AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

A GREEMENT AND P LAN OF M ERGER

AMONG

V ERINT S YSTEMS I NC .

W HITE A CQUISITION C ORPORATION

AND

W ITNESS S YSTEMS , I NC .

Dated as of February 11, 2007

Table of Defined Terms

 

 

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A GREEMENT AND P LAN OF M ERGER

This Agreement and Plan of Merger (this “ Agreement ”) is dated as of February 11, 2007, among Verint Systems Inc., a Delaware corporation (the “ Buyer ”), White Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of the Buyer (“ Acquisition Sub ”), and Witness Systems, Inc., a Delaware corporation (the “ Company ”).

R ECITALS

WHEREAS, the respective Boards of Directors of the Buyer, the Acquisition Sub and the Company have determined that it is advisable and in the best interests of their respective stockholders for the Buyer to acquire the Company on the terms and subject to the conditions set forth in this Agreement;

WHEREAS, on the terms and subject to the conditions set forth in this Agreement, it is intended that the Acquisition Sub will be merged with and into the Company, with the Company continuing as the surviving corporation in such merger (the “ Merger ”).

WHEREAS, the Board of Directors of the Company (the “ Company Board ”) has (i) determined that the Merger is fair to, and in the best interest of, the Company and its stockholders; (ii) approved this Agreement and the transactions contemplated hereby, including the Merger, in accordance with the General Corporation Law of the State of Delaware (the “ DGCL ”); (iii) declared the advisability of this Agreement; and (iv) resolved to recommend that the holders of the shares of Company Common Stock adopt this Agreement.

NOW THEREFORE, in consideration of the premises, and the representations, warranties, covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Buyer, the Acquisition Sub and the Company agree as follows:

ARTICLE I

THE MERGER

1.1 The Merger . On the terms and subject to the conditions set forth in this Agreement, the Merger shall become effective upon the filing of a certificate of merger, which shall be jointly prepared by the Buyer and the Company prior to the Closing and which shall be in such form as is required by, and which shall be executed by, the Company in accordance with, the relevant provisions of the DGCL (the “ Certificate of Merger ”), with the Secretary of State of the State of Delaware or at such later time as is established by the Buyer and the Company and set forth in the Certificate of Merger (the “ Effective Time ”).

1.2 Closing of the Merger . The closing of the Merger (the “ Closing ”) shall take place at 12 noon, Eastern time, on a date to be specified by the Buyer and the Company (the “ Closing Date ”), which shall be no later than the second Business Day after satisfaction or waiver of the conditions set forth in Article VII (other than delivery of items to be delivered at the Closing and other than satisfaction of those conditions that by their nature are to be satisfied at the Closing, it being understood that the occurrence of the Closing shall remain subject to the delivery of such

items and the satisfaction or waiver of such conditions at the Closing), at the offices of Jones Day, 222 East 41 ^st Street, New York, New York, unless another date, place or time is agreed to in writing by the Buyer and the Company. “ Business Day ” shall be any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions located in New York, New York are permitted or required by Law, executive order or governmental decree to remain closed. At the Closing, each party shall deliver the agreements, certificates and instruments required by the terms of this Agreement to be delivered by it, and the Company shall cause the Certificate of Merger to be filed with the Secretary of State of the State of Delaware and shall make all other filings or recordings required under the DGCL to effect the Merger.

1.3 Effects of the Merger . At the Effective Time (a) the separate existence of the Acquisition Sub shall cease and the Acquisition Sub shall be merged with and into the Company (the Company following the Merger is sometimes referred to herein as the “ Surviving Corporation ”) and (b) the certificate of incorporation of the Company as in effect on the date of this Agreement shall be amended in its entirety in a manner mutually agreed by the parties hereto consistent with Section 6.7, until further amended in accordance with the DGCL. In addition, the Buyer shall cause the bylaws of the Surviving Corporation to be amended and restated in their entirety so that, immediately following the Effective Time, they are identical to the bylaws of the Acquisition Sub as in effect immediately prior to the Effective Time, except that all references to the name of the Acquisition Sub therein shall be changed to refer to the name of the Company and such bylaws shall otherwise be consistent with Section 6.7 , and, as so amended and restated, such bylaws shall be the bylaws of the Surviving Corporation, until further amended in accordance with the DGCL. The Merger shall have the effects set forth in Section 259 of the DGCL.

1.4 Directors of the Surviving Corporation . The directors of the Acquisition Sub immediately prior to the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the certificate of incorporation and bylaws of the Surviving Corporation.

ARTICLE II

CONVERSION OF SECURITIES

2.1 Conversion of Capital Stock . As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of the capital stock of the Company or capital stock of the Acquisition Sub:

(a) Capital Stock of the Acquisition Sub . Each share of the common stock of the Acquisition Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of common stock, $0.01 par value per share, of the Surviving Corporation.

(b) Cancellation of Treasury Stock and Buyer-Owned Stock . All shares of common stock, par value $0.01 per share of the Company (the “ Company Common Stock ”) including the associated Preferred Stock Purchase Rights (the “ Company Rights ” and, together with the Company Common Stock, the “ Shares ”) issued pursuant to the Rights Agreement, dated

 

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as of October 25, 2002, between the Company and SunTrust Bank (the “ Company Rights Plan ”) that are owned by the Company as treasury stock and all Shares held by any wholly owned Subsidiary of the Company, the Buyer, the Acquisition Sub or any other wholly owned Subsidiary of the Buyer immediately prior to the Effective Time shall be automatically cancelled and shall cease to exist and no stock of the Buyer or other consideration shall be delivered in exchange therefor.

(c) Merger Consideration for Company Common Stock . Subject to Section 2.2 , each Share (other than Shares to be cancelled in accordance with Section 2.1(b)  and Dissenting Shares (as defined in Section 2.4(a) below)) issued and outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive $27.50 (less applicable withholding Taxes) in cash (the “ Merger Consideration ”). As of the Effective Time, all such Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration pursuant to this Section 2.1(c)  upon the surrender of such certificate in accordance with Section 2.2 , without interest.

(d) Adjustments to Merger Consideration . The Merger Consideration shall be adjusted to reflect fully the effect of any reclassification, stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Company Common Stock), reorganization, recapitalization or other like change with respect to Company Common Stock occurring (or for which a record date is established) after the date hereof and prior to the Effective Time.

