AGREEMENT AND PLAN OF MERGER

Agreement and Plan of Merger

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APPLEBEE'S INTERNATIONAL, INC | IHOP CORP

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Title: AGREEMENT AND PLAN OF MERGER
Governing Law: Delaware Date: 7/18/2007
Industry: Restaurants Law Firm: Skadden Arps;Cravath Swaine Sector: Services

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

dated as of July 15, 2007,

among

IHOP CORP.,

CHLH CORP.

and

APPLEBEE'S INTERNATIONAL, INC.

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TABLE OF CONTENTS

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Page

ARTICLE I

Definitions

SECTION 1.01. Certain Defined Terms.....................................................................1

SECTION 1.02. Index of Defined Terms....................................................................3

SECTION 1.03. Interpretation............................................................................6

ARTICLE II

The Merger

SECTION 2.01. The Merger................................................................................6

SECTION 2.02. Closing...................................................................................6

SECTION 2.03. Effective Time............................................................................7

SECTION 2.04. Effects of the Merger.....................................................................7

SECTION 2.05. Certificate of Incorporation and Bylaws...................................................7

SECTION 2.06. Directors.................................................................................7

SECTION 2.07. Officers..................................................................................7

ARTICLE III

Effect of the Merger on the Capital Stock of the Constituent Corporations;

Exchange Fund; Company Equity Awards

SECTION 3.01. Effect on Capital Stock...................................................................8

SECTION 3.02. Exchange Fund.............................................................................9

SECTION 3.03. Company Equity Awards....................................................................11

ARTICLE IV

Representations and Warranties

SECTION 4.01. Representations and Warranties of the Company............................................12

SECTION 4.02. Representations and Warranties of Parent and Sub.........................................37

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ARTICLE V

Covenants Relating to Conduct of Business

SECTION 5.01. Conduct of Business......................................................................40

SECTION 5.02. No Solicitation..........................................................................44

SECTION 5.03. WARN Act.................................................................................46

ARTICLE VI

Additional Agreements

SECTION 6.01. Preparation of the Proxy Statement; Stockholders' Meeting................................47

SECTION 6.02. Access to Information; Confidentiality...................................................47

SECTION 6.03. Reasonable Best Efforts..................................................................48

SECTION 6.04. Benefit Plans............................................................................49

SECTION 6.05. Indemnification, Exculpation and Insurance...............................................50

SECTION 6.06. Fees and Expenses........................................................................51

SECTION 6.07. Public Announcements.....................................................................52

SECTION 6.08. Stockholder Litigation...................................................................52

SECTION 6.09. Financing................................................................................52

ARTICLE VII

Conditions Precedent

SECTION 7.01. Conditions to Each Party's Obligation to Effect the Merger...............................55

SECTION 7.02. Conditions to Obligations of Parent and Sub..............................................55

SECTION 7.03. Conditions to Obligation of the Company..................................................56

SECTION 7.04. Frustration of Closing Conditions........................................................56

ARTICLE VIII

Termination, Amendment and Waiver

SECTION 8.01. Termination..............................................................................57

SECTION 8.02. Effect of Termination....................................................................58

SECTION 8.03. Amendment................................................................................58

SECTION 8.04. Extension; Waiver........................................................................58

SECTION 8.05. Procedure for Termination or Amendment...................................................58

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ARTICLE IX

General Provisions

SECTION 9.01. Nonsurvival of Representations and Warranties............................................59

SECTION 9.02. Notices..................................................................................59

SECTION 9.03. Consents and Approvals...................................................................60

SECTION 9.04. Counterparts.............................................................................60

SECTION 9.05. Entire Agreement; No Third-Party Beneficiaries...........................................60

SECTION 9.06. GOVERNING LAW............................................................................60

SECTION 9.07. Assignment...............................................................................60

SECTION 9.08. Specific Enforcement; Consent to Jurisdiction............................................60

SECTION 9.09. Severability.............................................................................61

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iii

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AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of July

15, 2007, among IHOP CORP., a Delaware corporation ("Parent"), CHLH

CORP., a Delaware corporation and a wholly owned Subsidiary of Parent

("Sub"), and APPLEBEE'S INTERNATIONAL, INC., a Delaware corporation

(the "Company").

WHEREAS, the Board of Directors of each of the Company and Sub has approved

and declared advisable, and the Board of Directors of Parent has approved, this

Agreement and the merger of Sub with and into the Company (the "Merger"), upon

the terms and subject to the conditions set forth in this Agreement, whereby

each issued and outstanding share of common stock, par value $0.01 per share, of

the Company ("Company Common Stock"), other than (a) shares of Company Common

Stock held by the Company, as treasury stock, or otherwise owned by Parent, Sub

or any subsidiary of the Company and (b) the Appraisal Shares (as defined

herein), will be converted into the right to receive $25.50 in cash; and

WHEREAS, Parent, Sub and the Company desire to make certain

representations, warranties, covenants and agreements in connection with the

Merger and also to prescribe various conditions to the Merger.

NOW, THEREFORE, in consideration of the representations, warranties,

covenants and agreements contained in this Agreement, and subject to the

conditions set forth herein, the parties hereto agree as follows:

ARTICLE I

Definitions

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the

following terms shall have the following meanings:

"Affiliate" of any person means another person that directly or indirectly,

through one or more intermediaries, controls, is controlled by, or is under

common control with, such first person.

"business day" means any day on which banks are not required or authorized

to be closed in the City of New York.

"Company Disclosure Letter" means the letter dated as of the date of this

Agreement delivered by the Company to Parent and Sub.

"ERISA" means the Employee Retirement Income Security Act of 1974, as

amended.

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"Intellectual Property Rights" shall mean all intellectual property rights

of any kind or nature throughout the world, including all (i) U.S. and foreign

patents, patent applications, patent disclosures, and all continuations,

continuations-in-part, divisionals, reissues, re-examinations, substitutions,

and extensions thereof ("Patents"), (ii) U.S. and foreign trademarks, service

marks, company names, trade names, Internet domain names, logos, slogans, trade

dress, and other designations of source or origin, together with the goodwill

connected with the use of and symbolized by any of the foregoing ("Trademarks"),

(iii) U.S. and foreign copyrights and copyrighted subject matter (including, to

the extent applicable, Software and databases) ("Copyrights"), (iv) rights of

publicity, (v) trade secrets and other know-how, inventions and proprietary

processes (including proprietary Software and operating procedures), formulae,

models and methodologies ("Trade Secrets") and (vi) applications, registrations,

renewals, and recordings for the foregoing.

"Knowledge" means (i) with respect to the Company, the actual knowledge of

any of the persons set forth in Section 1.01 of the Company Disclosure Letter

and (ii) with respect to Parent or Sub, the actual knowledge of the chief

executive officer, chief financial officer and general counsel of Parent.

"Material Adverse Effect" means any change, effect, event, occurrence or

state of facts that, individually or together with any other change, effect,

event, occurrence or state of facts that is materially adverse to the business,

financial condition or results of operations of the Company and its

Subsidiaries, taken as a whole, other than any change, effect, event or

occurrence resulting from (i) economic, financial market or geopolitical

conditions in general, (ii) changes in Law or applicable accounting regulations

or principles or interpretations thereof, (iii) conditions in the casual dining

or restaurant industries generally, (iv) any change in the Company's stock price

or trading volume, in and of itself, or any failure, in and of itself, by the

Company to meet published revenue or earnings projections, (v) any outbreak or

escalation of hostilities or war or any act of terrorism and (vi) the

announcement of the Company's intention or desire to enter into this Agreement

or a similar agreement or the announcement of this Agreement and the

transactions contemplated hereby and performance of obligations under this

Agreement (including any action or inaction as a result thereof by the Company's

franchisees, employees, vendors or competitors) except, in the case of clauses

(i), (iii) and (v), to the extent the Company and its Subsidiaries, taken as a

whole, are disproportionately affected thereby as compared to other companies in

the casual dining and restaurant industries generally.

