EXHIBIT 2.1 AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

AGREEMENT AND PLAN OF MERGER

dated as of

January 7, 2007

among

KLA-TENCOR CORPORATION,

FENWAY ACQUISITION CORPORATION

and

THERMA-WAVE, INC.

TABLE OF CONTENTS

Annexes

Annex I — Conditions to the Offer
Annex II — Certificate of Incorporation of the Surviving Corporation

Schedule

Schedule I — Company’s Knowledge

Exhibit

Exhibit A — Tender and Support Agreement

AGREEMENT AND PLAN OF MERGER

     AGREEMENT AND PLAN OF MERGER (this “ Agreement ”) dated as of January 7, 2007, among KLA-Tencor Corporation, a Delaware corporation (“ Parent ”), Fenway Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Subsidiary ”), and Therma-Wave, Inc., a Delaware corporation (the “ Company ”).

     WHEREAS, it is proposed that Merger Subsidiary will commence a tender offer (as it may be amended from time to time in accordance with this Agreement, the “ Offer ”) to acquire (i) all of the outstanding shares of Company’s common stock, par value $0.01 per share (the “ Company Shares ”), at a price of $1.65 per share in cash, net to the holder thereof (such amount, or any different amount per share offered pursuant to the Offer in accordance with the terms of this Agreement, the “ Common Offer Price ”) and (ii) all of the outstanding shares of the Company’s Series B Convertible Preferred Stock, par value $0.01 per share (the “ Series B Convertible Preferred Shares ” and, together with the Company Shares, the “ Tender Shares ”), at a price of $1.65 per Company Share into which such Series B Convertible Preferred Shares are then convertible on the date of consummation of the Offer, in cash, net to the holder thereof (such amount, or any different amount per share offered pursuant to the offer in accordance with the terms of this Agreement, the “ Series B Offer Price ” and, together with the Common Offer Price, the “ Offer Price ”), each on the terms and subject to the conditions set forth herein;

     WHEREAS, it is also proposed that, following the consummation of the Offer, Merger Subsidiary will merge with and into the Company, with the Company surviving the merger as a wholly-owned subsidiary of Parent, and each share that is not tendered and accepted pursuant to the Offer will thereupon be cancelled and converted into the right to receive cash in an amount equal to the Offer Price, on the terms and subject to the conditions set forth herein;

     WHEREAS, the board of directors of each of the Company, Parent and Merger Subsidiary have approved this Agreement and deem it advisable and in the best interests of their respective stockholders to consummate the Offer, the Merger and the other transactions contemplated hereby, on the terms and subject to the conditions set forth herein; and

     WHEREAS, concurrently with the execution and delivery of this Agreement, and as a condition and inducement to Parent’s and Merger Subsidiary’s willingness to enter into this Agreement, the directors and executive officers of the Company and certain stockholders of the Company have agreed to tender their Tender Shares pursuant to the Tender and Support Agreement substantially in the form attached as Exhibit A (the “ Tender and Support Agreement ”).

     NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties hereto agree as follows:

ARTICLE 1
Definitions

     Section 1.01 . Definitions. (a) As used herein, the following terms have the following meanings:

     “ Acquisition Proposal ” means, other than the transactions contemplated by this Agreement, any Third-Party offer, proposal or inquiry relating to, or any Third-Party indication of interest in, (i) any acquisition or purchase, direct or indirect, of 20% or more of the consolidated assets of the Company and its Subsidiaries or any equity or voting securities of the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company, which equity or voting securities constitute 20% or more of the voting power of all of the equity and voting securities of the Company or such Subsidiary, (ii) any takeover bid, tender offer (including a self-tender offer) or exchange offer that, if consummated, would result in any Third Party beneficially owning any equity or voting securities of the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company, which equity or voting securities constitute 20% or more of the voting power of all of the equity and voting securities of the Company or such Subsidiary, (iii) a merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization or other similar transaction involving the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company as a result of which the holders of the Company’s or such Subsidiary’s equity or voting securities immediately prior to such transaction will hold less than 80% of the voting power of the Company or such Subsidiary (or other surviving or resulting entity, as applicable) immediately after the transaction or (iv) a sale of substantially all the assets, liquidation, dissolution or other similar transaction of the Company or any of its Subsidiaries whose assets, individually or in the aggregate, constitute 20% or more of the consolidated assets of the Company.

     “ Affiliate ” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. As used in this definition, the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

     “ Applicable Competition Law ” means (i) the HSR Act and (ii) any Applicable Law analogous to the HSR Act or otherwise regulating antitrust, competition or merger control matters in one or more foreign jurisdictions.

     “ Applicable Law ” means, with respect to any Person, any international, national, federal, state or local law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, judicial decision, decree, ruling or other similar requirement or restriction enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as amended unless expressly specified otherwise.

     “ Business Day ” means a day other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

     “ Code ” means the Internal Revenue Code of 1986, as amended.

     “ Company Balance Sheet ” means the consolidated balance sheets of the Company as of March 31, 2006 and the footnotes thereto set forth in the Company 10-K.

     “ Company Balance Sheet Date ” means March 31, 2006.

     “ Company Convertible Security ” means (i) the Series B Convertible Preferred Shares, (ii) any options (including, without limitation, Company Stock Options), warrants, stock appreciation rights, convertible promissory notes or other securities convertible into, or exercisable or exchangeable for Company Shares and/or the Series B Convertible Preferred Shares and (iii) any other conversion or exchange right or other right or agreement to purchase, redeem, repurchase or otherwise acquire any equity or equity-linked security of the Company.

     “ Company Disclosure Schedule ” means the disclosure schedule dated the date of this Agreement regarding this Agreement that has been provided by the Company to Parent and Merger Subsidiary.

     “ Company Equity Plan ” means any of the Company’s (i) 1997 Stock Purchase and Option Plan, (ii) 1997 Employee Stock Purchase and Option Plan, (iii) 1997 Special Employee Stock Purchase and Option Plan and (iv) 2000 Equity Incentive Plan, as amended.

     “ Company Stock Option ” means any option to purchase the Company Shares granted under a Company Equity Plan.

     “ Company 10-K ” means the Company’s annual report on Form 10-K for the fiscal year ended April 2, 2006.

     “ Contract ” means any written or oral contract, agreement, note, bond, indenture, mortgage, guarantee, option, lease, license, sales or purchase order, warranty, commitment or other instrument, obligation or binding arrangement or understanding of any kind.

     “ Delaware Law ” means the General Corporation Law of the State of Delaware.

     “ Environmental Laws ” means any Applicable Law or any agreement with any Governmental Authority or other third party relating to human health and safety, protection of the indoor or outdoor environment or to Hazardous Substances.

