exv10w31



 







Exhibit 10.31




AGREEMENT AND PLAN OF REORGANIZATION




BY AND AMONG




PACKETEER, INC.




OSLO ACQUISITION CORPORATION,




TACIT NETWORKS, INC.




AND




VIKRAM GUPTA, AS STOCKHOLDERS’ AGENT




MAY 8, 2006





 









 








TABLE OF CONTENTS





	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	1.	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	2.	 	The Merger	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	 
	 	2.1	 	The Merger	 	 	7	 
	 
	 	2.2	 	Closing; Effective Time	 	 	7	 
	 
	 	2.3	 	Effect of the Merger	 	 	7	 
	 
	 	2.4	 	Certificate of Incorporation; Bylaws	 	 	7	 
	 
	 	2.5	 	Directors and Officers	 	 	7	 
	 
	 	2.6	 	Effect on Capital Stock	 	 	8	 
	 
	 	2.7	 	Surrender of Certificates	 	 	9	 
	 
	 	2.8	 	No Further Ownership Rights in Target Capital Stock	 	 	10	 
	 
	 	2.9	 	Lost, Stolen or Destroyed Certificates	 	 	10	 
	 
	 	2.10	 	Taking of Necessary Action; Further Action	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Representations and Warranties of Target	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	 
	 	3.1	 	Organization, Standing and Power	 	 	13	 
	 
	 	3.2	 	Authority	 	 	13	 
	 
	 	3.3	 	Governmental Authorization	 	 	14	 
	 
	 	3.4	 	Financial Statements	 	 	14	 
	 
	 	3.5	 	Capital Structure	 	 	15	 
	 
	 	3.6	 	Absence of Certain Changes	 	 	16	 
	 
	 	3.7	 	Absence of Undisclosed Liabilities	 	 	17	 
	 
	 	3.8	 	Litigation	 	 	18	 
	 
	 	3.9	 	Restrictions on Business Activities	 	 	18	 
	 
	 	3.10	 	Intellectual Property	 	 	18	 
	 
	 	3.11	 	Interested Party Transactions	 	 	21	 
	 
	 	3.12	 	Minute Books	 	 	22	 
	 
	 	3.13	 	Complete Copies of Materials	 	 	22	 
	 
	 	3.14	 	Material Contracts	 	 	22	 
	 
	 	3.15	 	Inventory	 	 	23	 
	 
	 	3.16	 	Accounts Receivable	 	 	23	 
	 
	 	3.17	 	Customers and Suppliers	 	 	23	 
	 
	 	3.18	 	Employees and Consultants	 	 	24	 
	 
	 	3.19	 	Title to Property	 	 	24	 
	 
	 	3.20	 	Environmental Matters	 	 	25	 
	 
	 	3.21	 	Taxes	 	 	26	 
	 
	 	3.22	 	Employee Benefit Plans	 	 	27	 
	 
	 	3.23	 	Employee Matters	 	 	30	 
	 
	 	3.24	 	Insurance	 	 	30	 
	 
	 	3.25	 	Compliance With Laws	 	 	31	 
	 
	 	3.26	 	Brokers’ and Finders’ Fee	 	 	31	 
	 
	 	3.27	 	Privacy Policies.	 	 	31	 
	 
	 	3.28	 	International Trade Matters	 	 	31	 
	 
	 	3.29	 	Representations Complete	 	 	32	 
	 
	 	 	 	 	 	 	 	 
	
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TABLE OF CONTENTS

(continued)





	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	4.	 	Representations and Warranties of Acquiror and Merger Sub	 	 	32	 
	 
	 	 	 	 	 	 	 	 
	 
	 	4.1	 	Organization, Standing and Power	 	 	32	 
	 
	 	4.2	 	Authority	 	 	32	 
	 
	 	4.3	 	Litigation	 	 	33	 
	 
	 	4.4	 	Interim Operations of Merger Sub	 	 	33	 
	 
	 	4.5	 	Brokers’ and Finders’ Fee	 	 	33	 
	 
	 	4.6	 	Representations Complete	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Conduct Prior to the Effective Time	 	 	33	 
	 
	 	 	 	 	 	 	 	 
	 
	 	5.1	 	Conduct of Business of Target	 	 	33	 
	 
	 	5.2	 	No Solicitation	 	 	36	 
	 
	 	 	 	 	 	 	 	 
	6.	 	Additional Agreements	 	 	36	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.1	 	Preparation of Information Statement	 	 	36	 
	 