"Parent Material Adverse Effect" means any change, effect, event,

occurrence or state of facts that prevents or materially impedes, interferes

with, hinders or delays the consummation by Parent or Sub of the Merger or the

other transactions contemplated by this Agreement.

"person" means an individual, corporation, partnership, limited liability

company, joint venture, association, trust, unincorporated organization or other

entity.

<PAGE>

"Software" means computer programs and other software (whether in source

code, object code, or other form) and related documentation, other than in each

case "shrink wrap," "click wrap," and other "off the shelf" software

commercially available to the public generally.

"Subsidiary" of any person means another person, an amount of the voting

securities, other voting rights or voting partnership interests of which is

sufficient to elect at least a majority of its board of directors or other

governing body (or, if there are no such voting interests, more than 50% of the

equity interests of which) is owned directly or indirectly by such first person.

"WARN Act" shall mean the Worker Adjustment and Retraining Notification Act

of 1988, as amended.

SECTION 1.02. Index of Defined Terms. Each of the following defined terms

is defined in the corresponding Section of this Agreement listed in the

following index:

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<S> <C>

Adverse Recommendation Change................................................. Section 5.02(b)

Affiliate..................................................................... Section 1.01

Agreement..................................................................... Preamble

Annual Amount................................................................. Section 6.05(c)

Appraisal Shares.............................................................. Section 3.01(d)

Bridge Financing.............................................................. Section 4.02(d)

Bridge Marketing Period....................................................... Section 6.09(b)

Business day.................................................................. Section 1.01

Certificate................................................................... Section 3.01(c)

Certificate of Merger......................................................... Section 2.03

Claim......................................................................... Section 6.05(b)

Closing....................................................................... Section 2.02

Closing Date.................................................................. Section 2.02

Code.......................................................................... Section 3.02(h)

Commonly Controlled Entity.................................................... Section 4.01(l)(i)

Company....................................................................... Preamble

Company Benefit Agreement..................................................... Section 4.01(l)(i)

Company Benefit Plan.......................................................... Section 4.01(l)(i)

Company Bylaws................................................................ Section 2.05(b)

Company Certificate of Incorporation.......................................... Section 2.05(a)

Company Common Stock.......................................................... Recitals

Company Disclosure Letter..................................................... Section 1.01

Company Employees............................................................. Section 6.04(a)

Company Preferred Stock....................................................... Section 4.01(c)(i)

Company Restricted Stock...................................................... Section 4.01(c)(i)

Company RSU................................................................... Section 4.01(c)

Company SARs.................................................................. Section 4.01(c)(i)

Company Stock Options......................................................... Section 4.01(c)(i)

<PAGE>

Company Stock Plans........................................................... Section 4.01(c)(i)

Confidentiality Agreement..................................................... Section 6.02

Contract...................................................................... Section 4.01(d)

Copyrights.................................................................... Section 1.01

Corporation................................................................... Section 2.05(a)

Current IFOC.................................................................. Section 4.01(s)(xvi)

Current Offering Period....................................................... Section 3.03(c)

Current UFOC.................................................................. Section 4.01(s)(xvi)

DGCL.......................................................................... Section 2.01

Debt Financing................................................................ Section 4.02(d)

Earnings Claims............................................................... Section 4.01(s)(vi)

Effective Time................................................................ Section 2.03

Environmental Claims.......................................................... Section 4.01(j)(ii)(B)

Environmental Law............................................................. Section 4.01(j)(ii)(B)

Equity Financing.............................................................. Section 4.02(d)

ERISA......................................................................... Section 1.01

ESPP Termination Date......................................................... Section 3.03(c)

ESPPs......................................................................... Section 4.01(c)(i)

Exchange Act.................................................................. Section 4.01(d)

Exchange Fund................................................................. Section 3.02(a)

Filed Exhibits................................................................ Section 4.01(i)

Filed SEC Documents........................................................... Section 4.01

Financing..................................................................... Section 4.02(d)

Financing Commitments......................................................... Section 4.02(d)

Foreign Franchises............................................................ Section 4.01(s)(iv)

Franchise..................................................................... Section 4.01(s)(i)

Franchise Agreements.......................................................... Section 4.01(s)(i)

Franchised Restaurant......................................................... Section 4.01(s)(i)

Franchisee.................................................................... Section 4.01(s)(xvi)

FTC Rule...................................................................... Section 4.01(s)(xvi)

GAAP.......................................................................... Section 4.01(e)

Governmental Entity........................................................... Section 4.01(d)

Hazardous Materials........................................................... Section 4.01(j)(ii)(B)

HSR Act....................................................................... Section 4.01(d)

Indebtedness.................................................................. Section 4.01(c)(iv)

Indemnified Party............................................................. Section 6.05(a)

Intellectual Property Rights.................................................. Section 1.01

Judgment...................................................................... Section 4.01(d)

Knowledge..................................................................... Section 1.01

Law........................................................................... Section 4.01(d)

Leased Real Property.......................................................... Section 4.01(n)(ii)

Liens......................................................................... Section 4.01(b)

Material Adverse Effect....................................................... Section 1.01

Merger........................................................................ Recitals

Merger Consideration.......................................................... Section 3.01(c)

Multiemployer Plan............................................................ Section 4.01(l)(vi)

<PAGE>

Notice of Superior Proposal................................................... Section 5.02(b)

Offering Period Last Day...................................................... Section 3.03(c)

Option/SAR Amount............................................................. Section 3.03(a)

Outside Date.................................................................. Section 8.01(b)(i)

Owned Real Property........................................................... Section 4.01(n)(i)

Parent........................................................................ Preamble

Parent Material Adverse Effect................................................ Section 1.01

Paying Agent.................................................................. Section 3.02(a)

Patents....................................................................... Section 1.01

Permits....................................................................... Section 4.01(j)(i)

Permitted Liens............................................................... Section 4.01(n)(iii)

Person........................................................................ Section 1.01

Proxy Statement............................................................... Section 4.01(d)

Real Property Leases.......................................................... Section 4.01(n)(ii)

Real Property Subleases....................................................... Section 4.01(n)(v)

Rebates....................................................................... Section 4.01(s)(xvi)

Recommendation................................................................ Section 4.01(d)

Registered Intellectual Property Rights....................................... Section 4.01(o)

Registration Laws............................................................. Section 4.01(s)(xvi)

Relationship Laws............................................................. Section 4.01(s)(xiv)

Release....................................................................... Section 4.01(j)(ii)(B)

Representatives............................................................... Section 5.02(a)

Restraints.................................................................... Section 7.01(c)

RSU Amount.................................................................... Section 3.03(b)

SEC........................................................................... Section 4.01

SEC Documents................................................................. Section 4.01(e)

Section 262................................................................... Section 3.01(d)

Securities Act................................................................ Section 4.01(e)

Securitization................................................................ Section 4.02(d)

Software...................................................................... Section 1.01

SPD........................................................................... Section 4.01(l)(i)

Specified Contract............................................................ Section 4.01(i)

Stockholder Approval.......................................................... Section 4.01(q)

Stockholders' Meeting......................................................... Section 6.01(b)

Sub........................................................................... Preamble