     “ Environmental Permits ” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of any Governmental Authority relating to or required by Environmental Laws and affecting, or relating to, the business of the Company or any of its Subsidiaries as currently conducted.

     “ ERISA ” means the Employee Retirement Income Security Act of 1974.

     “ ERISA Affiliate ” of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code.

     “ GAAP ” means generally accepted accounting principles in the United States.

     “ Governmental Authority ” means (i) any government or any state, department, local authority or other political subdivision thereof, (ii) any governmental body, agency, authority (including any central bank, taxing authority or transgovernmental or supranational entity or authority), minister or instrumentality (including any court or tribunal) exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, or (iii) the Nasdaq.

     “ Hazardous Substance ” means any pollutant, contaminant, waste or chemical or any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous substance, waste or material, including petroleum, its derivatives, by-products and other hydrocarbons, or any other substance, waste or material regulated under any Environmental Law.

     “ HSR Act ” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

     “ Indebtedness ” means, collectively, any (i) indebtedness for borrowed money, (ii) indebtedness evidenced by any bond, debenture, note, mortgage, indenture or other debt instrument or debt security, (iii) amounts owing as deferred purchase price for the purchase of any property or (iv) guarantees with respect to any indebtedness or obligation of a type described in clauses (i) through (iii) above of any other Person.

     “ Intellectual Property Rights ” means (i) patents and patent applications (including all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof) registered or applied for in the United States and all other nations throughout the world, (ii) rights associated with trademarks, service marks, trade dress, logos, domain names, rights of publicity, trade names and corporate names (whether or not registered) in the United States and all other nations throughout the world, including all registrations and applications for registration of the foregoing, (iii) copyrights (whether or not registered) and registrations and applications for registration thereof in the United States and all other nations throughout the world, including all moral rights, renewals, extensions, reversions or restorations associated with such copyrights, now or hereafter provided by law, regardless of the medium of fixation or means of expression, (iv) rights in trade secrets and other confidential, business information (including pricing and cost information, business and marketing plans and customer and supplier lists) and know-how (including manufacturing and production processes and techniques and research and development information), (v) any other similar type of proprietary intellectual property right and (vi) all rights to sue or recover and retain damages and costs and attorneys’ fees for past, present and future infringement or misappropriation of any of the foregoing.

     “ Knowledge ” means (i) with respect to the Company, the actual knowledge of the officers of the Company listed on Schedule I hereto and, (ii) with respect to any other Person that is not an individual, the actual knowledge of such Person’s officers, and in each case, also includes the knowledge each such officer would reasonably be expected to have by reason of his or her position as an officer of the Company or such other Person.

     “ Licensed Intellectual Property Rights ” means all Intellectual Property Rights owned by a third party and licensed or sublicensed to the Company or any of its Subsidiaries.

     “ Lien ” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

     “ made available ” means that, with respect to any document, Contract or information, such item was, (i) available on the SEC’s EDGAR database, (ii) delivered to the other party or (iii) posted and accessible by the other party within the “Project Fenway” workspace on the Intralinks on-line data room, in each case with respect to any document, Contract or information required to be made available as of the date of this Agreement, no later than 12:00 noon New York City time on the date preceding the date of this Agreement.

     “ Material Adverse Effect ” means any fact, circumstance, change or effect that, individually or when taken together with all other such facts, circumstances, changes or effects that exist at the date of determination, has or is reasonably likely to have a material adverse effect on (i) the business, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) (to the extent applicable) the Company’s ability to timely consummate the Merger and the other transactions contemplated by this Agreement in accordance with the terms of this Agreement, excluding, in the case of clause (i) above, any such effect resulting from or arising out of: (A) any loss of or adverse change in the relationship of the Company and its Subsidiaries with their respective employees, customers, partners or suppliers arising out of or related to the announcement, pendency or consummation of the Offer or the Merger, (B) general economic, market or political conditions (including acts of terrorism or war or other force majeure events) that do not disproportionately affect the Company and its Subsidiaries, taken as a whole, (C) general conditions in the industry in which the Company and its Subsidiaries operate that do not disproportionately affect the Company and its Subsidiaries, taken as a whole, (D) any changes (after the date of this Agreement) in GAAP or Applicable Law, (E) any failure to take any action as a result of compliance with the restrictions or other prohibitions set forth in the second sentence of Section 7.01, (F) any failure of the Company to meet internal or analysts’ expectations or projections (it being understood that any cause of any such failure may be deemed to constitute, in and of itself, a Company Material Adverse Effect and may be taken into consideration when determining whether a Company Material Adverse Effect has occurred), or (G) any Proceeding made or brought by any holder of Tender Shares (on the holder’s own behalf or on behalf of the Company) arising out of or related to this Agreement or any of the transactions contemplated hereby (including the Offer and the Merger).

     “ Nasdaq ” means the Nasdaq Global Market.

     “ 1933 Act ” means the Securities Act of 1933, as amended.

     “ 1934 Act ” means the Securities Exchange Act of 1934, as amended.

     “ Owned Intellectual Property Rights ” means all Intellectual Property Rights owned by the Company or any of its Subsidiaries.

     “ Other Company Representations ” means the representations and warranties of the Company contained in this Agreement, other than the Specified Company Representations.

     “ Parent Shares ” means the shares of common stock, $0.001 par value, of Parent.

     “ Permitted Lien ” means (i) any Lien disclosed on the Company Balance Sheet, (ii) any Lien for Taxes not yet due or being contested in good faith by any appropriate Proceedings (and for which adequate accruals or reserves have been established on the Company Balance Sheet), (iii) mechanic’s and other similar statutory liens that do not materially detract from the value or materially interfere with any present or intended use of the property or assets to which such Lien relates and (iv) any Lien (other than those securing Indebtedness) incurred in the ordinary course of business consistent with past practice that does not materially detract from the value or materially interfere with any present or intended use of the property or assets to which such Lien relates.

     “ Person ” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including a Governmental Authority.

     “ Proceeding ” means any suit, claim, action, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, review, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Authority or any arbitrator or arbitration panel.

     “ Registered Intellectual Property Rights ” means (i) patents registered in the United States and all other nations throughout the world, (ii) registrations of trademarks, service marks, trade dress, logos, domain names, rights of publicity, trade names and corporate names in the United States and all other nations throughout the world, and (iii) registrations of copyrights in the United States and all other nations throughout the world.

