred for any such Contract is less than $500,000;

(v) each Contract to which the Company or any of its subsidiaries is a party creating or granting a Lien (including Liens upon properties or assets acquired under conditional sales, capital leases or other title retention or security devices), other than (1) Liens

 

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for taxes not yet due and payable, that are payable without penalty or that are being contested in good faith and for which adequate reserves have been recorded, (2) Liens for assessments and other governmental charges or landlords’, carriers’, warehousemen’s, mechanics’, repairmen’s, workers’ and similar Liens incurred in the ordinary course of business, consistent with past practice, in each case for sums not yet due and payable or due but not delinquent or being contested in good faith by appropriate proceedings, (3) Liens incurred in the ordinary course of business, consistent with past practice, in connection with workers’ compensation, unemployment insurance and other types of social security or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return of money bonds and similar obligations, and (4) Liens that are not reasonably likely to adversely interfere in a material way with the use of properties or assets encumbered thereby (collectively, “ Permitted Liens ”);

(vi) each (1) material Contract to which the Company or any of its subsidiaries is a party containing any “change in control” or similar provisions with respect to the Company or any of its subsidiaries, including provisions requiring consent or approval of, or notice to, any Governmental Entity or other person in the event of, or with respect to, consummation of the Offer, the Merger or any of the other transactions contemplated by this Agreement or the execution, delivery or effectiveness of this Agreement that will materially conflict with, result in a material violation or material breach of, or constitute a material default (with or without notice or lapse of time or both) under, such Contract, or give rise under such Contract to any right of, or result in, a termination, right of first refusal, right of first negotiation with respect to the purchase of material assets of the Company, material amendment, revocation, cancellation or material acceleration of any obligation, or a loss of a material benefit or the creation of any material Lien upon any of the properties or assets of the Company, Parent or any of their respective subsidiaries, or to any increased, guaranteed, accelerated or additional material rights or material entitlements of any person, or (2) Contract to which the Company or any of its subsidiaries is a party containing any provisions having the effect of providing that the consummation of the Offer, the Merger or any of the other transactions contemplated by this Agreement or the execution, delivery or effectiveness of this Agreement will require that a third party be provided with access to any material source code or that any material source code be released from escrow and provided to any third party;

(vii) each Contract to which the Company or any of its subsidiaries is a party providing for payments of royalties or other fees to third parties, in each case in excess of $500,000 annually, that is not terminable on 90 days or less notice;

(viii) other than any non-exclusive Software license limited to the internal use of such third party and provided on a hosted basis where the third party has not received and is not entitled to receive a copy of the licensed Software (except for client Software downloaded in the ordinary course of business in connection with the use of Company products and services), each Contract to which the Company or any of its subsidiaries is a party (A) granting a third party any license to Intellectual Property or (B) which includes a covenant not to sue or similar agreement by the Company or any of its subsidiaries to refrain from asserting any Intellectual Property right;

 

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(ix) each Contract pursuant to which the Company or any of its subsidiaries has been granted any license to Intellectual Property or settled or compromised any dispute relating to Intellectual Property or under which a third party has granted the Company a covenant not to sue or has otherwise agreed to not assert any Intellectual Property rights against the Company, other than nonexclusive licenses for software that is generally available obtained in the ordinary course of business of the Company and its subsidiaries consistent with past practice;

(x) each Contract to which the Company or any of its subsidiaries is a party granting the other party to such Contract or a third party “most favored nation” pricing or terms that applies to the Company or any of its subsidiaries;

(xi) each Contract pursuant to which the Company or any of its subsidiaries has agreed or is required to provide any third party with access to source code, or to provide for source code to be put in escrow (excluding non-material pieces of source code developed for customers by the Company that are not included in the Company’s products or used by the Company or its subsidiaries, other than to provide services to the customer for which the software was developed);

(xii) each Contract to which the Company or any of its subsidiaries is a party for any joint venture (whether in partnership, limited liability company or other organizational form) or material alliance or similar arrangement;

(xiii) each material Contract to which the Company or any of its subsidiaries is a party with any Governmental Entity;

(xiv) each Contract between the Company or any of its subsidiaries and any of the 20 largest customers of the Company and its subsidiaries (determined on the basis of revenues received by the Company or any of its subsidiaries in the four consecutive fiscal quarter period ended December 31, 2006 (each such customer, a “ Major Customer ”), other than amendments of an immaterial nature, addendums, work orders or purchase orders entered into under or pursuant to such Contract which do not amend the material terms of such Contract (each such Contract, a “ Major Customer Contract ”);

(xv) each Contract between the Company or any of its subsidiaries and any of the 20 largest licensors or other suppliers to the Company and its subsidiaries (determined on the basis of amounts paid by the Company or any of its subsidiaries in the four consecutive fiscal quarter period ended December 31, 2006 (each such licensor or other supplier, a “ Major Supplier ”), other than amendments of an immaterial nature, addendums, work orders or purchase orders entered into under or pursuant to such Contract which do not amend the material terms of such Contract (each such Contract, a “ Major Supplier Contract ”);