Subsidiary.................................................................... Section 1.01

Superior Proposal............................................................. Section 5.02(a)

Surviving Corporation......................................................... Section 2.01

Takeover Proposal............................................................. Section 5.02(a)

Tax return.................................................................... Section 4.01(m)(viii)

Taxes......................................................................... Section 4.01(m)(viii)

Termination Fee............................................................... Section 6.06(b)

Trademarks.................................................................... Section 1.01

Trade Secrets................................................................. Section 1.01

UFOC.......................................................................... Section 4.01(s)(xvi)

UFOC Guidelines Section 4.01(s)(xvi)

<PAGE>

United States Jurisdictions................................................... Section 4.01(s)(xvi)

Voting Company Debt........................................................... Section 4.01(c)(i)

WARN Act...................................................................... Section 1.01

</TABLE>

SECTION 1.03. Interpretation. When a reference is made in this Agreement to

an Article, a Section or Exhibit, such reference shall be to an Article or a

Section of, or an Exhibit to, this Agreement unless otherwise indicated. The

table of contents and headings contained in this Agreement are for reference

purposes only and shall not affect in any way the meaning or interpretation of

this Agreement. Whenever the words "include", "includes" or "including" are used

in this Agreement, they shall be deemed to be followed by the words "without

limitation". The words "hereof", "herein" and "hereunder" and words of similar

import when used in this Agreement shall refer to this Agreement as a whole and

not to any particular provision of this Agreement. The word "or" when used in

this Agreement is not exclusive. All terms defined in this Agreement shall have

the defined meanings when used in any certificate or other document made or

delivered pursuant hereto unless otherwise defined therein. The definitions

contained in this Agreement are applicable to the singular as well as the plural

forms of such terms and to the masculine as well as to the feminine and neuter

genders of such term. Any agreement, instrument or statute defined or referred

to herein or in any agreement or instrument that is referred to herein means

such agreement, instrument or statute as from time to time amended, modified or

supplemented, including (in the case of agreements or instruments) by waiver or

consent and (in the case of statutes) by succession of comparable successor

statutes and references to all attachments thereto and instruments incorporated

therein. References to a person are also to its permitted successors and

assigns.

ARTICLE II

The Merger

SECTION 2.01. The Merger. Upon the terms and subject to the conditions set

forth in this Agreement, and in accordance with the General Corporation Law of

the State of Delaware (the "DGCL"), Sub shall be merged with and into the

Company at the Effective Time. Following the Effective Time, the separate

corporate existence of Sub shall cease, and the Company shall continue as the

surviving corporation in the Merger (the "Surviving Corporation").

SECTION 2.02. Closing. The closing of the Merger (the "Closing") will take

place at 10:00 a.m., New York time, on the second business day after the later

to occur of (i) satisfaction or, to the extent permitted by Law, waiver of the

conditions set forth in Article VII (other than those conditions that by their

terms are to be satisfied at the Closing, but subject to the satisfaction or, to

the extent permitted by Law, waiver of those conditions) and (ii) the date of

completion of the Bridge Marketing Period (or, if Parent so notifies the

Company, a date during the Bridge Marketing Period not less than three business

days following such notice to the Company), at the offices of Skadden, Arps,

Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, unless

another time, date or place is agreed to in writing by Parent and the Company.

The date on which the Closing occurs is referred to in this Agreement as the

"Closing Date."

<PAGE>

SECTION 2.03. Effective Time. Subject to the provisions of this Agreement,

as promptly as practicable on the Closing Date, the parties shall file a

certificate of merger (the "Certificate of Merger") in such form as is required

by, and executed and acknowledged in accordance with, the relevant provisions of

the DGCL and shall make all other filings and recordings required under the

DGCL. The Merger shall become effective at such date and time as the Certificate

of Merger is filed with the Secretary of State of the State of Delaware or at

such subsequent date and time as Parent and the Company shall agree and specify

in the Certificate of Merger. The date and time at which the Merger becomes

effective is referred to in this Agreement as the "Effective Time".

SECTION 2.04. Effects of the Merger. The Merger shall have the effects set

forth in Section 259 of the DGCL.

SECTION 2.05. Certificate of Incorporation and Bylaws. (a) The Certificate

of Incorporation of the Company, as amended (as in effect on the date hereof,

the "Company Certificate of Incorporation"), shall be amended at the Effective

Time to read the same as the certificate of incorporation of Sub as in effect

immediately prior to the Effective Time, and shall be the certificate of

incorporation of the Surviving Corporation until thereafter changed or amended

as provided therein or by applicable Law; provided, however, that Article First

thereof shall read as follows: "The name of the Corporation is Applebee's

International, Inc. (hereinafter, the "Corporation")."

(b) The Amended and Restated Bylaws of the Company (as in effect on the

date hereof, the "Company Bylaws") shall be amended at the Effective Time to

read the same as the bylaws of Sub as in effect immediately prior to the

Effective Time, and shall be the bylaws of the Surviving Corporation until

thereafter changed or amended as provided therein or by applicable Law.

SECTION 2.06. Directors. The directors of Sub immediately prior to the

Effective Time shall be the directors of the Surviving Corporation until the

earlier of their resignation or removal or until their respective successors are

duly elected and qualified, as the case may be.

SECTION 2.07. Officers. The officers of the Company immediately prior to the

Effective Time shall be the officers of the Surviving Corporation, until the

earlier of their resignation or removal or until their respective successors are

duly elected and qualified, as the case may be.

<PAGE>

ARTICLE III

Effect of the Merger on the Capital Stock of the

Constituent Corporations; Exchange Fund;

Company Equity Awards

SECTION 3.01. Effect on Capital Stock. At the Effective Time, by virtue of

the Merger and without any action on the part of the holder of any shares of

Company Common Stock or any shares of capital stock of Parent or Sub:

(a) Capital Stock of Sub. Each share of capital stock of Sub issued and

outstanding immediately prior to the Effective Time shall be converted into and

become one validly issued, fully paid and nonassessable share of common stock,

par value $0.01 per share, of the Surviving Corporation.

(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of

Company Common Stock that is held by the Company, as treasury stock, or

otherwise owned by Parent, Sub or any subsidiary of the Company immediately

prior to the Effective Time shall automatically be canceled and shall cease to

exist, and no consideration shall be delivered in exchange therefor.

issued and outstanding immediately prior to the Effective Time or issuable

pursuant to any outstanding options, warrants or other rights (including shares

of Company Restricted Stock, but excluding shares to be canceled in accordance

with Section 3.01(b) and, except as provided in Section 3.01(d), the Appraisal

Shares) shall be converted into the right to receive $25.50 in cash, without

interest (the "Merger Consideration"). At the Effective Time, all such shares of

Company Common Stock shall no longer be outstanding and shall automatically be

canceled and shall cease to exist, and each holder of a certificate that

immediately prior to the Effective Time represented any such shares of Company

Common Stock (each, a "Certificate") shall cease to have any rights with respect

thereto, except the right to receive the Merger Consideration.