     “ Registered Intellectual Property Right Applications ” means (i) patent applications applied for in the United States and all other nations throughout the world, (ii) applications for registration of trademarks, service marks, trade dress, logos, domain names, rights of publicity, trade names and corporate names in the United States and all other nations throughout the world, and (iii) applications for registration of copyrights in the United States and all other nations throughout the world.

     “ Sarbanes-Oxley Act ” means the Sarbanes-Oxley Act of 2002.

     “ SEC ” means the Securities and Exchange Commission.

     “ Series B Holders ” means the Persons that, as of the date of determination, are holders of Series B Convertible Preferred Shares.

     “ Series B Warrants ” means the warrants to purchase Company Shares held by the Series B Holders.

     “ Specified Company Representations ” means the representations and warranties of the Company contained in Sections 5.02, 5.05 (except for Sections 5.05(b), 5.05(e) and 5.05(f)), 5.15 and 5.21.

     “ Subsidiary ” means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at any time directly or indirectly owned by such Person.

     “ Superior Proposal ” means any bona fide , unsolicited, written Acquisition Proposal (including for the avoidance of doubt with respect to a series of related transactions such as a tender offer followed by a merger) which did not result from a breach of Section 7.04 made by a Third Party which, if consummated, would result in a Third Party (or in the case of a direct merger between a Third Party or any Subsidiary of such Third Party and the Company, the stockholder of such Third Party) owning, directly or indirectly, all of the outstanding Tender Shares or all or substantially all the consolidated assets of the Company and its Subsidiaries, and which Acquisition Proposal the Company Board determines in good faith by a majority vote, after considering the advice of its outside legal counsel and of a financial advisor of nationally recognized reputation and taking into account all of the terms and conditions of such Acquisition Proposal, including any break-up fees, expense reimbursement provisions and conditions to consummation, (i) is more favorable and provides greater value to all the Company’s stockholders than as provided hereunder (including any changes to the terms of this Agreement or the Offer proposed by Parent prior to the time of such determination in response to such Superior Proposal or otherwise), (ii) is not subject to any financing condition (and if financing is required, such financing is then fully committed to the Third Party) and (iii) is reasonably capable of being completed on the terms proposed without unreasonable delay, taking into account all financial, legal, regulatory and other aspects of such Acquisition Proposal.

     “ Third Party ” means any Person, including as defined in Section 13(d) of the 1934 Act, other than Parent or any of its Affiliates.

     “ Voting Shares ” means the sum of the number of Company Shares then issued and outstanding and the number of unissued Company Shares issuable

upon conversion of all Series B Convertible Preferred Shares then issued and outstanding. For the avoidance of doubt, Voting Shares shall exclude any unissued Company Shares issuable upon conversion of any Company Convertible Security other than Series B Convertible Preferred Shares.

     (b) Each of the following terms is defined in the Section set forth opposite such term:

     Section 1.02 . Other Definitional and Interpretative Provisions. The words “hereof”, “herein” and “hereunder” and words of like import used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. References to Articles, Sections, Exhibits and Schedules are to Articles, Sections, Exhibits and Schedules of this Agreement unless otherwise specified. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth in full herein. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein, shall have the meaning as defined in this Agreement. Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”, whether or not they are in fact followed by those words or words of like import. “Writing”, “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form. References to any agreement or contract are to that agreement or contract as amended, modified or supplemented from time to time in accordance with the

terms hereof and thereof; provided that with respect to any agreement or contract listed on any schedules hereto, all such amendments, modifications or supplements must also be listed in the appropriate schedule. References to any Person include the successors and permitted assigns of that Person. References from or through any date mean, unless otherwise specified, from and including or through and including, respectively.

ARTICLE 2
The Offer

     Section 2.01 . The Offer . (a) Provided that nothing shall have occurred that, had the Offer been commenced, would give rise to a right to terminate the Offer pursuant to Article 11 hereof, as promptly as practicable after the date of this Agreement, Merger Subsidiary shall commence (within the meaning of Rule 14d-2 under the 1934 Act) the Offer. The Offer and the obligation of Merger Subsidiary to accept for payment and to pay for any Tender Shares shall be subject only to the condition that there shall be validly tendered in accordance with the terms of the Offer, prior to the scheduled expiration date of the Offer (as it may be extended hereunder) and not withdrawn, Tender Shares that, together with the Tender Shares then directly or indirectly owned by Parent and/or Merger Subsidiary, represent a majority of the Voting Shares (the “ Minimum Condition ”) and to the other conditions set forth in Annex I hereto. Merger Subsidiary expressly reserves the right to waive any of the conditions to the Offer and to make any change in the terms of or conditions to the Offer; provided that unless otherwise provided by this Agreement or previously approved by the Company in writing (i) the Minimum Condition may not be waived, (ii) no change may be made that changes the form of consideration to be paid, decreases the Offer Price or the number of Tender Shares sought in the Offer or imposes conditions to the Offer in addition to those set forth in Annex I or amends any terms of the Offer in any manner adverse to the holders of Tender Shares and (iii) the Offer may not be extended except as set forth in this Section 2.01(a). Subject to the terms and conditions of this Agreement, the Offer shall expire at midnight, New York City time, on the date that is 20 Business Days (determined using Rule 14d-1(g)(3) of the 1934 Act) after the date that the Offer is commenced. Notwithstanding the foregoing, Merger Subsidiary shall extend the Offer (1) from time to time for successive periods of no more than 10 Business Days each (or such longer period as may be consented to by the Company, such consent not to be unreasonably withheld) if, at the scheduled or extended expiration date of the Offer, any of the conditions to the Offer shall not have been satisfied or waived, until such conditions are satisfied or waived, and (2) for any period required by any rule, regulation, interpretation or position of the SEC or the staff thereof applicable to the Offer or any period required by Applicable Law. Following

expiration of the Offer, Merger Subsidiary may, in its sole discretion, provide one or more subsequent offering periods (together, the “ Subsequent Offering Period ”) in accordance with Rule 14d-11 of the 1934 Act. Subject to the foregoing, including the requirements of Rule 14d-11, and upon the terms and subject to the conditions of the Offer, Merger Subsidiary shall, and Parent shall cause it to, accept for payment and pay for, promptly after the expiration of the Offer, all Tender Shares (x) validly tendered and not withdrawn pursuant to the Offer and (y) validly tendered in the Subsequent Offering Period.