	 	6.2	 	Approval of Stockholders	 	 	37	 
	 
	 	6.3	 	Access to Information	 	 	37	 
	 
	 	6.4	 	Confidentiality	 	 	38	 
	 
	 	6.5	 	Public Disclosure	 	 	38	 
	 
	 	6.6	 	Regulatory Approval; Further Assurances	 	 	38	 
	 
	 	6.7	 	Target Options	 	 	39	 
	 
	 	6.8	 	Intentionally Omitted	 	 	39	 
	 
	 	6.9	 	Escrow Agreement	 	 	39	 
	 
	 	6.10	 	Employees	 	 	40	 
	 
	 	6.11	 	Termination of 401(k) Plan	 	 	40	 
	 
	 	6.12	 	Expenses	 	 	40	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Conditions to the Merger	 	 	40	 
	 
	 	 	 	 	 	 	 	 
	 
	 	7.1	 	Conditions to Obligations of Each Party to Effect the Merger	 	 	40	 
	 
	 	7.2	 	Additional Conditions to the Obligations of Acquiror and Merger Sub	 	 	41	 
	 
	 	7.3	 	Additional Conditions to Obligations of Target	 	 	42	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Termination, Amendment and Waiver	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	 
	 	8.1	 	Termination	 	 	43	 
	 
	 	8.2	 	Effect of Termination	 	 	44	 
	 
	 	8.3	 	Amendment	 	 	44	 
	 
	 	8.4	 	Extension; Waiver	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	9.	 	Escrow and Indemnification	 	 	44	 
	 
	 	 	 	 	 	 	 	 
	 
	 	9.1	 	Escrow Fund	 	 	44	 
	 
	 	9.2	 	Indemnification	 	 	44	 
	 
	 	9.3	 	Escrow Period; Release From Escrow	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	ii







 









 





TABLE OF CONTENTS

(continued)





	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	9.4	 	Claims Upon Escrow Fund	 	 	46	 
	 
	 	9.5	 	Objections to Claims	 	 	46	 
	 
	 	9.6	 	Resolution of Conflicts and Arbitration	 	 	46	 
	 
	 	9.7	 	Stockholders’ Agent	 	 	47	 
	 
	 	9.8	 	Actions of the Stockholders’ Agent	 	 	48	 
	 
	 	9.9	 	Third-Party Claims	 	 	48	 
	 
	 	 	 	 	 	 	 	 
	10.	 	General Provisions	 	 	48	 
	 
	 	 	 	 	 	 	 	 
	 
	 	10.1	 	Notices	 	 	48	 
	 
	 	10.2	 	Definitions	 	 	50	 
	 
	 	10.3	 	Counterparts	 	 	50	 
	 
	 	10.4	 	Entire Agreement; Nonassignability; Parties in Interest	 	 	50	 
	 
	 	10.5	 	Severability	 	 	50	 
	 
	 	10.6	 	Remedies Cumulative	 	 	51	 
	 
	 	10.7	 	Governing Law	 	 	51	 
	 
	 	10.8	 	Rules of Construction	 	 	51	 
	 
	 	10.9	 	Amendment; Waiver	 	 	51	 
	iii







 









 





LIST OF EXHIBITS




	 	 	 
	Schedule A

	 	Allocation Spreadsheet
	 
	 	 
	Schedule B

	 	Option Spreadsheet
	 
	 	 
	Exhibit A

	 	Certificate of Merger
	 
	 	 
	Exhibit B

	 	Escrow Agreement
	 
	 	 
	Exhibit C

	 	Opinion of Target Counsel






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AGREEMENT AND PLAN OF REORGANIZATION




     This AGREEMENT AND PLAN OF REORGANIZATION (the “Agreement”) is made and entered into
as of May 8, 2006 by and among Packeteer, Inc., a Delaware corporation (“Acquiror”), Oslo
Acquisition Corporation, a Delaware corporation (“Merger Sub”) and wholly owned subsidiary
of Acquiror, Tacit Networks, Inc., a Delaware corporation (“Target”), and, solely with
respect to Sections 6.9 and 9 hereof, Vikram Gupta, as the agent for Target stockholders
(“Stockholders’ Agent”).