2.2 Exchange of Certificates . The procedures for exchanging outstanding Shares for the Merger Consideration pursuant to the Merger are as follows:

(a) Paying Agent . At or prior to the Effective Time, the Buyer shall deposit with a bank or trust company mutually acceptable to the Buyer and the Company (the “ Paying Agent ”), for the benefit of the holders of Shares outstanding immediately prior to the Effective Time, for payment through the Paying Agent in accordance with this Section 2.2 , cash in an amount sufficient to make payment of the Merger Consideration pursuant to Section 2.1(c)  in exchange for all of the outstanding Shares (the “ Exchange Fund ”). The Exchange Fund shall not be used for any other purpose. The Exchange Fund shall be invested by the Paying Agent as directed by the Buyer. Any net profit resulting from, or interest or income produced by, such Exchange Fund will be payable to the Buyer or as the Buyer otherwise directs and any loss resulting from the investment of such Exchange Fund shall be borne by the Buyer and shall not diminish any amount payable by the Buyer in exchange for the Shares pursuant to this Agreement.

(b) Exchange Procedures . Promptly (and in any event within five (5) Business Days) after the Effective Time, the Buyer shall cause the Paying Agent to mail to each holder of record of a certificate (or evidence of shares in book-entry form) which immediately prior to the Effective Time represented outstanding Shares (each, a “ Certificate ”) entitled to receive Merger Consideration pursuant to Section 2.1(c) a letter of transmittal in customary form and (ii) instructions for effecting the surrender of the Certificates in exchange for the Merger

 

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Consideration payable with respect thereto. Upon surrender of a Certificate for cancellation to the Paying Agent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be paid, promptly in exchange therefor, cash in an amount equal to the Merger Consideration that such holder has the right to receive pursuant to the provisions of this Article II , and the Certificate so surrendered shall immediately be cancelled. No interest will be paid or accrued on the cash payable upon the surrender of such Certificate or Certificates. In the event of a transfer of ownership of Company Common Stock which is not registered in the transfer records of the Company, the Merger Consideration may be paid to a Person other than the Person in whose name the Certificate so surrendered is registered, if such Certificate is presented to the Paying Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid and the Person requesting such payment pays any transfer or other Taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of such Certificate or establishes to the reasonable satisfaction of the Buyer that such Tax has been paid or is not applicable. Until surrendered as contemplated by this Section 2.2 , each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration as contemplated by this Section 2.2 . As used in this Agreement, “ Person ” means any individual, corporation, partnership, limited liability company, joint venture, association, trust, Governmental Entity, unincorporated organization or other entity.

(c) No Further Ownership Rights in Company Common Stock . All Merger Consideration paid upon the surrender of Certificates in accordance with the terms hereof shall be deemed to have been paid in satisfaction of all rights pertaining to the Shares formerly represented by such Certificates, and from and after the Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. Subject to the last sentence of Section 2.2(d) , if, after the Effective Time, Certificates are presented to the Surviving Corporation or the Paying Agent for any reason, they shall be cancelled and exchanged as provided in this Article II .

(d) Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the holders of Company Common Stock for one (1) year after the Effective Time shall be delivered to the Buyer, upon demand, and any holder of Shares who has not previously complied with this Section 2.2 shall be entitled to receive only from the Buyer payment of its claim for Merger Consideration, without interest. Any amount remaining unclaimed by such holders at such time at which amounts would otherwise escheat to or become property of any Governmental Entity shall become, to the extent permitted by applicable Law, the property of the Buyer free and clear of any and all claims or interests of any Person previously entitled thereto.

(e) No Liability . To the extent permitted by applicable Law, none of the Buyer, the Acquisition Sub, the Company, the Surviving Corporation or the Paying Agent shall be liable to any holder of Shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

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(f) Withholding Rights . Each of the Buyer, the Surviving Corporation and the Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of Shares and/or Company Stock Options such amounts as it is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “ Code ”), or any other applicable state, local or foreign Tax law. To the extent that amounts are so withheld by the Surviving Corporation, the Buyer or the Paying Agent, as the case may be, such withheld amounts (i) shall be remitted by the Buyer, the Surviving Corporation or the Paying Agent, as the case may be, to the applicable Governmental Entity, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of the Shares and/or Company Stock Options in respect of which such deduction and withholding was made by the Surviving Corporation, the Buyer or the Paying Agent, as the case may be.

(g) Lost Certificates . If any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed, and, if required by the Buyer or the Paying Agent, the posting by such Person of a bond in such reasonable amount as the Buyer or the Paying Agent may direct, as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent shall pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Shares formerly represented thereby pursuant to this Agreement.

(h) Expenses . The Buyer or the Acquisition Sub shall bear and pay all charges and expenses, including those of the Paying Agent, incurred in connection with the payment for Shares.

2.3 Company Stock Plans .

(a) Cash-Out of Vested Company Stock Options at Spread . Immediately after the Effective Time, each outstanding option to purchase shares of Company Common Stock (“ Company Stock Options ”) that is vested in accordance with its terms at the Effective Time (each a “ Vested Company Stock Option ”) shall, to the extent so vested, without any action on the part of the Company or the holder of such option, automatically be cancelled and exchanged for a cash payment by the Buyer or the Acquisition Sub (which shall be made promptly after the Effective Time) in an amount equal to (i) the excess, if any, of (x) the Merger Consideration per share of Company Common Stock over (y) the exercise price per share of Company Common Stock subject to such Vested Company Stock Option, multiplied by (ii) the number of shares of Company Common Stock for which such Vested Company Stock Option is vested and exercisable immediately prior to the Effective Time.

(b) Assumption of Unvested Company Stock Options . At the Effective Time, each outstanding Company Stock Option that is unvested in accordance with its terms at the Effective Time (each an “ Unvested Company Stock Option ”) shall, without any action on the part of the Company or any holder of such options, automatically be assumed by the Buyer together with all stock option plans or other equity-related plans of the Company (the “ Company Stock Plans ”) insofar as they relate to outstanding Unvested Company Stock Options, and each option so assumed shall, without any action on the part of the Company or the holder of such

 

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option, to the extent so unvested, automatically become an option to acquire, on the same terms and conditions as were applicable under the Unvested Company Stock Option immediately prior to the Effective Time, a number of shares of common stock, $0.01 par value per share, of the Buyer (“ Buyer Common Stock ”) determined as follows:

(i) the number of shares of Buyer Common Stock subject to each Company Stock Option assumed by the Buyer shall be determined by multiplying the number of shares of Company Common Stock that were subject to such Unvested Company Stock Option immediately prior to the Effective Time by the Conversion Ratio (as defined below), and rounding the resulting number down to the nearest whole number of shares of Buyer Common Stock; and

(ii) the per share exercise price for the Buyer Common Stock issuable upon exercise of each Unvested Company Stock Option assumed by the Buyer shall be determined by dividing the per share exercise price of Company Common Stock subject to such Unvested Company Stock Option, as in effect immediately prior to the Effective Time, by the Conversion Ratio, and rounding the resulting exercise price up to the nearest whole cent.