(d) Appraisal Rights. Notwithstanding anything in this Agreement to the

contrary, shares (the "Appraisal Shares") of Company Common Stock issued and

outstanding immediately prior to the Effective Time that are held by any holder

who is entitled to demand and properly demands appraisal of such shares pursuant

to, and who complies in all respects with, the provisions of Section 262 of the

DGCL ("Section 262") shall not be converted into the right to receive the Merger

Consideration as provided in Section 3.01(c), but instead such holder shall be

entitled to payment of the fair value of such shares in accordance with the

provisions of Section 262. At the Effective Time, the Appraisal Shares shall no

longer be outstanding and shall automatically be canceled and shall cease to

exist, and each holder of Appraisal Shares shall cease to have any rights with

respect thereto, except the right to receive the fair value of such shares in

accordance with the provisions of Section 262. Notwithstanding the foregoing, if

any such holder shall fail to perfect or otherwise shall waive, withdraw or lose

<PAGE>

the right to appraisal under Section 262 or a court of competent jurisdiction

shall determine that such holder is not entitled to the relief provided by

Section 262, then the right of such holder to be paid the fair value of such

holder's Appraisal Shares under Section 262 shall cease and such Appraisal

Shares shall be deemed to have been converted at the Effective Time into, and

shall have become, the right to receive the Merger Consideration as provided in

Section 3.01(c). The Company shall give prompt notice to Parent of any demands

for appraisal of any shares of Company Common Stock, withdrawals of such demands

and any other instruments served pursuant to the DGCL received by the Company,

and Parent shall have the right to participate in and direct all negotiations

and proceedings with respect to such demands. Prior to the Effective Time, the

Company shall not, without the prior written consent of Parent, voluntarily make

any payment with respect to, or settle or offer to settle, any such demands, or

agree to do or commit to do any of the foregoing.

SECTION 3.02. Exchange Fund. (a) Paying Agent. Prior to the Closing Date,

Parent shall appoint a bank or trust company reasonably acceptable to the

Company to act as paying agent (the "Paying Agent") for the payment of the

Merger Consideration, the Option/SAR Amounts and the RSU Amounts in accordance

with this Article III and, in connection therewith, shall enter into an

agreement with the Paying Agent in a form reasonably acceptable to the Company.

At or prior to the Effective Time, Parent shall deposit, or shall cause the

Surviving Corporation to deposit, with the Paying Agent, cash in an amount

sufficient to pay the aggregate Merger Consideration, the aggregate Option/SAR

Amount and the RSU Amount, in each case as required to be paid pursuant to this

Agreement (such cash being hereinafter referred to as the "Exchange Fund").

(b) Certificate Exchange Procedures. As promptly as practicable after the

Effective Time, but in any event within two business days thereafter, Parent

shall cause the Paying Agent to mail to each holder of record of a Certificate

(i) a letter of transmittal (which shall specify that delivery shall be

effected, and risk of loss and title to the Certificates shall pass, only upon

proper delivery of the Certificates to the Paying Agent and which shall

otherwise be in customary form) and (ii) instructions for use in effecting the

surrender of the Certificates in exchange for the Merger Consideration. Each

holder of record of a Certificate shall, upon surrender to the Paying Agent of

such Certificate, together with such letter of transmittal, duly executed, and

such other documents as may reasonably be required by the Paying Agent, be

entitled to receive in exchange therefor the amount of cash which the number of

shares of Company Common Stock previously represented by such Certificate shall

have been converted into the right to receive pursuant to Section 3.01(c), and

the Certificate so surrendered shall forthwith be canceled. In the event of a

transfer of ownership of Company Common Stock which is not registered in the

transfer records of the Company, payment of the Merger Consideration may be made

to a person other than the person in whose name the Certificate so surrendered

is registered if such Certificate shall be properly endorsed or otherwise be in

proper form for transfer and the person requesting such payment shall pay any

fiduciary or surety bonds or any transfer or other similar taxes required by

reason of the payment of the Merger Consideration to a person other than the

registered holder of such Certificate or establish to the reasonable

satisfaction of Parent that such tax has been paid or is not applicable. Until

<PAGE>

surrendered as contemplated by this Section 3.02(b), 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 which the holder thereof

has the right to receive in respect of such Certificate pursuant to this Article

III. No interest shall be paid or will accrue on any cash payable to holders of

Certificates pursuant to the provisions of this Article III.

the surrender of Certificates in accordance with the terms of this Article III

shall be deemed to have been paid in full satisfaction of all rights pertaining

to the shares of Company Common Stock formerly represented by such Certificates.

At the close of business on the day on which the Effective Time occurs, the

stock transfer books of the Company shall be closed, and there shall be no

further registration of transfers on the stock transfer books of the Surviving

Corporation of the shares of Company Common Stock that were outstanding

immediately prior to the Effective Time. If, after the Effective Time, any

Certificate is presented to the Surviving Corporation for transfer, it shall be

canceled against delivery of cash to the holder thereof as provided in this

Article III.

(d) Termination of the Exchange Fund. Any portion of the Exchange Fund that

remains undistributed to the holders of the Certificates for nine months after

the Effective Time shall be delivered to Parent, upon demand, and any holders of

the Certificates who have not theretofore complied with this Article III shall

thereafter look only to Parent for, and Parent shall remain liable for, payment

of their claims for the Merger Consideration pursuant to the provisions of this

Article III.

(e) No Liability. None of Parent, Sub, the Company, the Surviving

Corporation or the Paying Agent shall be liable to any person in respect of any

cash from the Exchange Fund delivered to a public official in compliance with

any applicable state, Federal or other abandoned property, escheat or similar

Law. If any Certificate shall not have been surrendered prior to the date on

which the related Merger Consideration would escheat to or become the property

of any Governmental Entity, any such Merger Consideration shall, to the extent

permitted by applicable Law, immediately prior to such time become the property

of Parent, free and clear of all claims or interest of any person previously

entitled thereto.

(f) Investment of Exchange Fund. The Paying Agent shall invest the cash in

the Exchange Fund as directed by Parent; provided, however, that such

investments shall be in obligations of or guaranteed by the United States of

America or any agency or instrumentality thereof and backed by the full faith

and credit of the United States of America, in commercial paper obligations

rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &

Poor's Corporation, respectively, or in certificates of deposit, bank repurchase

agreements or banker's acceptances of commercial banks with capital exceeding

$1.0 billion (based on the most recent financial statements of such bank that

are then publicly available). Any interest and other income resulting from such

investments shall be paid solely to Parent. Nothing contained herein and no

investment losses resulting from investment of the Exchange Fund shall diminish

<PAGE>

the rights of any holder of Certificates to receive the Merger Consideration or

any holder of a Company Stock Option or Company SAR to receive the Option/SAR

Amount or any holder of a Company RSU to receive the RSU Amount, in each case as

provided herein.

(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 Parent, the

posting by such person of a bond or surety in such reasonable amount as Parent

may direct as indemnity against any claim that may be made against it with

respect to such Certificate, the Paying Agent shall deliver in exchange for such

lost, stolen or destroyed Certificate the applicable Merger Consideration with

respect thereto.

(h) Withholding Rights. Parent, the Surviving Corporation or the Paying

Agent shall be entitled to deduct and withhold from the consideration otherwise

payable pursuant to this Agreement to any holder of shares of Company Common

Stock or any holder of a Company Stock Option, Company SAR or Company RSU such

amounts as Parent, the Surviving Corporation or the Paying Agent are 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 provision of

state, local or foreign tax Law. To the extent that amounts are so withheld and

paid over to the appropriate taxing authority by Parent, the Surviving

Corporation or the Paying Agent, such withheld amounts shall be treated for all

purposes of this Agreement as having been paid to the holder of the shares of

Company Common Stock or the holder of the Company Stock Option, Company SAR or

Company RSU, as the case may be, in respect of which such deduction and

withholding was made by Parent, the Surviving Corporation or the Paying Agent.