     (b) As soon as practicable on the date of commencement of the Offer, Parent and Merger Subsidiary shall (i) file with the SEC a Tender Offer Statement on Schedule TO with respect to the Offer (together with all amendments and supplements thereto and including exhibits thereto, the “ Schedule TO ”) that shall include the summary term sheet required thereby and, as exhibits or incorporated by reference thereto, the Offer to Purchase and a form of letter of transmittal and summary advertisement, if any, in respect of the Offer (collectively, together with any amendments or supplements thereto, the “ Offer Documents ”) and (ii) cause the Offer Documents to be disseminated to holders of Tender Shares. The Company shall promptly furnish to Parent and Merger Subsidiary in writing all information concerning the Company that may be required by applicable securities laws or reasonably requested by Parent or Merger Subsidiary for inclusion in the Schedule TO or the Offer Documents. Each of Parent, Merger Subsidiary and the Company agrees promptly to correct any information provided by it for use in the Schedule TO and the Offer Documents if and to the extent that such information shall have become false or misleading in any material respect. Parent and Merger Subsidiary agree to take all steps necessary to cause the Schedule TO as so corrected to be filed with the SEC and the Offer Documents as so corrected to be disseminated to holders of Tender Shares, in each case as and to the extent required by applicable U.S. federal securities laws. The Company and its counsel shall be given a reasonable opportunity to review and comment on the Schedule TO and the Offer Documents each time before any such document is filed with the SEC, and Parent and Merger Subsidiary shall give reasonable and good faith consideration to any comments made by the Company and its counsel. Parent and Merger Subsidiary shall provide the Company and its counsel with (i) any comments or other communications, whether written or oral, that Parent, Merger Subsidiary or their counsel may receive from time to time from the SEC or its staff with respect to the Schedule TO or Offer Documents promptly after receipt of those comments or other communications and (ii) a reasonable opportunity to participate in the response of Parent and Merger Subsidiary to those comments and to provide comments on that response (to which reasonable and good faith consideration shall be given), including by participating with Parent and Merger Subsidiary or their counsel in any discussions or meetings with the SEC.

     Section 2.02 . Company Action . (a) The Company hereby consents to the Offer and represents that its board of directors (the “ Company Board ”), at a meeting duly called and held prior to the execution of this Agreement, has unanimously (i) determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger, are fair to and in the best interests of the Company’s stockholders, (ii) approved and adopted this Agreement and the transactions contemplated hereby, including the Offer and the Merger, in accordance with the requirements of Delaware Law and (iii) recommended acceptance of the Offer by the Company’s stockholders and the Stockholder Approval (such recommendation, the “ Board Recommendation ”). Except to the extent permitted by Section 7.04(b), the Company hereby represents that no Adverse Recommendation Change has occurred. The Company hereby consents to the inclusion of the foregoing determinations and approvals in the Offer Documents and, to the extent that no Adverse Recommendation Change shall have occurred in accordance with Section 7.04(b), the Company hereby consents to the inclusion of the Board Recommendation in the Offer Documents. The Company further represents that Needham & Company, LLC has delivered to the Company Board its opinion that the consideration to be paid in the Offer and the Merger is fair to the holders of the Company Shares from a financial point of view. The Company has been advised that its directors and executive officers and certain stockholders of the Company have agreed to tender their Tender Shares pursuant to the Offer pursuant to the terms of the Tender and Support Agreement. The Company shall promptly furnish Parent with a list of its stockholders, mailing labels and any available listing or computer file containing the names and addresses of all record holders of Tender Shares and lists of securities positions of Tender Shares held in stock depositories, in each case true and correct as of the most recent practicable date, and shall provide to Parent such additional information (including updated lists of stockholders, mailing labels and lists of securities positions) and such other assistance as Parent may reasonably request in order to disseminate the Offer as required by Applicable Law. Subject to Applicable Laws, and except for such steps as are necessary to disseminate the Offer Documents and any other documents necessary to consummate the Merger, Parent and Merger Subsidiary (and their respective agents) shall:

     (x) hold in confidence the information contained in any such lists of stockholders, mailing labels and listings or files of securities positions and additional information;

     (y) use such information only in connection with the Offer and the Merger; and

     (z) if this Agreement shall be terminated pursuant to Article 11, deliver (and use their respective reasonable efforts to cause their agents to deliver) to the Company or destroy (in which case Parent shall deliver or cause to be delivered notice of such destruction, certified by an

officer of Parent) any and all copies and any extracts or summaries from such information then in their possession or control.

     (b) As soon as practicable on the day that the Offer is commenced, the Company shall file with the SEC and disseminate to holders of Tender Shares, in each case as and to the extent required by applicable U.S. federal securities laws, a Solicitation/Recommendation Statement on Schedule 14D-9 (together with any amendments or supplements thereto, the “ Schedule 14D-9 ”) that, subject to Section 7.04(b), shall reflect the Board Recommendation. Each of Parent and Merger Subsidiary shall promptly furnish to the Company in writing all information concerning Parent and Merger Subsidiary that may be required by applicable securities laws or reasonably requested by the Company for inclusion in the Schedule 14D-9. Each of the Company, Parent and Merger Subsidiary agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Tender Shares, in each case as and to the extent required by applicable U.S. federal securities laws. Parent and its counsel shall be given a reasonable opportunity to review and comment on the Schedule 14D-9 each time before it is filed with the SEC, and the Company shall give reasonable and good faith consideration to any comments made by Parent, Merger Subsidiary and their counsel. The Company shall provide Parent, Merger Subsidiary and their counsel with (i) any comments or other communications, whether written or oral, that the Company or its counsel may receive from time to time from the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt of those comments or other communications and (ii) a reasonable opportunity to participate in the Company’s response to those comments and to provide comments on that response (to which reasonable and good faith consideration shall be given), including by participating with the Company or its counsel in any discussions or meetings with the SEC.

     Section 2.03 . Directors . (a) Effective upon the acceptance for payment of any Tender Shares pursuant to the Offer, Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company Board that equals the product of (i) the total number of directors on the Company Board (giving effect to the election of any additional directors pursuant to this Section) and (ii) the percentage that the number of Tender Shares beneficially owned by Parent and Merger Subsidiary (including Tender Shares accepted for payment) bears to the total number of Tender Shares outstanding, and the Company shall take all action necessary to cause Parent’s designees to be elected or appointed to the Company Board, including increasing the number of directors, and seeking and accepting resignations of incumbent directors. At such time, the Company shall also take all actions necessary to cause individuals designated by Parent to constitute the number of members, rounded up to the next whole

number, on (i) each committee of the Company Board and (ii) each board of directors of each Subsidiary of the Company (and each committee thereof) that represents the same percentage as such individuals represent on the Company Board, in each case to the fullest extent permitted by Applicable Law. Notwithstanding the foregoing, until Parent and/or Merger Subsidiary acquires a majority of the Voting Shares, the Company shall (subject to the fiduciary duties of the Company Board) use its reasonable efforts to ensure that all of the members of the Company Board and such committees and boards as of the date of this Agreement who are not employees of the Company shall remain members of the Company Board and such committees and boards until the Effective Time.