The “ Conversion Ratio ” means the quotient of Merger Consideration per Share, divided by the average of the closing sale prices of a share of Buyer Common Stock as reported on The Nasdaq National Market for each of the twenty (20) consecutive trading days immediately preceding the Closing Date; provided , however , that if, between the date of this Agreement and the Effective Time, the outstanding shares of Company Common Stock or Buyer Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction, then the Conversion Ratio shall be adjusted to the extent appropriate to reflect such occurrence. Any restriction on the exercise of any Unvested Company Stock Option assumed by the Buyer shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Unvested Company Stock Option shall otherwise remain unchanged as a result of the assumption of such Unvested Company Stock Option, in each case except to the extent otherwise provided in any Company Stock Plan or any stock option or other agreement between the holder of an Unvested Company Stock Option and the Company. Nothing herein shall be construed to prohibit the Buyer from adjusting the conversion described in this subsection (b) by modifying the exercise price per share of Buyer Common Stock, and taking such actions, in each case, as may be necessary or appropriate to comply with Section 409A of the Code and to preserve the intended tax treatment of the Unvested Company Stock Options.

(c) Notification . Within five (5) Business Days following the Effective Time, the Buyer shall deliver to the participants in the Company Stock Plans an appropriate notice setting forth such participants’ rights pursuant to the Company Stock Options, as provided in this Section 2.3 .

(d) Action by Buyer . As soon as reasonably practicable following the date of this Agreement and in any event prior to the Effective time, the Buyer shall take all corporate action necessary to reserve for issuance under the Company Stock Plans a sufficient number of shares of Buyer Common Stock for delivery upon exercise of the Unvested Company Stock

 

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Options assumed in accordance with this Section 2.3 . As soon as reasonably practicable following the Effective Time (and in any event not later than twenty (20) days after the Buyer becomes eligible to register securities on Form S-8 (or any successor form)), the Buyer shall file a registration statement on Form S-8 (or any successor form) or another appropriate form with respect to the shares of Buyer Common Stock subject to such options and shall use commercially reasonable efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options remain outstanding.

(e) Action by the Company . As soon as reasonably practicable following the date of this Agreement and in any event prior to the Effective Time, the Company Board (or, if appropriate, any committee administering the Company Stock Plans) shall adopt such resolutions or take such other actions as are required to adjust the terms of the Company Stock Options to permit the foregoing and to provide that with respect to the Company ESPP (i) participants thereunder may not increase their payroll deductions or purchase elections from those in effect on the date of this Agreement, (ii) no purchase period will be commenced after the date of this Agreement, and (iii) the amount of each participant’s accumulated contributions under the Company ESPP as of immediately prior to the Effective Time shall be refunded to such participant as promptly as practicable following the Effective Time (without interest).

(f) Withholding Taxes, Consents Required . All amounts payable pursuant to this Section 2.3 shall be subject to any required withholding of Taxes and shall be paid without interest.

(g) Termination of Company ESPP . The Company shall terminate its Amended and Restated Employee Stock Purchase Plan, as amended (the “ Company ESPP ”), in accordance with its terms as of or prior to the Effective Time.

2.4 Dissenting Shares .

(a) Notwithstanding anything to the contrary contained in this Agreement, shares of Company Common Stock issued and outstanding immediately prior to the Effective Time that are held by a holder who did not vote in favor of the Merger and who is entitled to demand and has made a proper demand for appraisal of such shares of Company Common Stock in accordance with the DGCL (any such shares being referred to as “ Dissenting Shares ” until such time as such holder fails to perfect or otherwise loses such holder’s appraisal rights under the DGCL with respect to such shares) shall not be converted into or represent the right to receive Merger Consideration in accordance with Section 2.1 , but shall be entitled only to such rights as are granted pursuant to Section 262 of the DGCL to a holder of Dissenting Shares.

(b) If any Dissenting Shares shall lose their status as such (through failure to perfect or otherwise), then, as of the later of the Effective Time or the date of loss of such status, such shares shall automatically be converted into and shall represent only the right to receive Merger Consideration in accordance with Section 2.1 , without interest thereon, upon surrender of the Certificate formerly representing such shares.

 

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(c) The Company shall give the Buyer: (i) prompt notice of any written demand for appraisal received by the Company prior to the Effective Time pursuant to the DGCL, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company pursuant to the DGCL that relate to such demand; and (ii) the opportunity to participate in all negotiations and proceedings with respect to any such demand, notice or instrument. The Company shall not waive any failure by a holder of shares of Company Common Stock to timely comply with the requirements of the DGCL to perfect or demand appraisal rights pursuant to this Section 2.4 or make any payment or settlement offer prior to the Effective Time with respect to any such demand, notice or instrument unless the Buyer shall have given its written consent to such payment or settlement offer.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Buyer and Acquisition Sub that the statements contained in this Article III are true and correct, except as set forth herein or in the disclosure schedule delivered by the Company to the Buyer and Acquisition Sub and dated as of the date of this Agreement (the “ Company Disclosure Schedule ”) to the extent that such exceptions and disclosures specifically relate to, or it is reasonably apparent on their face that such disclosures and exceptions relate to, such Section of Article III below, and except further that no representation or warranty is made as to the effects of (or the potential future effects or changes that could reasonably be expected to result from or to occur in) the matters disclosed in the Forepart of the Company Disclosure Schedule .