SECTION 3.03. Company Equity Awards. (a) As soon as reasonably practicable

following the date of this Agreement the Board of Directors of the Company (or,

if appropriate, any committee administering any Company Stock Plan) shall adopt

such resolutions or take such other actions as may be required to provide that,

at the Effective Time, each unexercised Company Stock Option and each

unexercised Company SAR, whether vested or unvested and whether or not any

applicable performance conditions have been satisfied, in each case that is

outstanding immediately prior to the Effective Time, shall be canceled, with the

holder of each such Company Stock Option or Company SAR becoming entitled to

receive an amount in cash equal to (i) the excess, if any, of (A) the Merger

Consideration over (B) the exercise price per share of Company Common Stock

subject to such Company Stock Option or Company SAR, multiplied by (ii) the

number of shares of Company Common Stock subject to such Company Stock Option or

Company SAR (such amount, the "Option/SAR Amount"). All amounts payable pursuant

to this Section 3.03(a) shall be paid as promptly as practicable following the

Effective Time, without interest.

(b) As soon as reasonably practicable following the date of this Agreement

the Board of Directors of the Company (or, if appropriate, any committee

administering any Company Stock Plan) shall adopt such resolutions or take such

other actions as may be required to provide that, at the Effective Time, each

Company RSU that is outstanding immediately prior to the Effective Time shall

vest in full and shall be converted into the right to receive the Merger

Consideration in accordance with Section 3.01(c) (such amount, the "RSU

Amount").

<PAGE>

thereunder shall be canceled at the Effective Time and converted into the right

to receive the Merger Consideration pursuant to Section 3.01(c). As soon as

reasonably practicable following the date of this Agreement, the Company shall

take any and all actions with respect to the ESPPs as are necessary to provide

that (i) participants may not increase their payroll deductions from those in

effect on the date of this Agreement, (ii) no offerings shall be commenced after

the date of this Agreement and (iii) the offerings that are in effect on the

date of this Agreement (the "Current Offering Periods") shall continue in

accordance with the applicable terms of the ESPPs, and each share of Company

Common Stock purchased by a participant on the last day of either ESPP's Current

Offering Period (each, an "Offering Period Last Day") shall be converted into

the right to receive the Merger Consideration in accordance with Section

3.01(c); provided that, notwithstanding the foregoing, if the Closing occurs

prior to an ESPP's Offering Period Last Day, each participant's payroll

deductions accumulated as of the Effective Time for the Current Offering Period

of such ESPP shall be applied to the purchase of a number of whole shares of

Company Common Stock, at a purchase price determined as if the Closing Date were

such ESPP's Offering Period Last Day, which number of shares shall be canceled

and converted into the right to receive the Merger Consideration in accordance

with Section 3.01(c). Each ESPP shall terminate immediately following the

earlier of its Offering Period Last Day or the Closing Date (the "ESPP

Termination Date"). Any excess payroll deductions not used to purchase shares or

determine payment amounts pursuant to this Section 3.03(c) as a result of ESPP

share limitations or fractional share limitations shall be distributed to the

applicable participant immediately following the ESPP Termination Date, without

interest.

ARTICLE IV

Representations and Warranties

SECTION 4.01. Representations and Warranties of the Company. Except as

disclosed in any report, schedule, form, statement or other document filed with,

or furnished to, the Securities and Exchange Commission (the "SEC") by the

Company and publicly available prior to the date of this Agreement

(collectively, the "Filed SEC Documents") or as set forth in the Company

Disclosure Letter (it being understood that any information set forth in one

section or subsection of the Company Disclosure Letter shall be deemed to apply

to and qualify the Section or subsection of this Agreement to which it

corresponds in number and each other Section or subsection of this Agreement to

the extent that it is reasonably apparent that such information is relevant to

such other Section or subsection, the Company represents and warrants to Parent

and Sub as follows:

<PAGE>

(a) Organization, Standing and Corporate Power. Each of the Company and its

Subsidiaries is duly organized and validly existing under the Laws of its

jurisdiction of organization and has all requisite corporate, company or

partnership power and authority to carry on its business as currently conducted.

Each of the Company and its Subsidiaries is duly qualified or licensed to do

business and is in good standing (where such concept is recognized under

applicable Law) in each jurisdiction where 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 qualified, licensed

or in good standing, individually or in the aggregate, has not had or would not

reasonably be expected to have a Material Adverse Effect. The Company has made

available to Parent prior to the execution of this Agreement a true and complete

copy of the Company Certificate of Incorporation and the Company Bylaws and the

comparable organizational documents of each of its Subsidiaries, in each case as

in effect on the date of this Agreement.

(b) Subsidiaries. Section 4.01(b) of the Company Disclosure Letter lists

each Subsidiary of the Company and the jurisdiction of organization thereof. All

outstanding shares of capital stock of, or other equity interests in, each

Subsidiary of the Company are owned by the Company or any Subsidiary of the

Company and have been (to the extent such concepts are relevant with respect to

such ownership interests) validly issued and are fully paid and nonassessable

and are owned, directly or indirectly, by the Company free and clear of all

pledges, liens, charges, mortgages, encumbrances or security interests of any

kind or nature whatsoever (collectively, "Liens"), other than Permitted Liens.

Except for its interests in its Subsidiaries, the Company does not own, directly

or indirectly, any capital stock of, or other equity interests in, any

corporation, partnership, joint venture, association or other entity.

consists of 125,000,000 shares of Company Common Stock and 1,000,000 shares of

preferred stock, par value $0.01 per share (the "Company Preferred Stock"). At

the close of business on July 11, 2007, (A) (1) 74,946,095 shares of Company

Common Stock were issued and outstanding (which number includes 771,887 shares

of Company Common Stock subject to vesting or other forfeiture conditions or

repurchase by the Company (such shares, together with any similar shares issued

after July 11, 2007 in accordance with the terms of this Agreement, the "Company

Restricted Stock")) and (2) 33,557,148 shares of Company Common Stock are held

by the Company in its treasury, (B) 11,668,500 shares of Company Common Stock

were reserved and available for issuance pursuant to the Amended and Restated

1995 Equity Incentive Plan, the 1999 Employee Incentive Plan, the Employee Stock

Purchase Plan and the Executive Nonqualified Stock Purchase Plan (such employee

stock purchase plans, the "ESPPs"; the foregoing plans, collectively, the

"Company Stock Plans"), of which (1) 6,369,335 shares of Company Common Stock

were subject to outstanding options (other than rights under the ESPPs) to

acquire shares of Company Common Stock from the Company (such options, together

with any similar options granted after July 11, 2007 in accordance with the

terms of this Agreement, the "Company Stock Options"), (2) 1,362,222 shares of

<PAGE>

Company Common Stock were subject to outstanding stock appreciation rights (such

stock appreciation rights, together with any similar stock appreciation rights

granted after July 11, 2007, the "Company SARs") and (3) 6,595 shares of Company

Common Stock were subject to outstanding restricted stock units (such restricted

stock units, together with any similar restricted stock units granted after July

11, 2007 in accordance with the terms of this Agreement, the "Company RSUs") (4)

no shares of Company Common Stock were subject to outstanding rights under the

ESPPs (assuming that the closing price for the Company Common Stock as reported

on the NASDAQ Stock Market on the last day of the offering periods in effect

under the ESPPs on July 11, 2007 was equal to the Merger Consideration) and (C)

no shares of Company Preferred Stock were issued or outstanding or held by the

Company in its treasury. Except as set forth above, at the close of business on

July 11, 2007, no shares of capital stock or other voting securities of the

Company were issued, reserved for issuance or outstanding. Since July 11, 2007

to the date of this Agreement, (x) there have been no issuances by the Company

of shares of capital stock or other voting securities of the Company, other than

issuances of shares of Company Common Stock pursuant to the exercise of the

Company Stock Options or Company SARs or rights under the ESPPs, in each case

outstanding as of July 11, 2007, and (y) there have been no issuances by the

Company of options, warrants, other rights to acquire shares of capital stock of

the Company or other rights that give the holder thereof any economic interest

of a nature accruing to the holders of Company Common Stock, except for rights

under the ESPPs. All outstanding shares of Company Common Stock are, and all

such shares that may be issued prior to the Effective Time will be when issued,

duly authorized, validly issued, fully paid and nonassessable and not subject to

preemptive rights. 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 holders of