     (b) The Company’s obligations to appoint Parent’s designees to the Company Board shall be subject to Section 14(f) of the 1934 Act and Rule 14f-1 promulgated thereunder. The Company shall (subject to the following sentence) promptly take all actions, and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors, as Section 14(f) and Rule 14f-1 require in order to fulfill its obligations under this Section. Parent shall supply to the Company in writing any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1.

     (c) Following the election or appointment of Parent’s designees pursuant to Section 2.03(a) and until the Effective Time, the approval of a majority of the directors of the Company then in office who were not designated by Parent shall be required to authorize (and such authorization shall constitute the authorization of the Company Board and no other action on the part of the Company, including any action by any other director of the Company, shall be required to authorize) any termination of this Agreement by the Company, any amendment of this Agreement requiring action by the Company Board, any extension of time for performance of any obligation or action hereunder by Parent or Merger Subsidiary and any waiver of compliance with any of the agreements or conditions contained herein for the benefit of the Company.

     Section 2.04 . Top-Up Option. (a) The Company hereby irrevocably grants to Merger Subsidiary an option (the “ Top-Up Option ”), exercisable upon the terms and conditions set forth in this Section 2.04, to purchase that number of Company Shares (the “ Top-Up Option Company Shares ”) equal to the lowest number of Company Shares that, when added to the number of Company Shares directly or indirectly owned by Parent or Merger Subsidiary at the time of such exercise, shall constitute one share more than 90% of the Company Shares (taking into account the issuance of the Top-Up Option Company Shares) at a price per share equal to the Common Offer Price; provided that in no event shall the Top-Up Option be exercisable for a number of Company Shares in excess of the Company’s then authorized and unissued Company Shares (giving effect to

Company Shares reserved for issuance under any Company Equity Plan as if such shares were outstanding).

     (b)  Provided that no Applicable Law shall prohibit the exercise of the Top-Up Option or the delivery of the Top-Up Option Company Shares in respect thereof, Merger Subsidiary may exercise the Top-Up Option, in whole but not in part, at any time after the consummation of the Offer and prior to the earlier to occur of (i) the Effective Time and (ii) the termination of this Agreement in accordance with its terms.

     (c) Parent and Merger Subsidiary acknowledge that the Company Shares that Merger Subsidiary may acquire upon exercise of the Top-Up Option will not be registered under the 1933 Act and will be issued in reliance upon an exemption thereunder for transactions not involving a public offering. Each of Parent and Merger Subsidiary hereby represents and warrants to the Company that Merger Subsidiary is, and will be upon the purchase of the Top-Up Option Company Shares, an “accredited investor”, as defined in Rule 501 of Regulation D under the 1933 Act. Merger Subsidiary agrees that the Top-Up Option and the Top-Up Option Company Shares to be acquired upon exercise of the Top-Up Option are being and will be acquired by Merger Subsidiary for the purpose of investment and not with a view to, or for resale in connection with, any distribution thereof (within the meaning of the 1933 Act).

ARTICLE 3
The Merger

     Section 3.01 . The Merger. (a) At the Effective Time, Merger Subsidiary shall be merged (the “ Merger ”) with and into the Company in accordance with Delaware Law, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the “ Surviving Corporation ”).

     (b) From and after the Effective Time, the Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities, restrictions and disabilities of the Company and Merger Subsidiary, all as provided under Delaware Law.

     Section 3.02 . The Closing; Effectiveness. Upon the terms and subject to the conditions set forth herein, the closing of the Merger (the “ Closing ”) will take place at 10:00 a.m., San Francisco time, as soon as practicable (and, in any event, within three Business Days) after satisfaction or, to the extent permitted hereunder, waiver of all conditions to the Merger set forth in Article 10 (excluding conditions that, by their terms, are satisfied at the Closing, but subject to the satisfaction or waiver (to the extent permitted by Applicable Law) of such

conditions at the Closing), unless this Agreement has been terminated pursuant to its terms or unless another time or date is agreed to in writing by the parties hereto. The Closing shall be held at the offices of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California 94025, unless another place is agreed to by the parties hereto. As soon as practicable after the Closing, the Company and Merger Subsidiary shall file the certificate of merger with the Delaware Secretary of State and make all other filings or recordings required by Delaware Law in connection with the Merger. The Merger shall become effective at such time (the “ Effective Time ”) as the certificate of merger is duly filed with the Delaware Secretary of State or at such later time as is specified in the certificate of merger.

     Section 3.03 . Conversion of Shares . At the Effective Time, by virtue of the Merger and without any action on the part of the holders thereof:

     (a) except as otherwise provided in Section 3.03(b), Section 3.03(c) or Section 3.05, each Company Share outstanding immediately prior to the Effective Time shall be converted into the right to receive $1.65 in cash or such other amount as may have been paid for each Company Share in the Offer, without interest (the “ Merger Consideration ”);

     (b) each Tender Share held by the Company as treasury stock (other than Company Shares in any Employee Plan of the Company) or owned by Parent or Merger Subsidiary (whether pursuant to the Offer or otherwise) immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto;

     (c) each Company Share held by any Subsidiary (other than Merger Subsidiary) of either the Company or Parent immediately prior to the Effective Time shall be converted into such number of shares of stock of the Surviving Corporation such that each such Subsidiary owns the same percentage of Surviving Corporation immediately following the Effective Time as such Subsidiary owned in the Company immediately prior to the Effective Time; and

     (d) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

     Section 3.04 . Surrender and Payment . (a) Prior to the Effective Time, Parent shall appoint an exchange agent (the “ Exchange Agent ”) for the purpose of exchanging for the Merger Consideration (i) certificates representing Company Shares (the “ Certificates ”) or (ii) uncertificated Company Shares (the “ Uncertificated Shares ”). Parent shall make available to the Exchange Agent, as needed, the Merger Consideration to be paid in respect of the Certificates and the

Uncertificated Shares. As promptly as practicable after the Effective Time, Parent shall send, or shall cause the Exchange Agent to send, to each record holder of Company Shares at the Effective Time a letter of transmittal and instructions (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the Certificates or transfer of the Uncertificated Shares to the Exchange Agent) for use in such exchange.