RECITALS




     A. The Boards of Directors of Target, Acquiror and Merger Sub believe it is in the best
interests of their respective companies and the stockholders of their respective companies that
Target and Merger Sub combine into a single company through the statutory merger of Merger Sub with
and into Target (the “Merger”) and, in furtherance thereof, have approved the Merger.



     B. Pursuant to the Merger, among other things, the outstanding shares of Target preferred
stock, $0.001 par value (“Target Preferred Stock”), and Target common stock, $0.001 par
value (“Target Common Stock”) (collectively, the Target Preferred Stock and Target Common
Stock are referred to herein as “Target Capital Stock”), shall be converted into the right
to receive the Merger Consideration (as defined in Section 2.6(a)) upon the terms and subject to
the conditions set forth herein.



     C. Target, Acquiror and Merger Sub desire to make certain representations and warranties and
other agreements in connection with the Merger.



     NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and
for other good and valuable consideration, the parties agree as follows:



     1. Definitions. As used in this Agreement, the following terms shall have the
following meanings:



     “Acquiror” has the meaning set forth in the introductory paragraph.



     “Acquiror Common Stock” has the meaning set forth in Section 6.7.



     “Acquiror Disclosure Schedule” has the meaning set forth in Section 4.



     “Acquiror Indemnified Person” and “Acquiror Indemnified Persons” have the
meanings set forth in Section 9.2(b).



     “Acquisition Proposal” has the meaning set forth in Section 5.2.



     “Aggregate Preferred Preference Amount” means the sum of the aggregate Series A
Preference Amount, aggregate Series B Preference Amount and aggregate Series C Preference



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Amount for all shares of Target Preferred Stock issued and outstanding immediately prior to
the Effective Time.




     “Aggregate Secondary Consideration Amount” means $78.5 million less the Aggregate
Preferred Preference Amount.



     “Allocation Spreadsheet” has the meaning set forth in Section 2.6(d).



     “Applicable Escrow Ownership Percentage” means, with respect to each Target
stockholder as of immediately prior to the Effective Time, the percentage obtained by dividing (i)
the sum of that portion of the Merger Consideration to which such Target stockholder will be
entitled pursuant to Section 2.6, by (ii) the aggregate Merger Consideration.



     “Bid” has the meaning set forth in Section 3.29.



     “Certificate of Merger” has the meaning set forth in Section 2.1.



     “CERCLA” has the meaning set forth in Section 3.20(a)(i).



     “Certificates” has the meaning set forth in Section 2.7(a).



     “Closing” has the meaning set forth in Section 2.2.



     “Closing Date” has the meaning set forth in Section 2.2.



     “COBRA” has the meaning set forth in Section 3.22(e).



     “Code” means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.



     “Confidential Information” has the meaning set forth in Section 3.10(i).



     “Confidentiality Agreement” has the meaning set forth in Section 6.4.



     “Copyrights” has the meaning set forth in Section 3.10(a)(iii).



     “Damages” has the meaning set forth in Section 9.2(b).



     “Delaware Law” has the meaning set forth in Section 2.1.



     “Dissenting Shares” has the meaning set forth in Section 2.6(f).



     “Dissenting Stockholder” has the meaning set forth in Section 2.6(f).



     “Effective Time” has the meaning set forth in Section 2.2.



     “End User License Agreements” has the meaning set forth in Section 3.10(e).



     “Environmental Laws” has the meaning set forth in Section 3.20(a)(i).



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     “ERISA” has the meaning set forth in Section 3.22(a).



     “ERISA Affiliate” has the meaning set forth in Section 3.22(a).



     “Escrow Agent” has the meaning set forth in Section 9.1(a).



     “Escrow Agreement” has the meaning set forth in Section 6.9.



     “Escrow Amount” has the meaning set forth in Section 2.7(e).



     “Escrow Fund” has the meaning set forth in Section 2.7(e).



     “Exchange Ratio” has the meaning set forth in Section 6.7.



     “Expenses” has the meaning set forth in Section 6.11.



     “Final Allocation Spreadsheet” has the meaning set forth in Section 7.2(c).



     “Final Option Spreadsheet” has the meaning set forth in Section 7.2(c).



     “First Investor Rights Agreement” has the meaning set forth in Section 3.5(a).



     “GAAP” has the meaning set forth in Section 3.4(a).



     “Government Contract” has the meaning set forth in Section 3.29.



     “Governmental Entity” has the meaning set forth in Section 3.2.



     “Hazardous Materials” has the meaning set forth in Section 3.20(a)(ii).