3.1 Organization, Standing and Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted and is duly qualified to do business and, where applicable as a legal concept, is in good standing as a foreign corporation in each jurisdiction in which the character of the properties it owns, operates or leases or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, that would not reasonably be expected to have a Company Material Adverse Effect. For purposes of this Agreement, the term “ Company Material Adverse Effect ” means any change, event, circumstance, effect, or development that has or would reasonably be expected to have a material adverse effect on (i) the business, assets, liabilities (contingent or otherwise), condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of the Company to perform its obligations under this Agreement or consummate the transactions contemplated by this Agreement; provided , however , that none of the following, and no change, event, circumstance, effect or development resulting or arising from any of the following, shall constitute, or shall be considered in determining whether there has occurred, a Company Material Adverse Effect:

(a) economic factors generally affecting the national, regional or world economy to the extent that such factors do not have a materially disproportionate affect on the

 

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Company or its Subsidiaries as compared to similarly situated companies in the industry in which the Company and its Subsidiaries participate;

(b) factors generally affecting the industries or markets in which either the Company or any of its Subsidiaries operates to the extent that such factors do not have a materially disproportionate affect on the Company or its Subsidiaries as compared to similarly situated companies in the industry in which the Company and its Subsidiaries participate;

(c) actions required by the parties pursuant to this Agreement or the pendency or announcement of the transactions contemplated by this Agreement, including actions of competitors or any delays or cancellations of orders for products or losses of employees, provided , that, such actions would not result in a breach of the representations and warranties set forth in Section 3.4(b) and Section 3.4(c) ;

(d) any matters relating to or arising out of the matters described in the Forepart of the Company Disclosure Schedule or any of the proceedings, investigations, inquiries and claims regarding the Company’s option grant practices described in Section 3.12 of the Company Disclosure Schedule , as well as any other matters relating to or arising out of the option grant practices that are the subject matter of such proceedings, investigations, inquiries or claims;

(e) any change in Law, rules or regulations;

(f) any change in generally accepted accounting principles or the interpretation thereof;

(g) any action required to be taken pursuant to or in accordance with this Agreement (including Section 6.5 ) or at the request of the Buyer;

(h) any fees or expenses incurred in connection with the negotiations leading to, or the transactions contemplated by, this Agreement;

(i) any failure by the Company to meet any projections, guidance, estimates, or forecasts for or during any period ending (or for which results are released) on or after the date hereof;

(j) any stockholder litigation arising from or relating to the Agreement or the Merger;

(k) any decline in the price of the Company Common Stock in and of itself (but not the underlying reasons for the decline thereof); or

(l) any outbreak or escalation of war, terrorism or armed conflict that directly or indirectly affects the business of the Company or its Subsidiaries, to the extent that such outbreak or escalation does not have a materially disproportionate affect on the Company and its Subsidiaries, taken together as a whole, as compared to similarly situated companies in the industry in which the Company and its Subsidiaries participate.

 

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3.2 Capitalization .

(a) The authorized capital stock of the Company as of the date of this Agreement consists of 50,000,000 shares of Company Common Stock, of which, as of January 31, 2007, 34,149,619 shares were issued and outstanding, and 10,000,000 shares of Preferred Stock, par value $.01 per share (“ Company Preferred Stock ”), of which, as of January 31, 2007, no shares were issued and outstanding. The rights and privileges of the Company Common Stock and Company Preferred Stock are as set forth in the Company’s certificate of incorporation.

(b) Set forth in Section 3.2(b) of the Company Disclosure Schedule is a complete and accurate list, as of February 2, 2007, of: (i) all Company Stock Plans, indicating for each Company Stock Plan, as of such date, the number of shares of Company Common Stock issued under such Plan, the number of shares of Company Common Stock subject to outstanding options under such Plan and the number of shares of Company Common Stock reserved for future issuance under such Plan; (ii) all outstanding Company Stock Options (other than Company Stock Options issued pursuant to the Company ESPP), indicating with respect to each such Company Stock Option the name of the holder thereof, the Company Stock Plan under which it was granted, the number of shares of Company Common Stock subject to such Company Stock Option, the exercise price, the reported date of grant, and the vesting schedule, including whether (and to what extent) the vesting will be accelerated in any way by the Merger or by termination of employment or change in position following consummation of the Merger; and (iii) all outstanding awards under any Company Stock Plan of shares of Company Common Stock that are subject to repurchase by the Company pursuant to restricted stock or similar agreements with the Company (such shares, “ Restricted Shares ”), indicating with respect to each such award the name of the holder thereof, the Company Stock Plan under which it was granted, the number of shares of Company Common Stock covered thereby, the repurchase price relating thereto, the date of grant, and the vesting schedule, including whether (and to what extent) the vesting will be accelerated in any way by the Merger or by termination of employment or change in position following consummation of the Merger. The Company has made available to the Buyer complete and accurate copies of all (x) Company Stock Plans, (y) forms of stock option agreements evidencing Company Stock Options, and (z) forms of agreements evidencing Restricted Shares.

(c) Except (i) as set forth in this Section 3.2 , (ii) as reserved for future grants under Company Stock Plans, as of the date of this Agreement, and (iii) the Company Rights issued and issuable under the Company Rights Plan, (A) there are no equity securities of any class of the Company, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding and (B) there are no options, warrants, equity securities, calls, rights, commitments or agreements of any character 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, exchange, transfer, deliver or sell, or cause to be issued, exchanged, transferred, delivered or sold, additional shares of capital stock or other equity interests of the Company or any security or rights convertible into or exchangeable or exercisable for any such shares or other equity interests, or obligating the Company or any of its Subsidiaries to grant, extend, accelerate the vesting of, otherwise modify or amend or enter into any such option, warrant, equity security, call, right, commitment or agreement. The

 

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Company does not have any outstanding stock appreciation rights, phantom stock, performance based rights or similar rights or obligations. Neither the Company nor any of its Affiliates is a party to or is bound by any agreements or understandings with respect to the voting (including voting trusts and proxies) or sale or transfer (including agreements imposing transfer restrictions) of any shares of capital stock or other equity interests of the Company. For all purposes of this Agreement, except for Section 4.7 , the term “ Affiliate ” when used with respect to any Person means any other Person who is an “affiliate” of that first Person within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”). Except for the Company Rights and except to the extent arising pursuant to applicable state takeover or similar Laws, there are no registration rights, and there is no rights agreement, “poison pill” anti-takeover plan or other similar agreement or understanding to which the Company or any of its Subsidiaries is a party or by which it or any of them is bound with respect to any equity security of any class of the Company.

(d) All outstanding shares of Company Common Stock are, and all shares of Company Common Stock subject to issuance as specified in Section 3.2(b) , upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any provision of the DGCL, the Company’s certificate of incorporation or bylaws or any agreement to which the Company is a party or is otherwise bound.