     (b) Each holder of Company Shares that have been converted into the right to receive the Merger Consideration shall be entitled to receive, upon (i) surrender to the Exchange Agent of a Certificate, together with a properly completed letter of transmittal, or (ii) receipt of an “agent’s message” by the Exchange Agent (or such other evidence, if any, of transfer as the Exchange Agent may reasonably request) in the case of a book-entry transfer of Uncertificated Shares, the Merger Consideration payable for each Company Share represented by a Certificate or for each Uncertificated Share. Until so surrendered or transferred, as the case may be, each such Certificate or Uncertificated Share shall represent after the Effective Time for all purposes only the right to receive such Merger Consideration.

     (c) If any portion of the Merger Consideration is to be paid to a Person other than the Person in whose name the surrendered Certificate or the transferred Uncertificated Share is registered, it shall be a condition to such payment that (i) either such Certificate shall be properly endorsed or shall otherwise be in proper form for transfer or such Uncertificated Share shall be properly transferred and (ii) the Person requesting such payment shall pay to the Exchange Agent any transfer or other Tax required as a result of such payment to a Person other than the registered holder of such Certificate or Uncertificated Share or establish to the satisfaction of the Exchange Agent that such Tax has been paid or is not payable.

     (d) After the Effective Time, there shall be no further registration of transfers of Company Shares. If, after the Effective Time, Certificates or Uncertificated Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration provided for, and in accordance with the procedures set forth, in this Article 3.

     (e) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 3.04(a) (and any interest or other income earned thereon) that remains unclaimed by the holders of Company Shares six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged such Company Shares for the Merger Consideration in accordance with this Section 3.04 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration in respect of such Company Shares without any interest thereon. Notwithstanding the foregoing, Parent shall not be liable to any holder of Company Shares for any amounts paid to a public official pursuant to applicable abandoned property,

escheat or similar laws. Any amounts remaining unclaimed by holders of Company Shares two years after the Effective Time (or such earlier date immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Authority) shall become, to the extent permitted by Applicable Law, the property of Parent free and clear of any claims or interest of any Person previously entitled thereto.

     (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 3.04(a) to pay for Company Shares for which appraisal rights have been perfected shall be returned to Parent, upon demand.

     Section 3.05 . Dissenting Shares . Notwithstanding Section 3.02, Company Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Company Shares in accordance with Delaware Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect, withdraws or otherwise loses the right to appraisal. If, after the Effective Time, such holder fails to perfect, withdraws or loses the right to appraisal, such Company Shares shall be treated as if they had been converted as of the Effective Time into the right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Company Shares, and Parent shall have the right to participate in all negotiations and Proceedings with respect to such demands. Except with the prior written consent of Parent, the Company shall not make any payment with respect to, or offer to settle or settle, any such demands.

     Section 3.06 . Stock Options . (a) Except as provided in Section 3.06(b), contingent on and immediately following the Effective Time, each Company Stock Option outstanding at the Effective Time with an exercise price less than $1.65 per Company Share (each, an “ In-the-Money Company Option ”) that is unvested at the Effective Time and held by a then-current employee of the Company or its Subsidiaries shall cease to represent a right to acquire Company Shares and shall be converted automatically into an option to purchase Parent Shares on the same terms and conditions (including vesting schedule) as applied to such In-the-Money Company Option immediately prior to the Effective Time, except that (i) the number of Parent Shares (rounded down to the nearest whole share) subject to each assumed In-the-Money Company Option shall be determined by multiplying the number of Company Shares subject to the unvested portion of such In-the-Money Company Option by a fraction (the “ Option Exchange Ratio” ), the numerator of which is the per share Merger Consideration, and the denominator of which is the average closing price of the Parent Shares on the Nasdaq over the five trading days immediately preceding (but not including) the date on which the Effective Time occurs, and (ii) the

exercise price per Parent Share (rounded up to the nearest whole cent) shall equal the per share exercise price of such In-the-Money Company Option immediately prior to the Effective Time divided by the Option Exchange Ratio.

     (b) Each (i) In-the-Money Company Option that is fully vested at the Effective Time, (ii) In-the-Money Company Option held by a non-employee director or former director of the Company and (iii) In-the-Money Company Option which by its terms, or the terms of the Company Equity Plan under which such option was granted, provides that such option shall become fully vested and convert into a right to receive a payment of cash upon the Merger or the other transactions contemplated hereby, shall in each case, contingent on and immediately following the Effective Time, be cancelled and converted automatically into the right to receive, as soon as practicable after the Effective Time, an amount in cash determined by multiplying (x) the excess, if any, of $1.65 over the applicable exercise price of such option by (y) the number of Company Shares subject to the vested portion of such In-the-Money Company Option.

     (c) Contingent on and immediately following the Effective Time, each Company Stock Option that is not an In-the-Money Company Option assumed pursuant to Section 3.06(a) shall cease to represent a right to acquire Company Shares and shall be cancelled in full.

     (d) Parent shall take such actions as are necessary for the assumption of In-the-Money Company Options pursuant to Section 3.06(a), including the reservation, issuance and listing of Parent Shares as is necessary to effectuate the transactions contemplated by Section 3.06(a). Parent shall prepare and file with the SEC a registration statement on Form S-8 with respect to the Parent Shares subject to such assumed In-the-Money Company Options and shall use its reasonable best efforts to have such registration statement declared effective as soon as practicable following the Effective Time and to maintain the effectiveness of such registration statement covering such assumed In-the-Money Company Options (and to maintain the current status of the prospectus contained therein) for so long as such In-the-Money Company Options remain outstanding, subject in each case to policies and practices generally applicable to options to purchase Parent Common Stock at such time. It is intended that the assumption of the In-the-Money Company Options assumed by Parent shall comply with Sections 409A and 424 of the Code and this Section 3.06 shall be construed consistent with such intent.

     Section 3.07 . Adjustments . If, during the period between the date of this Agreement and the Effective Time, any change in the number of outstanding Company Shares shall occur, including by reason of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend thereon with a record date during such period, the cash

payable pursuant to the Offer, the Merger Consideration and any other amounts payable pursuant to this Agreement shall be appropriately adjusted, provided that no such adjustment shall be required upon any change in the number of outstanding Company Shares that results from any exercise of (i) Company Stock Options outstanding as of the date of this Agreement or (ii) Series B Convertible Preferred Shares or Series B Warrants in accordance with their terms and the terms of the Tender and Support Agreement to which the Series B Holders are party.

     Section 3.08 . Withholding Rights . Each of Merger Subsidiary, the Surviving Corporation and Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any Person pursuant to Articles 2 and 3 such amounts as it is required to deduct and withhold with respect to the making of such payment under any provision of any Tax law. If Merger Subsidiary, the Surviving Corporation or Parent, as the case may be, so withholds amounts, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which Merger Subsidiary, the Surviving Corporation or Parent, as the case may be, made such deduction and withholding.