     “HIPAA” has the meaning set forth in Section 3.22(e).



     “HSR” has the meaning set forth in Section 3.2.



     “Information Statement” has the meaning set forth in Section 6.1(a).



     “Integrator Agreement” has the meaning set forth in Section 3.10(e).



     “Intellectual Property” has the meaning set forth in Section 3.10(a).



     “Inventions Assignment” has the meaning set forth in Section 3.10(h).



     “Investor Rights Agreements” has the meaning set forth in Section 3.5(a).



     “Issued Patents” has the meaning set forth in Section 3.10(a)(i).



     “JAMS” has the meaning set forth in Section 9.6(a).



     “Limitation” has the meaning set forth in Section 9.2(c).



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     “Material” has the meaning set forth in Section 10.2.



     “Material Adverse Effect” has the meaning set forth in Section 10.2.



     “Material Contract” has the meaning set forth in Section 3.14.



     “Merger” has the meaning set forth in Recital A.



     “Merger Consideration” has the meaning set forth in Section 2.6(a).



     “Merger Sub” has the meaning set forth in the introductory paragraph.



     “Officer’s Certificate” has the meaning set forth in Section 9.4.



     “Option Spreadsheet” has the meaning set forth in Section 3.5(b).



     “Patent Applications” has the meaning set forth in Section 3.10(a)(ii).



     “Patents” has the meaning set forth in Section 3.10(a)(ii).



     “Pipeline” has the meaning set forth in Section 3.4(c).



     “Prior Inventions Technology” has the meaning set forth in Section 3.10(h).



     “Purchase Agreement” has the meaning set forth in Section 3.10(e).



     “Put Right Agreement” has the meaning set forth in Section 3.5(a).



     “Qualified Offer” has the meaning set forth in Section 6.12.



     “Qualified Offer Letter” has the meaning set forth in Section 6.12.



     “Release Date” has the meaning set forth in Section 9.3(b).



     “RCRA” has the meaning set forth in Section 3.20(a)(i).



     “Returns” has the meaning set forth in Section 3.21(b).



     “SEC” has the meaning set forth in Section 4.2.



     “Secondary Per Share Merger Consideration” means the quotient obtained by dividing (i)
the Aggregate Secondary Consideration Amount, by (ii) (A) the number of issued and outstanding
shares of Common Stock (on an as-converted basis) immediately prior to the
Effective Time, and (B) the aggregate number of shares of Target Common Stock that are subject
to purchase upon exercise of all Target Options outstanding as of the Closing Date, whether vested
or unvested.



     “Second Investor Rights Agreement” has the meaning set forth in Section 3.5(a).



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     “Securities Act” has the meaning set forth in Section 3.11.



     “Series A Preference Amount” means $1.03842.



     “Series B Preference Amount” means $1.54.



     “Series C Preference Amount” means $2.81836.



     “Stockholders’ Agent” has the meaning set forth in the introductory paragraph.



     “Subsidiary” has the meaning set forth in Section 10.2.



     “Surviving Corporation” has the meaning set forth in Section 2.1.



     “Target” has the meaning set forth in the introductory paragraph.



     “Target Balance Sheet” has the meaning set forth in Section 3.7.



     “Target Balance Sheet Date” has the meaning set forth in Section 3.6.



     “Target Capital Stock” has the meaning set forth in Recital B.



     “Target Charter Documents” has the meaning set forth in Section 3.1.



     “Target Common Stock” has the meaning set forth in Recital B.



     “Target Disclosure Schedule” has the meaning set forth in Section 3.



     “Target Employee Plans” has the meaning set forth in Section 3.22(a).



     “Target Expenses” has the meaning set forth in Section 3.7.



     “Target Financial Statements” has the meaning set forth in Section 3.4.



     “Target International Employee Plans” has the meaning set forth in Section 3.22(a).



     “Target Intellectual Property” has the meaning set forth in Section 3.10(c).



     “Target Option Plan” has the meaning set forth in Section 3.5(b).



     “Target Options” has the meaning set forth in Section 2.6(c).



     “Target Products” has the meaning set forth in Section 3.10(c)(ii).



     “Target Preferred Stock” has the meaning set forth in Recital B.



     “Target Software” has the meaning set forth in Section 3.10(k).



     “Target’s Current Facilities” has the meaning set forth in Section 3.20(b).



5









 





     “Target’s Facilities” has the meaning set forth in Section 3.20(b).