Company Common Stock may vote ("Voting Company Debt"). Except for any

obligations pursuant to this Agreement or as otherwise set forth above, as of

July 11, 2007, there are no options, warrants, rights, convertible or

exchangeable securities, stock-based performance units, Contracts or

undertakings of any kind to which the Company or any of its Subsidiaries is a

party or by which any of them is bound (1) obligating the Company or any such

Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,

additional shares of capital stock or other equity interests in, or any security

convertible or exchangeable for any capital stock of or other equity interest

in, the Company or of any of its Subsidiaries or any Voting Company Debt, (2)

obligating the Company or any such Subsidiary to issue, grant or enter into any

such option, warrant, right, security, unit, Contract or undertaking or (3) that

give any person the right to receive any economic interest of a nature accruing

to the holders of Company Common Stock. As of the date of this Agreement, there

are no outstanding contractual obligations of the Company or any of its

Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital

stock of the Company or any such Subsidiary, other than pursuant to the Company

Stock Plans.

(ii) There are no voting trusts or other agreements to which the

Company is a party with respect to the voting of the Company Common Stock.

<PAGE>

(iii) Following the Effective Time, no holder of Company Stock Options

will have any right to receive shares of Company Common Stock upon exercise

of Company Stock Options.

(iv) Except as disclosed in Section 4.01(c)(iv) of the Company

Disclosure Letter, no Indebtedness of the Company or any of its

Subsidiaries contains any restriction upon (A) the prepayment of any of

such Indebtedness, (B) the incurrence of Indebtedness by the Company or any

of its Subsidiaries, or (C) the ability of the Company or any of its

Subsidiaries to grant any lien on its properties or assets. As used in this

Agreement, "Indebtedness" means (1) all indebtedness for borrowed money,

(2) any other indebtedness that is evidenced by a note, bond, debenture or

similar instrument, (3) all obligations under capital leases, (4) all

obligations in respect of outstanding letters of credit and (5) all

guarantee obligations.

(v) The Company has made available to Parent a list of all Company

Stock Options, Company RSUs and Company SARs outstanding as of the date

hereof and the name of the holder thereof, the exercise price thereof, and

the number of units, rights or shares of Company Common Stock which are the

subject of each such Company Stock Option, Company RSU and Company SAR, as

applicable.

(vi) Section 4.01(c)(vii) of the Company Disclosure Letter lists all

Indebtedness outstanding as of the date of this Agreement.

(vii) No agreement or understanding requires consent or approval from

the holder of any Company Stock Option to effectuate the terms of this

Agreement.

(d) Authority; Noncontravention. The Company has all requisite corporate

power and authority to execute and deliver this Agreement and to consummate the

transactions contemplated by this Agreement, subject, in the case of the Merger,

to receipt of the Stockholder Approval. The execution and delivery of this

Agreement by the Company and the consummation by the Company of the transactions

contemplated by this Agreement have been duly authorized by all necessary

corporate action on the part of the Company, subject, in the case of the Merger,

to receipt of the Stockholder Approval. This Agreement has been duly executed

and delivered by the Company and, assuming the due authorization, execution and

delivery by each of the other parties hereto, constitutes a legal, valid and

binding obligation of the Company, enforceable against the Company in accordance

with its terms, subject, as to enforceability, to bankruptcy, insolvency and

other Laws of general applicability relating to or affecting creditors' rights

and to general equity principles. The Board of Directors of the Company, at a

meeting duly called and held at which all directors of the Company were present,

duly adopted resolutions (i) approving and declaring advisable this Agreement,

the Merger and the other transactions contemplated by this Agreement, (ii)

declaring that it is in the best interests of the stockholders of the Company

that the Company enter into this Agreement and consummate the Merger and the

<PAGE>

other transactions contemplated by this Agreement on the terms and subject to

the conditions set forth herein, (iii) directing that the adoption of this

Agreement be submitted to a vote at a meeting of the stockholders of the Company

and (iv) recommending that the stockholders of the Company adopt this Agreement

(the "Recommendation"), which resolutions, as of the date of this Agreement,

have not been rescinded, modified or withdrawn in any way. The execution and

delivery by the Company of this Agreement do not, and the consummation of the

Merger and the other transactions contemplated by this Agreement and compliance

with the provisions of this Agreement will not, conflict with, or result in any

violation of, or default (with or without notice or lapse of time, or both)

under, or give rise to a right of termination, cancellation or acceleration of

any obligation or to the loss of a benefit under, or result in the creation of

any Lien upon any of the properties or assets of the Company or any of its

Subsidiaries under (other than any such Lien created from any action taken by

Parent or Sub), any provision of (A) the Company Certificate of Incorporation,

the Company Bylaws or the comparable organizational documents of any of its

Subsidiaries or (B) subject to the filings and other matters referred to in the

immediately following sentence, (1) any contract, lease, license agreement,

indenture, note, bond or other agreement (a "Contract") to which the Company or

any of its Subsidiaries is a party or by which any of their respective

properties or assets are bound, other than any lease of real property under

which the Company or any of its Subsidiaries is a tenant or a subtenant, or (2)

any constitution, statute, law, ordinance, rule or regulation of any

Governmental Entity ("Law") or any judgment, order or decree of any Governmental

Entity ("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 clause (B) above, any such conflicts, violations, defaults, rights, losses or

Liens that would not, individually or in the aggregate, reasonably be expected

to have a Material Adverse Effect. No consent, approval, order or authorization

of, or registration, declaration or filing with, or notice to, any Federal,

state, local or foreign government, any court of competent jurisdiction or any

administrative, regulatory (including any stock exchange) or other governmental

agency, commission or authority (each, a "Governmental Entity") is required to

be obtained or made 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 Merger or the other transactions

contemplated by this Agreement, except for (I) the filing of a premerger

notification and report form by the Company under the Hart-Scott-Rodino

Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the filings

and receipt, termination or expiration, as applicable, of such other approvals

or waiting periods as may be required under any other applicable competition,

merger control, antitrust or similar Law, (II) the filing with the SEC of (x) a

proxy statement relating to the adoption by the stockholders of the Company of

this Agreement (as amended or supplemented from time to time, the "Proxy

Statement") and (y) such reports under the Securities Exchange Act of 1934, as

amended (the "Exchange Act"), as may be required in connection with this

Agreement and the transactions contemplated by this Agreement, (III) the filing

of the Certificate of Merger with the Secretary of State of the State of

Delaware and of appropriate documents with the relevant authorities of other

jurisdictions 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, (V) the consents, approvals, orders, authorizations,

registrations, declarations, filings and notices set forth in Section 4.01(d) of

<PAGE>

the Company Disclosure Schedule and (VI) such other consents, approvals, orders,

authorizations, registrations, declarations, filings and notices the failure of

which to be obtained or made would not, individually or in the aggregate,

reasonably be expected (x) to have a Material Adverse Effect or (y) to prevent

or materially delay the Company from consummating the Merger or from observing

or performing its material obligations hereunder.