     Section 3.09 . 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, 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 Exchange Agent shall pay, in exchange for such lost, stolen or destroyed Certificate, the Merger Consideration to be paid in respect of the Company Shares formerly represented by such Certificate, as contemplated by this Article 3.

ARTICLE 4
The Surviving Corporation

     Section 4.01 . Certificate of Incorporation . The certificate of incorporation of the Company shall be amended at the Effective Time as set forth in Annex II and, as so amended, shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with Applicable Law.

     Section 4.02 . Bylaws . The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with Applicable Law.

     Section 4.03 . Directors and Officers . From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with Applicable Law, (i) the directors of Merger Subsidiary at the Effective Time shall

be the directors of the Surviving Corporation and (ii) the officers of the Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation.

ARTICLE 5
Representations and Warranties of the Company

     Subject to Section 12.05, except as set forth in the Company Disclosure Schedule, the Company represents and warrants to Parent that:

     Section 5.01 . Corporate Existence and Power . The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has all corporate powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which do not have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified does not have, individually or in the aggregate, a Material Adverse Effect on the Company. The Company has heretofore made available to Parent true and complete copies of the certificate of incorporation and bylaws of the Company as currently in effect. The Company has heretofore made available to Parent complete and correct copies of the minutes (or, in the case of draft minutes, the most recent drafts thereof as of the date of this Agreement) of all meetings of the stockholders of the Company, the Company Board and each committee of the Company Board and the boards of directors of each of the Company’s Subsidiaries held since January 1, 1999.

     Section 5.02 . Corporate Authorization . (a) The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby are within the Company’s corporate powers and, except for the affirmative vote of the holders of a majority of the Voting Shares to adopt and approve the Merger Agreement and the Merger (the “ Stockholder Approval ”) (if required by Applicable Law), have been duly authorized by all necessary corporate action on the part of the Company. The Stockholder Approval (if required by Applicable Law) is the only vote of the holders of any of the Company’s capital stock necessary in connection with the consummation of the Merger and the other transactions contemplated hereby. This Agreement constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium and other similar Applicable Law affecting creditors’ rights generally and by general principles of equity.

     (b) At a meeting duly called and held prior to the execution of this Agreement, the Company Board (i) unanimously determined that this Agreement and the transactions contemplated hereby are fair to and in the best interests of the Company’s stockholders, (ii) unanimously approved and adopted this Agreement and the transactions contemplated hereby in accordance with the requirements of the Delaware Law and (iii) unanimously made the Board Recommendation. No Adverse Recommendation Change has occurred.

     Section 5.03 . Governmental Authorization . The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby require no action by the Company by or in respect of, or filing with, any Governmental Authority, other than (i) the filing of a certificate of merger with respect to the Merger with the Delaware Secretary of State and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) compliance with any applicable requirements of any Applicable Competition Law, (iii) compliance with any applicable requirements of the 1933 Act, the 1934 Act and any other applicable U.S. state or federal securities laws, and (iv) any actions or filings the absence of which do not have, individually or in the aggregate, a Material Adverse Effect.

     Section 5.04 . Non-Contravention . The execution, delivery and performance by the Company of this Agreement and the consummation by the Company of the Merger and the other transactions contemplated hereby do not and will not (i) contravene, conflict with, or result in any violation or breach of any provision of the certificate of incorporation or bylaws of the Company, (ii) assuming compliance with the matters referred to in Section 5.03, contravene, conflict with, or result in a violation or breach of any provision of any Applicable Law, (iii) assuming compliance with the matters referred to in Section 5.03, require any consent or other action by any Person under, constitute a default, or an event that, with or without notice or lapse of time or both, would reasonably be expected to constitute a default, under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Company or any of its Subsidiaries is entitled under any provision of any agreement or other instrument binding upon the Company or any of its Subsidiaries or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of the Company or any of its Subsidiaries or (iv) result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries, with such exceptions, in the case of each of clauses (ii) through (iv), as do not have, individually or in the aggregate, a Material Adverse Effect on the Company; provided that in determining whether a Material Adverse Effect on the Company would result, any adverse effect otherwise excluded by clause (A) of the definition of “Material Adverse Effect” shall be taken into account.

     Section 5.05 . Capitalization . (a) The authorized capital stock of the Company consists of 75,000,000 Company Shares, 1,000,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share, of which 10,400 shares have been designated as Series B Convertible Preferred Shares. As of the close of business on January 5, 2007, there were issued and outstanding:

     (i) 37,230,516 Company Shares,

     (ii) no shares of Series A Convertible Preferred Stock,

     (iii) 10,400 Series B Convertible Preferred Shares,

     (iv) Series B Warrants to purchase 1,560,000 Company Shares,

     (v) warrants (other than the Series B Warrants) to purchase 115,000 Company Shares and

     (vi) stock options to purchase an aggregate of 6,136,388 Company Shares (of which options to purchase an aggregate of 3,727,638 Company Shares were exercisable).

All outstanding shares of capital stock of the Company have been, and all shares that may be issued pursuant to any Company Equity Plan will be, when issued in accordance with the respective terms thereof, duly authorized, validly issued, fully paid and non-assessable and not subject to preemptive rights created by statute, the certificate of incorporation or bylaws of the Company or any agreement to which the Company is a party or by which it is bound and all outstanding Company Shares and Company Convertible Securities have been, and all shares that may be issued pursuant to any Company Equity Plan will be, issued in compliance in all material respects with federal and state securities law.

     (b) Section 5.05(b) of the Company Disclosure Schedule sets forth, as of the close of business on January 5, 2007, a complete and correct list of all outstanding Company Stock Options, including with respect to each such option, the number of shares subject to such option, the name of the holder, the grant date, the exercise price per share, the vesting schedule (including any portion that would become vested as a result of the transactions contemplated hereby, whether alone or when combined with any other event) and expiration date of each such option, whether the option is an “incentive stock option” under Section 422 of the Code or a non-qualified stock option, and the form of award agreement pursuant to which such option was granted.

     (c) The Company Equity Plans are the only plans or programs the Company or any of its Subsidiaries has maintained under which currently

outstanding stock options, restricted shares, restricted share units, stock appreciation rights, performance shares or other compensatory equity-based awards have been or may be granted.

     (d) Except as set forth in this Section 5.05 and for changes since the close of business on January 5, 2007 resulting from the exercise of Company Stock Options outstanding on such date, as of the date of this Agreement there are no outstanding (i) shares of capital stock of or other voting securities or ownership interests in the Company, (ii) Company Convertible Securities or (iii) restricted shares, restricted share units, stock appreciation rights, performance shares, contingent value rights, “phantom” stock or similar securities or rights that are derivative of or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or other voting securities or ownership interests in the Company (the items in clauses (i) through (iii) being referred to collectively as the “ Company Securities ”). There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the Company Securities.