(xvi) each Contract to which the Company or any of its subsidiaries is a party pursuant to which the Company or a subsidiary has or has agreed to develop any material Intellectual Property for a third party and assign the ownership in such Intellectual Property to the third party;

 

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(xvii) each Contract (1) with any beneficial owner of any Company Shares, or securities convertible into, or exchangeable for, or any options, warrants, calls or rights to acquire, any Company Shares, where such Contract provides for consideration payable to such beneficial owner or any of its affiliates for Company Shares tendered, or to be tendered, in the Offer or (2) with any person where the amount payable thereunder is calculated based on the number of Company Shares tendered, or to be tendered, in the Offer by such person or any of its affiliates (other than, in each case, this Agreement); and

(xviii) each Contract to which the Company or any of its subsidiaries is a party or with respect to which the Company or any of its subsidiaries has any obligation, and which is a collective bargaining agreement or other Contract with any union, employee or labor organization.

The Company has made available to Parent a complete and correct copy of each of the Contracts referred to in clauses (i) through (xviii) above, including all amendments thereto. Each Contract of the Company or any of its subsidiaries that is material to the Company and its subsidiaries and each Contract that currently is a “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC) (collectively, the “ Material Contracts ”), is in full force and effect (except for those Contracts that have expired or terminated in accordance with their terms) and is a legal, valid and binding agreement of the Company or its Subsidiary, as the case may be, and, to the knowledge of the Company, of each other party thereto, enforceable against the Company or such Subsidiary, as the case may be, and, to the knowledge of the Company, against the other party or parties thereto, in each case, in accordance with its terms, except that such enforceability may be (i) limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general application affecting or relating to the enforcement of creditors’ rights generally and (ii) subject to general principles of equity, whether considered in a proceeding at Law or in equity. Each of the Company and its subsidiaries has performed or is performing all material obligations required to be performed by it under the Material Contracts and is not (with or without notice or lapse of time or both) in breach in any material respect or default thereunder and, to the knowledge of the Company, no other party to any of the Material Contracts is (with or without notice or lapse of time or both) in breach in any material respect or default thereunder. To the knowledge of the Company, there has occurred no event giving (with or without notice or lapse of time or both) to others any right of termination, material amendment or cancellation of any Material Contract.

(b) To the knowledge of the Company, as of the date of this Agreement, none of the Major Customers or Major Suppliers has terminated, failed to renew or requested any material amendment to any of its Major Customer Contracts or Major Supplier Contracts, or any of its existing relationships, with the Company or any of its subsidiaries, or provided written notice of its intention to do any of the foregoing.

3.10 Permits; Compliance with Laws. The Company and its subsidiaries have in effect all material certificates, permits, licenses, franchises, approvals, concessions, qualifications, registrations, certifications and similar material authorizations from any Governmental Entity that are necessary for them to own, lease or operate their properties and assets and to carry on their businesses in all material respects as currently conducted, other than

 

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those permits, licenses, franchises, approvals, concessions, qualifications, registrations, certifications and similar material authorizations which the failure of the Company or its subsidiaries to have in effect would give rise to a Material Adverse Effect (collectively, “ Permits ”). The execution and delivery of this Agreement by the Company does not, and the consummation of the Offer, the Merger and the other transactions contemplated hereby and compliance with the terms hereof are not reasonably likely to cause the revocation or cancellation of any Permit. Each of the Company and its subsidiaries is, and since January 1, 2004 has been, in compliance in all material respects with all applicable Laws and Judgments, and no condition or state of facts exists that is reasonably likely to give rise to a material violation of, or a material liability or default under, any such applicable Law or Judgment.

3.11 Absence of Changes in Benefit Plans; Employment Agreements; Labor Relations.

(a) Except as disclosed in the Filed SEC Documents, since December 31, 2006, none of the Company or any of its subsidiaries has adopted, entered into, terminated, amended, modified or agreed to adopt, enter into, terminate, amend or modify (or announced an intention to adopt, enter into, terminate, amend or modify) in any material respect any Benefit Plan, or has made any change in any actuarial or other assumption used to calculate funding obligations with respect to any Pension Plan, or any change in the manner in which contributions to any Pension Plan are made or the basis on which such contributions are determined.