(e) There are no obligations, contingent or otherwise, of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of Company Common Stock or the capital stock of the Company or any of its Subsidiaries or to provide funds to the Company or any Subsidiary of the Company other than guarantees of bank obligations of Subsidiaries of the Company entered into in the Ordinary Course of Business (as defined below). As used in this Agreement, the “ Ordinary Course of Business ” means the ordinary course of business consistent in all material respects with past practice.

3.3 Subsidiaries .

(a) Section 3.3 of the Company Disclosure Schedule sets forth, as of the date of this Agreement, for each Subsidiary of the Company: (i) its name; (ii) the number and type of outstanding equity securities and a list of the holders thereof; and (iii) the jurisdiction of organization. For purposes of this Agreement, the term “ Subsidiary ” means, with respect to any party, any corporation, partnership, trust, limited liability company or other non-corporate business enterprise in which such party (or another Subsidiary of such party) holds stock or other ownership interests representing (A) more than fifty percent (50%) of the voting power of all outstanding stock or ownership interests of such entity or (B) the right to receive more than fifty percent (50%) of the net assets of such entity available for distribution to the holders of outstanding stock or ownership interests upon a liquidation or dissolution of such entity. For purposes of this Agreement, the term “ Material Subsidiary ” shall mean each of the Subsidiaries of the Company set forth in Section 3.3(a) of the Company Disclosure Schedule .

 

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(b) Each Subsidiary of the Company is a corporation duly organized, validly existing and in good standing (to the extent such concepts are applicable) under the Laws of the jurisdiction of its incorporation. Each Subsidiary of the Company has all requisite corporate power and authority to own, lease and operate its properties and assets and to carry on its business as now being conducted, and is duly qualified to do business and is in good standing as a foreign corporation (to the extent such concepts are applicable) in each jurisdiction where the character of its properties owned, operated or leased or the nature of its activities makes such qualification necessary, except for such failures to be so organized, qualified or in good standing, individually or in the aggregate, as would not reasonably be expected to have a Company Material Adverse Effect. All of the outstanding shares of capital stock and other equity securities or interests of each Subsidiary of the Company are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights and all such shares (other than directors’ qualifying shares in the case of non-U.S. Subsidiaries, all of which the Company has the power to cause to be transferred for no or nominal consideration to the Company or the Company’s designee) are owned, of record and beneficially, by the Company or another of its Subsidiaries free and clear of all security interests, liens, claims, pledges, agreements, limitations in the Company’s voting rights, charges or other encumbrances. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or any of its Subsidiaries is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary of the Company. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary of the Company. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary of the Company.

(c) The Company has made available to the Buyer complete and accurate copies of the charter, bylaws or other organizational documents of each Material Subsidiary.

(d) The Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association or entity which is not a Subsidiary of the Company, other than securities in a publicly traded company held for investment by the Company or any of its Subsidiaries and consisting of less than five percent (5%) of the outstanding capital of such company, to the extent disclosed in Section 3.3(d) of the Company Disclosure Schedule .

3.4 Authority; No Conflict; Required Filings and Consents .

(a) The Company has all requisite corporate power and authority to enter into this Agreement and, subject to the adoption of this Agreement (the “ Company Voting Proposal ”) by the Company’s stockholders under the DGCL (the “ Company Stockholder Approval ”), to consummate the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Company Board, at a meeting duly called and held, (i) unanimously determined that the Merger is fair and in the best interests of the Company and its stockholders, (ii) approved this Agreement and declared its advisability in accordance with the provisions of the DGCL, (iii) directed that this Agreement be submitted to the stockholders of the Company for their adoption and resolved to recommend that the stockholders of the Company vote in favor of the adoption of this Agreement, and (iv) to the extent necessary,

 

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adopted a resolution having the effect of causing the execution, delivery or performance of this Agreement or the consummation of the Merger or the other transactions contemplated by this Agreement not to be subject to any state takeover Law or similar Law that might otherwise apply to such execution, delivery, performance or consummation. Assuming the accuracy of the representations and warranties of Buyer and Acquisition Sub in Section 4.7 , the execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company, subject only to the required receipt of the Company Stockholder Approval. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws of general applicability relating to or affecting creditors’ rights and to general equity principles (the “ Bankruptcy and Equity Exception ”).

(b) The execution and delivery of this Agreement by the Company do not, and the consummation by the Company of the transactions contemplated by this Agreement shall not, (i) conflict with, or result in any violation or breach of, any provision of the certificate of incorporation or bylaws of the Company or of the charter, bylaws, or other organizational document of any Subsidiary of the Company, (ii) conflict with, or result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under, require a consent or waiver under, require the payment of a penalty under or result in the imposition of any mortgage, security interest, pledge, lien, charge or encumbrance (“ Liens ”) on the Company’s or any of its Subsidiaries’ assets under, any of the terms, conditions or provisions of any lease, license, contract or other agreement, instrument or obligation to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound, or (iii) subject to obtaining the Company Stockholder Approval and compliance with the requirements specified in clauses (i) through (v) of Section 3.4(c) , conflict with or violate any permit, concession, franchise, license, judgment, injunction, order, decree, statute, Law, ordinance, rule or regulation applicable to the Company or any of its Subsidiaries or any of its or their respective properties or assets, except in the case of clauses (ii) and (iii) of this Section 3.4(b)  for any such conflicts, violations, breaches, defaults, terminations, cancellations, accelerations, losses, penalties or Liens, and for any consents or waivers not obtained, that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(c) No consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority, agency or instrumentality (a “ Governmental Entity ”) or any stock market or stock exchange on which shares of Company Common Stock are listed for trading 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 or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the pre-merger notification requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”) and any other applicable Antitrust Laws, (ii) the filing of the Certificate of Merger with the Delaware Secretary of State and appropriate corresponding documents with the appropriate authorities of other states in which the

 

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Company is qualified as a foreign corporation to transact business, (iii) the filing of the Proxy Statement with the United States Securities and Exchange Commission (“ SEC ”) in accordance with the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), (iv) the filing of such reports, schedules or materials under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (v) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities Laws, and (vi) such other consents, approvals, licenses, permits, orders, authorizations, registrations, declarations, notices and filings the absence of which would not reasonably be expected to have a Company Material Adverse Effect.