     (e) No Company Securities are owned by any Subsidiary of the Company.

     (f) With respect to the Company Stock Options, (i) each Company Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Code so qualifies, (ii) each grant of a Company Stock Option was duly authorized no later than the date on which the grant of such Company Stock Option was by its terms to be effective (the “ Grant Date ”) by all necessary corporate action, including, as applicable, approval by the Company Board (or a duly constituted and authorized committee thereof), or a duly authorized delegate thereof, and any required stockholder approval by the necessary number of votes or written consents, (iii) each such grant was made in accordance with the terms of the applicable Company Equity Plan, the 1934 Act and all other Applicable Law, including the rules of the Nasdaq, (iv) the per share exercise price of each Company Stock Option was not less than the fair market value of a Company Share on the applicable Grant Date, and (v) each such grant was properly accounted for in all material respects in accordance with GAAP in the financial statements (including the related notes) of the Company and disclosed in the Company SEC Documents in accordance with the 1934 Act and all other Applicable Law. The Company has not granted, and there is no and has been no Company policy or practice to grant, Company Stock Options prior to, or otherwise coordinate the grant of Company Stock Options with, the release or other public announcement of material information regarding the Company or any of its Subsidiaries or their financial results or prospects.

     Section 5.06 . Subsidiaries . (a) Each Subsidiary of the Company is a corporation duly incorporated or organized, validly existing and in good standing

under the laws of its jurisdiction of incorporation or organization, as applicable, has all corporate or other organizational powers and all governmental licenses, authorizations, permits, consents and approvals required to carry on its business as now conducted, except for those licenses, authorizations, permits, consents and approvals the absence of which do not have, individually or in the aggregate, a Material Adverse Effect. Each such Subsidiary is duly qualified to do business and is in good standing in each jurisdiction where such qualification is necessary, except for those jurisdictions where failure to be so qualified does not have, individually or in the aggregate, a Material Adverse Effect. All Subsidiaries of the Company and their respective jurisdictions of incorporation are identified in the Company 10-K.

     (b) All of the outstanding capital stock of or other voting securities or ownership interests in each Subsidiary of the Company is owned by the Company, directly or indirectly, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock or other voting securities or ownership interests). There are no outstanding (i) securities of the Company or any of its Subsidiaries convertible into or exchangeable for shares of capital stock of or other voting securities or ownership interests in any Subsidiary of the Company, (ii) options, warrants or other rights or arrangements to acquire from the Company or any of its Subsidiaries, or other obligations or commitments of the Company or any of its Subsidiaries to issue, any capital stock of or other voting securities or ownership interests in, or any securities convertible into or exchangeable for any capital stock of or other voting securities or ownership interests in, any Subsidiary of the Company or (iii) restricted shares, restricted share units, stock appreciation rights, performance shares, contingent value rights, “phantom” stock or similar securities or rights that are derivative of or provide economic benefits based, directly or indirectly, on the value or price of, any capital stock or other voting securities or ownership interests in any Subsidiary of the Company (the items in clauses (i) through (iii) being referred to collectively as the “ Company Subsidiary Securities ”). There are no outstanding obligations of the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the Company Subsidiary Securities.

     (c) Neither the Company nor any of its Subsidiaries directly or indirectly owns any equity, ownership, profit, voting or similar interest in or any interest convertible, exchangeable or exercisable for, any equity, profit, voting or similar interest in, any Person (other than a Subsidiary of the Company).

     Section 5.07 . SEC Filings and the Sarbanes-Oxley Act . (a) The Company has made available to Parent (i) the Company’s annual reports on Form 10-K for its fiscal years ended March 28, 2004, April 3, 2005 and April 2, 2006 (ii) its quarterly reports on Form 10-Q for its fiscal quarters ended July 2, 2006, and October 2, 2006, (iii) its proxy or information statements relating to meetings of

the stockholders of the Company held (or actions taken without a meeting by such stockholders) since April 2, 2006, and (iv) all of its other reports, statements, schedules and registration statements filed with the SEC since April 2, 2006 (the documents referred to in this Section 5.07(a), collectively, the “ Company SEC Documents ”).

     (b) Since April 2, 2006, the Company has filed with or furnished to the SEC each report, statement, schedule, form or other document or filing required by Applicable Law to be filed or furnished at or prior to the time so required. No Subsidiary of the Company is required to file or furnish any report, statement, schedule, form or other document with, or make any other filing with, or furnish any other material to, the SEC.

     (c) As of its filing date, each Company SEC Document complied, and each such Company SEC Document filed subsequent to the date of this Agreement will comply, as to form in all material respects with the applicable requirements of the 1933 Act and the 1934 Act, as the case may be.

     (d) As of its filing date (or, if amended or superseded by a filing prior to the date of this Agreement, on the date of such filing), each Company SEC Document filed pursuant to the 1934 Act did not, and each such Company SEC Document filed subsequent to the date of this Agreement will not, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading (provided that the Company makes no representation or warranty with respect to information furnished in writing by Parent or Merger Subsidiary for inclusion or use in any such Company SEC Document).

     (e) Each Company SEC Document that is a registration statement, as amended or supplemented, if applicable, filed pursuant to the 1933 Act, as of the date such statement or amendment became effective, did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

     (f) The Company has established and maintains disclosure controls and procedures (as defined in Rule 13a-15 under the 1934 Act). Such disclosure controls and procedures are designed and effective to ensure that material information required to be disclosed by the Company, including its consolidated Subsidiaries, in the reports that it files or submits under the 1934 Act, is made known to the Company’s principal executive officer and its principal financial officer by others within those entities, particularly during the periods in which the periodic reports required under the 1934 Act are being prepared.

     (g) The Company has made available to Parent copies of all comment letters received by the Company from the SEC since January 1, 2002 relating to the Company SEC Documents, together with all written responses of the Company thereto. As of the date of this Agreement, there are no outstanding or unresolved comments in any such comment letters received by the Company from the SEC. As of the date of this Agreement, to the Knowledge of the Company, none of the Company SEC Documents is the subject of any ongoing review by the SEC.

     (h) The Company and its Subsidiaries have established and maintained a system of internal control over financial reporting (as defined in Rule 13a-15 under the 1934 Act) (“ internal controls ”). Such internal controls are sufficient to provide reasonable assurance regarding the reliability of the Company’s financial reporting and the preparation of Company financial statements for external purposes in accordance with GAAP. The Co