(e) SEC Documents. The Company has filed all reports, schedules, forms,

statements and other documents with the SEC required to be filed by the Company

since January 1, 2005 (the "SEC Documents"). As of their respective dates of

filing, the SEC Documents complied as to form in all material respects with the

requirements of the Securities Act of 1933, as amended (the "Securities Act"),

or the Exchange Act, as the case may be, and the rules and regulations of the

SEC promulgated thereunder applicable thereto, and none of the SEC Documents

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 were made, not

misleading. The audited consolidated financial statements and the unaudited

quarterly financial statements (including, in each case, the notes thereto) of

the Company included in the SEC Documents when filed complied as to form in all

material respects with the published rules and regulations of the SEC with

respect thereto, have been prepared in all material respects in accordance with

generally accepted accounting principles ("GAAP") (except, in the case of

unaudited quarterly statements, as permitted by Form 10-Q of the SEC or other

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 all material respects the consolidated financial position of the

Company and its consolidated Subsidiaries as of the dates thereof and the

consolidated results of their operations and cash flows for the periods then

ended (subject, in the case of unaudited quarterly statements, to normal

year-end adjustments). Except for matters reflected or reserved against in the

audited consolidated balance sheet of the Company as of December 31, 2006 (or

the notes thereto) included in the Filed SEC Documents, neither the Company nor

any of its Subsidiaries has any liabilities or obligations (whether absolute,

accrued, contingent, fixed or otherwise) of any nature that would be required

under GAAP, as in effect on the date of this Agreement, to be reflected on a

consolidated balance sheet of the Company (including the notes thereto), except

liabilities and obligations that (i) were incurred since December 31, 2006 in

the ordinary course of business consistent with past practice, (ii) are incurred

in connection with the transactions contemplated by this Agreement or (iii)

would not, individually or in the aggregate, reasonably be expected to have a

Material Adverse Effect. To the Knowledge of the Company, none of the Company's

Filed SEC Documents is the subject of ongoing SEC review, outstanding SEC

comments or outstanding SEC investigation.

(f) Information Supplied. The Proxy Statement will not, at the date it is

first mailed to the stockholders of the Company and 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

<PAGE>

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 therein

based on information supplied by Parent or Sub for inclusion or incorporation by

reference in the Proxy Statement.

(g) Absence of Certain Changes or Events. From December 31, 2006 through

the date of this Agreement, there has not been or would reasonably be expected

to be a Material Adverse Effect, and the Company and its Subsidiaries have

conducted their businesses only in the ordinary course of business consistent

with past practice, and during such period there has not been:

(i) any declaration, setting aside or payment of any dividend on, or

making of any other distribution (whether in cash, stock or property) with

respect to, any capital stock of the Company;

(ii) any split, combination or reclassification of any capital stock

of the Company or any issuance or the authorization of any issuance of any

other securities in lieu of or in substitution for shares of capital stock

of the Company;

(iii) any purchase, redemption or other acquisition by the Company or

any of its Subsidiaries of any shares of capital stock of the Company or

any of its Subsidiaries or any rights, warrants or options to acquire any

such shares, other than (A) the acquisition by the Company of shares of

Company Common Stock in connection with the surrender of shares of Company

Common Stock by holders of Company Stock Options in order to pay the

exercise price thereof, (B) the withholding of shares of Company Common

Stock to satisfy tax obligations with respect to awards granted pursuant to

the Company Stock Plans, and (C) the acquisition by the Company of Company

Stock Options, Company SARs and Company RSUs and shares of Company

Restricted Stock in connection with the forfeiture of such awards;

(iv) any (A) granting to any director or executive officer of the

Company or any of its Subsidiaries of any material increase in

compensation, (B) granting to any director or executive officer of the

Company or any of its Subsidiaries of any increase in severance or

termination pay or (C) entry by the Company or any of its Subsidiaries into

any employment, consulting, severance or termination agreement with any

director, executive officer or employee of the Company or any of its

Subsidiaries pursuant to which the total annual compensation or the

aggregate severance benefits exceed $500,000 per person;

(v) any change in accounting methods, principles or practices by the

Company or any of its Subsidiaries materially affecting the consolidated

assets, liabilities or results of operations of the Company, except as

required (A) by GAAP (or any interpretation thereof), including as may be

required by the Financial Accounting Standards Board or any similar

organization, or (B) by Law, including Regulation S-X under the Securities

Act;

<PAGE>

(vi) any material tax election by the Company or any of its

Subsidiaries; or

(vii) any sales of real estate or restaurants, or any Contract with

respect to any such sale.

(h) Litigation. There is no suit, action or proceeding pending or, to the

Knowledge of the Company, threatened against the Company or any of its

Subsidiaries that, individually or in the aggregate, would reasonably be

expected to have a Material Adverse Effect or to prevent the Company from

consummating the Merger. There is no Judgment outstanding against the Company or

any of its Subsidiaries that, individually or in the aggregate, would reasonably

be expected to have a Material Adverse Effect or to prevent the Company from

consummating the Merger. This Section 4.01(h) does not relate to environmental

matters, which are the subject of Section 4.01(j)(ii).

(i) Contracts. Except for (A) this Agreement, (B) Contracts filed as

exhibits to the Filed SEC Documents (the "Filed Exhibits") (C) the Franchise

Agreements and (D) purchase orders entered into in the ordinary course of

business, Section 4.01(i) of the Company Disclosure Letter sets forth a true and

complete list, as of the date of this Agreement, and the Company has made

available to Parent true and complete copies, of:

(i) each Contract that would be required to be filed by the Company as

a "material contract" pursuant to Item 601(b)(10) of Regulation S-K under

the Securities Act;

(ii) each Franchise Agreement that is a master franchise agreement,

development agreement or market development agreement;

(iii) each loan and credit agreement, note, debenture, bond, indenture

and other similar Contract pursuant to which any Indebtedness of the

Company or any of its Subsidiaries, in each case in excess of $10.0 million

is outstanding or may be incurred, other than any such Contract between or

among any of the Company and any of its Subsidiaries and any letters of

credit; and

(iv) any Contract pursuant to which the Company or any of its

Subsidiaries (A) licensed any material Intellectual Property Rights from

any person, or (B) materially restricted its, or its Affiliates', rights to

own or use, exploit, or license any registered or material unregistered

Intellectual Property Rights owned by the Company or an Affiliate of the

Company.

Each Filed Exhibit, Franchise Agreement and such Contract described in clauses

(i) through (iv) above is referred to herein as a "Specified Contract". Each of

the Specified Contracts is valid and binding on the Company or the Subsidiary of

the Company party thereto and, to the Knowledge of the Company, each other party

thereto, and is in full force and effect, except for such failures to be valid

<PAGE>

and binding or to be in full force and effect that, individually or in the

aggregate, have not had or would not reasonably be expected to have a Material

Adverse Effect. There is no default under any Specified Contract by the Company

or any of its Subsidiaries or, to the Knowledge of the Company, by any other

party thereto, and no event has occurred that with the lapse of time or the

giving of notice or both would constitute a default thereunder by the Company or

any of its Subsidiaries or, to the Knowledge of the Company, by any other party

thereto, in each case except as, individually or in the aggregate, has not had

or would not reasonably be expected to have a Material Adverse Effect. This

Section 4.01(i) does not relate to real property leases, which are the subject

of Section 4.01(n).