(b) As of the date of this Agreement, there are no collective bargaining agreements or other labor union agreements to which the Company or any of its subsidiaries is a party or by which any of them is bound. Since January 1, 2004, neither the Company nor any of its subsidiaries has encountered any labor union organizing activity, or had any actual or, to the knowledge of the Company, threatened employee strikes, work stoppages, slowdowns or lockouts. None of the employees of the Company or any of its subsidiaries is represented by any union with respect to his or her employment by the Company or such Subsidiary. Each of the Company and its subsidiaries is, and since January 1, 2004, has been, in compliance in all material respects with all applicable Laws and Judgments relating to employment and employment practices, occupational safety and health standards, terms and conditions of employment and wages and hours, and is not, and since January 1, 2004, has not, engaged in any material unfair labor practice. As of the date hereof, the Company has not received notice of any unfair labor practice charge or complaint against the Company or any of its subsidiaries that is pending, and, to the knowledge of the Company, there is no unfair labor practice charge or complaint against the Company or any of its subsidiaries threatened, in each case before the National Labor Relations Board or any comparable Governmental Entity.

3.12 Environmental Matters.

(a) (i) To the knowledge of the Company, each of the Company and its subsidiaries is, and has been, in compliance in all material respects with all applicable Environmental Laws, and (ii) as of the date hereof neither the Company nor any of its subsidiaries has received any written communication alleging that the Company or such Subsidiary is in violation of, or may have liability under, any Environmental Law;

 

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(b) (i) each of the Company and its subsidiaries possesses and is in compliance in all material respects with all Permits required under applicable Environmental Laws for the conduct of their respective operations as now being conducted and (ii) all such Permits are in good standing;

(c) there are no material Environmental Claims pending or, to the knowledge of the Company, threatened against the Company or any of its subsidiaries;

(d) there has been no Release of any Hazardous Material that is reasonably likely to form the basis of any material Environmental Claim against the Company or any of its subsidiaries;

(e) neither the Company nor any of its subsidiaries has retained or assumed, either contractually or by operation of Law, any liability or obligation that is reasonably likely to form the basis of any material Environmental Claim against the Company or any of its subsidiaries;

(f) there are no aboveground or underground storage tanks, generators or known or suspected asbestos-containing materials for which the Company or any of its subsidiaries is responsible at, on, under or about property owned, operated or leased by the Company or any of its subsidiaries, nor, to the knowledge of the Company, were there any underground storage tanks on, under or about any such property in the past;

(g) neither the Company nor any of its subsidiaries stores, generates, or disposes of Hazardous Materials (excluding office, cleaning or similar supplies used in the ordinary course of the Company’s or its subsidiaries’ businesses) at, on, under, about or from property owned or leased by the Company or any of its subsidiaries; and

(h) there are no past or present events, conditions, circumstances, activities, practices, incidents, actions or plans that are reasonably likely to form the basis of any material Environmental Claim against the Company or any of its subsidiaries.

3.13 ERISA Compliance.

(a) Section 3.13(a)(i) of the Company Letter lists all material “employee pension benefit plans” (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”)) (each, a “ Pension Plan ”) and all other material Benefit Plans and Benefit Agreements that, in each case, are in effect as of the date of this Agreement. The Company has made available to Parent copies of (i) each Benefit Plan and each Benefit Agreement, (ii) the two most recent annual reports, or such similar reports, statements, information returns or material correspondence required to be filed, with or delivered to any Governmental Entity, if any, with respect to each Benefit Plan (including reports filed on Form 5500), (iii) the most recent summary plan description (if any), prepared for each Benefit Plan for which such summary plan description is required under applicable Law and (iv) each trust agreement and group annuity or insurance Contract providing for the funding or payment of compensation or benefits under any Benefit Plan or Benefit Agreement. Each Benefit Plan has

 

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been administered in all material respects in accordance with its terms and in compliance with applicable Law, including ERISA and the Code, and the terms of any collective bargaining agreements or other labor union Contracts.

(b) All Pension Plans intended to be tax qualified under the Code have been the subject of favorable determination letters from the Internal Revenue Service (the “ IRS ”) to the effect that such Pension Plans are qualified and exempt from United States Federal income taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked (nor, as of the date of this Agreement to the knowledge of the Company, has revocation been threatened) and no event has occurred since the date of the most recent determination letter or application therefor relating to any such Pension Plan that is reasonably likely to adversely affect the qualification of such Pension Plan or materially increase the costs relating thereto or require security under Section 307 of ERISA. All Pension Plans required to have been approved by any non-United States Governmental Entity have been so approved or timely submitted for approval, no such approval has been revoked (nor, as of the date of this Agreement to the knowledge of the Company, has revocation been threatened) and no event has occurred since the date of the most recent approval or application therefor relating to any such Pension Plan that is reasonably likely to affect any such approval relating thereto or increase the costs relating thereto. The Company has made available to Parent a complete and correct copy of the most recent determination or approval letter received with respect to each Pension Plan, as well as a complete and correct copy of each pending application for a determination or approval letter, if any.

(c) Neither the Company nor any Commonly Controlled Entity has sponsored, maintained, contributed to, or been obligated to maintain or contribute to, or has any actual or contingent liability under, any Benefit Plan that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code or is otherwise a defined benefit pension plan o