(d) Assuming the accuracy of the representations and warranties of Buyer and Acquisition Sub in Section 4.5 , the affirmative vote for adoption of the Company Voting Proposal by the holders of at least a majority of the outstanding shares of Company Common Stock on the record date for the meeting of the Company’s stockholders (the “ Company Meeting ”) to consider the Company Voting Proposal (the “ Required Company Stockholder Vote ”) is the only vote of the holders of any class or series of the Company’s capital stock or other securities necessary for the adoption of this Agreement and for the consummation by the Company of the other transactions contemplated by this Agreement. There are no bonds, debentures, notes or other indebtedness of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote.

3.5 SEC Filings; Financial Statements; Information Provided .

(a) Except as described in Section 3.5(a) of the Company Disclosure Schedule , the Company has filed or furnished all registration statements, forms, reports, schedules, certifications and other documents required to be filed or furnished by the Company with the SEC since January 1, 2004 (the “ Company SEC Reports ”). Except as described in Section 3.5(a) of the Company Disclosure Schedule , the Company SEC Reports (as amended, supplemented and restated by Company SEC Reports that have been filed prior to the date hereof or will be filed prior to the Closing) (i) complied (at the time filed) or will comply (when filed) as to form in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Company SEC Reports, and (ii) did not (at the time they were filed) or will not (at the time they are filed) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Company SEC Reports or necessary in order to make the statements in such Company SEC Reports, in the light of the circumstances under which they were made, not misleading. As of the date hereof, there are no outstanding or unresolved comments received from the SEC staff with respect to the Company SEC Documents.

(b) Except as described in Section 3.5(b) of the Company Disclosure Schedule , each of the consolidated financial statements (including, in each case, any related notes and schedules) contained or to be contained in the Company SEC Reports (as amended, supplemented and restated by Company SEC Reports that have been filed prior to the date hereof or will be filed prior to the Closing) at the time filed (i) complied or will comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, (ii) was or will be prepared in accordance with

 

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United States generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim financial statements, as permitted by the SEC on Form 10-Q under the Exchange Act), and (iii) fairly presented or will fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of their operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments, none of which has been or will be, in the aggregate, material to the Company and its Subsidiaries, taken as a whole. The consolidated unaudited balance sheet of the Company as of September 30, 2006 is referred to herein as the “ Company Balance Sheet .”

(c) The proxy statement to be filed by, and sent to the stockholders of, the Company in connection with the Company Meeting (the “ Proxy Statement ”) will comply as to form in all material respects with the requirements of the Exchange Act. The information supplied or to be supplied by or on behalf of the Company for inclusion or incorporation by reference in the Proxy Statement, on the respective dates the Proxy Statement is filed with the Commission and on the date it is first published, sent or given to stockholders of the Company and at the time of the Company Stockholders Meeting, shall not 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; provided , that the Company makes no representation or warranty concerning any information supplied by the Buyer or the Acquisition Sub for inclusion in the Proxy Statement. If at any time prior to the Company Meeting any fact or event relating to the Company or any of its Affiliates which should be set forth in a supplement to the Proxy Statement should be discovered by the Company or should occur, the Company shall, promptly after becoming aware thereof, inform the Buyer of such fact or event.

(d) Except as described in Section 3.5(d) of the Company Disclosure Schedule , the Company is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”). Each required form, report and document containing financial statements that has been filed with or submitted to the SEC since January 1, 2004 was accompanied by the certifications required to be filed or submitted by the Company’s chief executive officer and chief financial officer pursuant to the Sarbanes-Oxley Act and, at the time of filing or submission of each such certification, such certification complied in all material respects with the applicable provisions of the Sarbanes-Oxley Act and the rules and regulations promulgated thereunder.

(e) The Company maintains internal controls over financial reporting and disclosure controls and procedures (as such terms are defined in Rule 13a-15 and 15d-15 under the Exchange Act). Such disclosure controls and procedures are effective to ensure that all material information concerning the Company is made known on a timely basis to the individuals responsible for the preparation of the Company’s filings with the SEC and other public disclosure documents. The Company’s principal executive officer and its principal financial officer have disclosed, to the extent known to them and based on their most recent evaluation, to the Company’s auditors and the audit committee of the board of directors of the Company (x) all significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and

 

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report financial data and have identified for the Company’s auditors any material weakness in internal controls and (y) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls over financial reporting. The Company is in compliance in all material respects with the applicable listing and other rules and regulations of The Nasdaq National Market.

3.6 No Undisclosed Liabilities . Except as disclosed in the Company Balance Sheet and except for liabilities incurred in the Ordinary Course of Business between the date of the Company Balance Sheet and the date of this Agreement, the Company and its Subsidiaries do not have any liabilities of any nature (whether accrued, absolute, contingent or otherwise and whether known or unknown) whether or not required, if known, to be reflected or reserved against on a consolidated balance sheet of the Company prepared in accordance with GAAP or the notes thereto, that, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect.

3.7 Absence of Certain Changes or Events . Since the date of the Company Balance Sheet, there has not been a Company Material Adverse Effect and have not been any events, changes, occurrences, or state of facts that, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect. From the date of the Company Balance Sheet until the date of this Agreement, (a) the Company and its Subsidiaries have conducted their respective businesses only in the Ordinary Course of Business and (b) there has not been any action or event that would have required the consent of the Buyer under Section 5.1 of this Agreement had such action or event occurred after the date of this Agreement.

3.8 Taxes .

(a) Each of the Company and each of its Subsidiaries has filed with the appropriate taxing authority all Tax Returns that it was required to file, and all such Tax Returns were correct and complete, except for any failure to file or errors or omissions that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Each of the Company and each of its Subsidiaries has paid on a timely basis all Taxes that are shown to be due on any such Tax Returns and all Taxes due and payable by it, and has timely withheld and paid all material amounts of Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor or other third party except as would not reasonably be expected to have a Material Adverse Effect. The unpaid Taxes of the Company and its Subsidiaries do not exceed the reserve for Taxes (other than any reserve for deferred Taxes to reflect book/timing differences) set forth on the face of the financial statements included in the Company SEC Reports (other than any notes thereto), as adjusted through the Closing Date in accordance with past custom and practice. For purposes of this Agreement, (i) “ Taxes ” means all taxes or other similar assessments or liabilities in the nature of a tax, including income, gross receipts, ad valorem, premium, value-added, excise, real property, personal property, sales, use, services, transfer, withholding, employment, payroll and franchise taxes imposed by the United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government, and any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof, and (ii) “ Tax Returns ” means all reports, returns, declarations, statements or other information

 

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required to be supplied to a taxing authority in connection with Taxes, including any information return, claim for refund, amended return or declaration of estimated Tax.