(j) Compliance with Laws; Environmental Matters. (i) Each of the Company

and its Subsidiaries is in compliance with all Laws applicable to its business

or operations (including the Sarbanes-Oxley Act of 2002), except for instances

of possible noncompliance that, individually or in the aggregate, have not had

or would not reasonably be expected to have a Material Adverse Effect. Each of

the Company and its Subsidiaries has in effect all approvals, authorizations,

certificates, franchises, licenses, permits and consents of Governmental

Entities (collectively, "Permits") necessary for it to conduct its business as

currently conducted, and all such Permits are in full force and effect, except

for such Permits the absence of which, or the failure of which to be in full

force and effect, individually or in the aggregate, has not had or would not

reasonably be expected to have a Material Adverse Effect. This Section

4.01(j)(i) does not relate to environmental matters, which are the subject of

Section 4.01(j)(ii), employee benefit matters, which are the subject of Section

4.01(l), and taxes, which are the subject of Section 4.01(m).

(ii) (A) Except for those matters that, individually or in the

aggregate, have not had or would not reasonably be expected to have a

Material Adverse Effect, (1) each of the Company and its Subsidiaries is in

compliance with all applicable Environmental Laws, and neither the Company

nor any of its Subsidiaries has received any written communication alleging

that the Company is in violation of, or has any liability under, any

Environmental Laws, (2) each of the Company and its Subsidiaries validly

possesses and is in compliance with all Permits required under

Environmental Laws to conduct its business as currently conducted, and all

such Permits are valid and in good standing, (3) there are no Environmental

Claims pending or, to the Knowledge of the Company, threatened against the

Company, any of its Subsidiaries or, to the Knowledge of the Company, any

person whose liability for such Environmental Claim the Company has

retained or assumed either contractually or by operation of Law, (4) none

of the Company or any of its Subsidiaries has Released any Hazardous

Materials at, on, under or from any of the Owned Real Property, the Leased

Real Property or any other property in a manner that would reasonably be

expected to result in an Environmental Claim against the Company, any of

its Subsidiaries or any person whose liability for any Environmental Claim

the Company has retained or assumed either contractually or by operation of

<PAGE>

Law, and (5) to the Knowledge of the Company, there are no past or present

actions, activities, circumstances, conditions, events or incidents,

including, without limitation, the release, emission, discharge, presence

or disposal of any Hazardous Materials that are reasonably expected to form

the basis of any Environmental Claim against the Company or against any

person whose liability for any Environmental Claim the Company has retained

or assumed either contractually or by operation of Law.

(B) Each of the Company and its Subsidiaries has provided to Parent

all material assessments, reports, data, results of investigations or

audits, and other information that is in the possession of or reasonably

available to the Company and its Subsidiaries regarding environmental

matters pertaining to the business of each of the Company and its

Subsidiaries, or the compliance (or noncompliance) by the Company and its

Subsidiaries with any Environmental Laws.

forth herein and contemplated hereby, or as a condition to the

effectiveness of any transactions contemplated hereby, (i) to perform a

site assessment for Hazardous Materials, (ii) to remove or remediate

Hazardous Materials, (iii) to give notice to or receive approval from any

governmental authority under Environmental Laws, or (iv) to record or

deliver to any person or entity any disclosure document or statement

pertaining to environmental matters.

(D) The term "Environmental Claims" means any administrative or

judicial actions, suits, orders, claims, proceedings or written or oral

notices of noncompliance by or from any person alleging liability arising

out of the Release of or exposure to any Hazardous Material or the failure

to comply with any Environmental Law. The term "Environmental Law" means

any Law relating to pollution, the environment or natural resources. The

term "Hazardous Materials" means (1) petroleum and petroleum by-products,

asbestos in any form that is or could reasonably become friable,

radioactive materials, medical or infectious wastes, or polychlorinated

biphenyls, and (2) any other chemical, material, substance or waste that

may have an adverse effect on human health or the environment or is

prohibited, limited or regulated because of its hazardous, toxic or

deleterious properties or characteristics. The term "Release" means any

release, spill, emission, leaking, pumping, emitting, discharging,

injecting, escaping, leaching, dumping, disposing or migrating into or

through the environment.

(k) Labor and Employment Matters.

(i) No employees of the Company or any of its Subsidiaries are

represented by any labor union, labor organization, trade union or works

council with respect to their employment with the Company or any of its

Subsidiaries. The Company, each of its Subsidiaries, and their respective

employees, agents or representatives have not committed any material unfair

<PAGE>

labor practice as defined in the National Labor Relations Act or other

applicable Law. The Company and each of its Subsidiaries are neither party

to nor bound by (and none of their respective properties or assets is bound

by or subject to) any labor agreement, collective bargaining agreement,

work rules or practices, or any other labor-related agreements or

arrangements with any labor union, labor organization, trade union or works

council. There are no labor agreements, collective bargaining agreements,

work rules or practices, or any other labor-related agreements or

arrangements that pertain to any of the employees of the Company or any of

its Subsidiaries.

(ii) To the knowledge of the Company, (A) no labor union, labor

organization, trade union, works council, or group of employees of the

Company or any of its Subsidiaries has made a pending demand before the

National Labor Relations Board or any other labor relations tribunal or

authority for recognition or certification, and (B) there are no

representation or certification proceedings or petitions seeking a

representation or certification proceeding currently pending or threatened

in writing to be brought or filed with the National Labor Relations Board

or any other labor relations tribunal or authority. To the Knowledge of the

Company, there are no labor union organizing activities with respect to any

employees of the Company or any of its Subsidiaries. There are no actual

or, to the Knowledge of the Company, threatened material arbitrations,

material grievances, material labor disputes, strikes, lockouts, material

slowdowns or material work stoppages against or affecting the Company or

any of its Subsidiaries nor has there been any of the foregoing during the

3-year period immediately preceding the date of this Agreement.

(iii) The Company and each of its Subsidiaries are and have been in

material compliance with all applicable Laws respecting employment and

employment practices, including, without limitation, all Laws respecting

terms and conditions of employment, health and safety, wages and hours,

child labor, immigration, employment discrimination, disability rights or

benefits, equal opportunity, plant closures and layoffs, affirmative

action, workers' compensation, labor relations, employee leave issues and

unemployment insurance. The Company and each of its Subsidiaries are not in

any material respect delinquent in payments to any employees or former

employees for any services or amounts required to be reimbursed or

otherwise paid. Neither the Company nor any of its Subsidiaries is a party

to, or otherwise bound by, any order of any Governmental Entity relating to

employees or employment practices.

(iv) The Company and each of its Subsidiaries have not received notice

of (A) any material unfair labor practice charge or complaint pending or

threatened before the National Labor Relations Board or any other

Governmental Entity against them, (B) any material complaints, material

grievances or material arbitrations against them arising out of any

<PAGE>

collective bargaining agreement, (C) any material charge or material

complaint with respect to or relating to them pending before the Equal

Employment Opportunity Commission or any other Governmental Entity

responsible for the prevention of unlawful employment practices, (D) the

intent of any Governmental Entity responsible for the enforcement of labor,

employment, wages and hours of work, child labor, immigration, or

occupational safety and health Laws to conduct a material investigation

with respect to or relating to them or notice that such investigation is in

progress, or (E) any material complaint, material lawsuit or other material

proceeding pending or threatened in any forum by or on behalf of any

present or former employee of such entities, any applicant for employment

or classes of the foregoing alleging breach of any express or implied

contract of employment, any applicable Law governing employment or the

termination thereof or other discriminatory, wrongful or tortious conduct

in connection with the employment relationship.

(v) Neither the Company nor any of its Subsidiaries is, as of the date

of this Agreement, engaged in any layoffs or employment ter

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