(b) The Company has made available to the Buyer correct and complete copies of all federal and material state and foreign income Tax Returns and any associated examination reports, statements of deficiencies, ruling requests, private letter rulings, closing agreements, settlement agreements and similar documents filed, assessed against or agreed or received by the Company or any of its Subsidiaries since January 1, 2004. The federal and material state, local and foreign income Tax Returns of the Company and each of its Subsidiaries have been audited by the Internal Revenue Service (the “ IRS ”) or other applicable taxing authority or are closed by the applicable statute of limitations for all taxable years through the taxable year specified in Section 3.8(b) of the Company Disclosure Schedule . No examination or audit of any Tax Return of the Company or any of its Subsidiaries by any Governmental Entity is currently in progress or, to the Company’s Knowledge, has been threatened and which would reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries has waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency, other than extensions which are no longer in effect.

(c) Neither the Company nor any of its Subsidiaries: (i) has made any payments, is obligated to make any payments, or is a party to any agreement that could obligate it to make any payments that will be treated as an “excess parachute payment” under Section 280G of the Code or any similar provision of Law in any jurisdiction; (ii) has any actual or potential liability for any Taxes of any Person (other than the Company and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of Law in any jurisdiction), or as a transferee or successor, by contract or otherwise; (iii) is or has been a United States real property holding corporation within the meaning of Section 897 of the Code during the period described in Section 897(c)(1)(A)(ii) of the Code; (iv) has constituted either a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock, occurring within the past two years, that was intended to qualify for tax-free treatment under Section 355 of the Code; (v) is party to any “listed transaction” as defined in Treasury Regulation Section 1.6011-4(b)(2), or a transaction that is substantially similar to a “listed transaction”; (vi) has executed any closing agreement pursuant to Section 7121 of the Code, or any corresponding or similar provision of state, local or foreign income Tax Law, that relates to the assets or operations of the Company or any of its Subsidiaries that will be applicable to periods following the Closing; or (vii) will be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any change in method of accounting for a taxable period ending on or prior to the Closing Date under Section 481(c) of the Code (or any similar provision of state, local or foreign Law) except to the extent required by the consummation of the transactions provided for in this Agreement.

3.9 Real Property .

(a) None of the Company or any of its Subsidiaries owns or, in the past five years, has owned any real property.

 

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(b) Section 3.9(b) of the Company Disclosure Schedule sets forth a complete and accurate list as of the date of this Agreement of all real property leased, subleased or licensed by the Company or any of its Subsidiaries and material to the conduct of the business of the Company and its Subsidiaries, taken as a whole, as currently conducted (collectively “ Company Leases ”), and the location of the premises. Neither the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any other party to any Company Lease is in default under any of the Company Leases, except where the existence of such defaults, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries leases, subleases or licenses any real property to any Person other than the Company and its Subsidiaries where such lease, sublease or license is material to the financial condition of the Company and its Subsidiaries, taken as a whole. The Company has made available to the Buyer complete and accurate copies of all Company Leases. Each of the Company and its Subsidiaries enjoys peaceable and undisturbed possession under all Company Leases in all material respects.

3.10 Intellectual Property .

(a) The Company and its Subsidiaries own, license, sublicense or otherwise possess legally enforceable rights to use all Intellectual Property necessary to conduct the business of the Company and its Subsidiaries, taken as a whole, as currently conducted (in each case excluding generally commercially available, off the shelf software programs), the absence of which, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect. For purposes of this Agreement: the term “ Intellectual Property ” means (i) patents, trademarks, service marks, trade names, domain names, copyrights, designs and trade secrets, (ii) applications for and registrations of such patents, trademarks, service marks, trade names, domain names, copyrights and designs, (iii) processes, formulae, methods, schematics, technology, know-how, computer software programs and applications, and (iv) other tangible or intangible proprietary or confidential information and materials; the term “ Company Intellectual Property ” means any Intellectual Property owned by the Company or any of its Subsidiaries, and that is material to the business of the Company and its Subsidiaries, taken as a whole, as currently conducted; “ Company Software ” means all computer software material to the operation of the business of the Company and its Subsidiaries, taken as a whole, as currently conducted; the term “ Company Source Code ” means, collectively, any human readable Company Software, or any material portion or aspect of human readable Company Software; the term “ Encumbrance ” means, with respect to any Company Intellectual Property, any mortgage, deed of trust, lien, pledge, charge, security interest, title retention device, collateral assignment, adverse claim, restriction or other encumbrance of any kind in respect of Company Intellectual Property; and the term “ Third Party Intellectual Property ” means any Intellectual Property owned by a third party. that is material to the business of the Company and its Subsidiaries, taken as a whole, as currently conducted, excluding generally commercially available, off-the-shelf software programs.

(b) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the Company and its Subsidiaries exclusively own all right, title and interest in the Company Intellectual Property, free and clear of all Encumbrances, other than other than nonexclusive object code licenses granted by the

 

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Company or any of its Subsidiaries to their respective customers in the ordinary course of business.

(c) Section 3.10(c) of the Company Disclosure Schedule contains a complete and accurate list of all contracts or other agreements, (i) pursuant to which the Company or any of its Subsidiaries uses or has the right to use any Third Party Intellectual Property or (ii) pursuant to which the Company or any of its Subsidiaries has licensed or otherwise permitted others the right to use any Company Intellectual Property, other than nonexclusive object code licenses granted by the Company or any of its Subsidiaries to their respective customers, resellers and/or distributors in the ordinary course of business, (such contracts or other agreements described in clauses (i) and (ii) above, the “ Company IP Agreements ”). Neither the Company nor any of its Subsidiaries has granted any exclusive license under any Company Intellectual Property. There are no pending disputes regarding the scope of any Company IP Agreements, performance under any Company IP Agreements, or with respect to payments made or received under any Company IP Agreements, except where such disputes have not, individually or in the aggregate, had, and would not, individually or in the aggregate, reasonably be expected to have, a Company Material Adverse Effect. Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect (i) no parties to the Company IP Agreements are in material breach thereof, and (ii) all Company IP Agreements are binding and are in full force and effect.

(d) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, the execution and delivery of this Agreement by the Company and the consummation by the Company of the Merger will (i) not result in the breach or termination of, or create on behalf of any third party the right to terminate or modify, (ii) (iii) cause any royalties or other payment obligations of the Company or any of its Subsidiaries to become payable pursuant to, or (iv) cause any existing obligation of the Company or any of its Subsidiaries to pay royalties, fees or other payments to increase pursuant to, in each case, under any Company IP Agreement.

(e) To the Company’s Knowledge, all patents, patent applications and registrations for, and applications to register, trademarks, service marks and copyrights which are owned by the Company or any of its Subsidiaries and which are material to the business of the Company and its Subsidiaries, taken as a whole, as currently conducted (the “ Company Registered Intellectual Property ”), are subsisting and have not expired or been cancelled and the Company has in a timely manner made all filings, payments, and recordations and taken all other actions required to obtain and maintain ownership of the Company Registered Intellectual Property. To the Company’s Knowledge, no third party is infringing, violating or misappropriating any of the Company Intellectual Property, except for infringements, violations or misappropriations that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect.

(f) To the Company’s Knowledge, the conduct of the business of the Company and its Subsidiaries as currently conducted does not infringe, violate or constitute a misappropriation of any Intellectual Property of any third party, except for such infringements, violations and misappropriations that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. No action, claim or proceeding alleging

 

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infringement, misappropriation, or other violation of any Intellectual Property right of any third party is pending. Since January 1, 2004, neither the Company nor any of its Subsidiaries has received any written claim or notice alleging any such material infringement, violation or misappropriation.

(g) None of the Company, any of its Subsidiaries or, to the Company’s Knowledge, any other Person acting on behalf of the Company or any of its Subsidiaries has disclosed or delivered to any third party, or permitted the disclosure or delivery to any escrow agent or other party of, any Company Source Code. Section 3.10(g) of the Company Disclosure Schedule identifies each contract or other agreement pursuant to which the Company or any of its Subsidiaries has deposited, or is or may be required to deposit, with an escrow agent or other third party, any Company Source Code, and describes whether the execution of this Agreement or the consummation of any of the transactions contemplated by this Agreement, in and of itself, could be expected to result in the release of any Company Source Code from escrow or otherwise require the delivery or licensing of any Company Source Code to any third party. Except as set forth in Section 3.10(g) of the Company Disclosure Schedule , no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time, or both) shall, or would, individually or in the aggregate, reasonably be expected to, require the disclosure or delivery by the Company, any of its Subsidiaries or any other Person acting on behalf of the Company or any of its Subsidiaries to any third party of any Company Source Code under such contracts or agreements.

(h) Except as would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse Effect, (i) the Company and each of its Subsidiaries have taken commercially reasonable steps to protect, preserve and maintain the proprietary and confidential rights and trade secrets in the Company Intellectual Property rights, including the Company Source Code and (ii) no current or former employee of, or independent contractor who has worked with, the Company or any of its Subsidiaries has any right or interest in any Intellectual Property right developed or created by such former employee or independent contractor while employed by or working on behalf of the Company or any of its Subsidiaries.

3.11 Contracts .

(a) To the extent not restricted by legal requirements, the Company has made available to the Buyer a copy of each Company Material Contract in effect on the date of this Agreement. As used in this Agreement, “ Company Material Contract ” means (i) any agreement, contract or commitment in connection with which or pursuant to which the Company and its Subsidiaries is reasonably likely to spend or receive, in the aggregate, more than five hundred thousand dollars ($500,000) during the current fiscal year or during the next fiscal year, (ii) any non-competition or other agreement that prohibits or otherwise restricts, in any material respect, the Company or any of its Subsidiaries from freely engaging anywhere in the world in any business that is material to the business currently conducted by the Company and its Subsidiaries, taken as a whole, (iii) any “material contract” (as such term is defined in Item 601(b)(10) of Regulation S-K of the SEC) with respect to the Company and its Subsidiaries, and (iv) any employment or consulting agreement with any executive officer or other employee of the Company or member of the Company Board earning an annual base salary in excess of two hundred thousand dollars ($200,000), other than those that are terminable by the Company

 

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or any of its Subsidiaries on no more than thirty (30) days’ notice without material liability or financial obligation to the Company or any of its Subsidiaries.

(b) Each Company Material Contract is in full force and effect except to the extent it has previously expired in accordance with its terms or where the failure to be in full force and effect, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries nor, to the Company’s Knowledge, any other party to any Company Material Contract is in violation of or in default under (nor does there exist any condition which, upon the passage of time or the giving of notice or both, would cause such a violation of or default under) any Company Material Contract or other contract to which the Company or any of its Subsidiaries is a party, except for violations or defaults that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received notice of termination or cancellation under any Company Material Contract, received any notice of material breach or material default under any Company Material Contract which breach has not been cured, or granted to any third party any rights, adverse or otherwise, in each case that, individually or in the aggregate, would reasonably be expected to result in a material breach of any Material Contract.

(c) Neither the Company nor any of its Subsidiaries has entered into any transaction with any Affiliate of the Company or any of its Subsidiaries or any transaction that would be subject to proxy statement disclosure pursuant to Item 404 of Regulation S-K.

3.12 Litigation . As of the date of this Agreement, there is no pending or, to the Knowledge of the Company, threatened, legal, administrative or other action, suit, proceeding, claim, arbitration or investigation against, or governmental or regulatory investigation of the Company or any of its Subsidiaries, in each case that, individually or in the aggregate, would reasonably be expected to have a Company Material Adverse Effect. There are no material injunctions, judgments, orders or decrees outstanding, or, to the Knowledge of the Company, threatened against the Company, any of its Subsidiaries or the assets of the Company or any of its Subsidiaries, by or before any Governmental Entity.

3.13 Environmental Matters .

(a) Except for matters that, individually or in the aggregate, would not reasonably be expected to have a Company Material Adverse Effect:

(i) the Company and its Subsidiaries are, and have been at all times during the last three (3) years, in compliance with applicable Environmental Laws and neither the Company nor its Subsidiaries has received any written notice alleging any of them has not complied with applicable Environmental Laws and to the Company’s Knowledge, the Company and its Subsidiaries are in compliance with applicable Environmental Laws;

(ii) there have been no Releases of Hazardous Substances from the properties currently owned or operated by the Company and its Subsidiaries (including soils, groundwater, surface water, buildings or other structures), nor were they contaminated with any Hazardous Substances in an amount or concentration that would give rise to an obligation to act

 

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or disclose that condition under any Environmental Law during the period of ownership or operation by the Company or any of its