     “Tax” and “Taxes” have the meanings set forth in Section 3.21(a).



     “Termination Date” has the meaning set forth in Section 9.2(a).



     “Third Party Intellectual Property” has the meaning set forth in Section 3.10(d).



     “Trademarks” has the meaning set forth in Section 3.10(a)(iv).



     2. The Merger.



          2.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement, the Certificate of Merger attached hereto as Exhibit A (the
“Certificate of Merger”) and the applicable provisions of the Delaware General Corporation
Law (“Delaware Law”), Merger Sub shall be merged with and into Target, the separate
corporate existence of Merger Sub shall cease and Target shall continue as the surviving
corporation (the “Surviving Corporation”).




          2.2 Closing; Effective Time. The closing of the transactions contemplated hereby (the
“Closing”) shall take place as soon as practicable, but no later than two (2) business
days, after the satisfaction or waiver of each of the conditions set forth in Section 7 hereof, or
at such other time as the parties hereto agree (the “Closing Date”). The Closing shall
take place at the offices of DLA Piper Rudnick Gray Cary US LLP, or at such other location as the
parties hereto agree. In connection with the Closing, the parties hereto shall cause the Merger to
be consummated by filing the Certificate of Merger, together with any required certificates, with
the Secretary of State of the State of Delaware, in accordance with the relevant provisions of
Delaware Law (the time of such filing being the “Effective Time”).




          2.3 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as
provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time,
all the property, rights, privileges, powers and franchises of Target and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of Target and Merger Sub shall
become the debts, liabilities and duties of the Surviving Corporation.




          2.4 Certificate of Incorporation; Bylaws.




               (a) At the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall
be amended and restated in its entirety to read as the Certificate of Incorporation of Merger Sub
as in effect immediately prior to the Effective Time; provided, however, that
Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read
as follows: “The name of the corporation is Tacit Networks, Inc.”



               (b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended.



          2.5 Directors and Officers.





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               (a) Directors. Effective as of the Effective Time, each of the directors of Target
shall resign from the board of directors of Target. The directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation at the Effective Time, to
serve until the earlier of their respective resignation or removal or until their respective
successors are duly elected or appointed and qualified, as the case may be.



               (b) Officers. The officers of Target immediately prior to the Effective Time shall be
the initial officers of the Surviving Corporation and shall hold office until the earlier of their
death, resignation or removal.



          2.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Merger Sub, Target or the holders of any of the following
securities:




               (a) Conversion of Target Capital Stock. Each share of Target Capital Stock issued and
outstanding immediately prior to the Effective Time (other than shares canceled pursuant to Section
2.6(b)) shall be converted and exchanged, without any action on the part of the holders thereof,
into the right to receive, upon surrender of the certificate representing such share of Target
Capital Stock, an amount in cash (in aggregate, the “Merger Consideration”) as follows:



                    (i) in the case of Target’s Series A Preferred Stock, an amount per share equal to (A) the
Series A Preference Amount, plus (B) the Secondary Per Share Merger Consideration;



                    (ii) in the case of Target’s Series B Preferred Stock, an amount per share equal to (A) the
Series B Preference Amount, plus (B) the Secondary Per Share Merger Consideration;



                    (iii) in the case of Target’s Series C Preferred Stock, an amount per share equal to (A) the
Series C Preference Amount, plus (B) the Secondary Per Share Merger Consideration; and



                    (iv) in the case of the Target’s Common Stock, an amount per share equal to the Secondary Per
Share Merger Consideration.



               (b) Cancellation of Target Capital Stock Owned by Acquiror. At the Effective Time,
each share of Target Capital Stock owned by Acquiror or any direct or indirect wholly owned
subsidiary of Acquiror immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.



               (c) Target Stock Options. At the Effective Time, each option to purchase Target
Common Stock then outstanding under the Target Option Plan (as defined in Section 3.5) (“Target
Options”) shall be assumed by Acquiror in accordance with the provisions of Section 6.7.



               (d) Merger Consideration Allocation. Attached as Schedule A is a spreadsheet
illustrating the allocation of the Merger Consideration among the holders of the



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Target Capital
Stock (including the Applicable Escrow Ownership Percentage for each such holder), assuming that
(i) no stock options are granted by Target following the date hereof, and (ii) none of the Target
Options outstanding as of the date hereof are exercised on or before the Closing (the
“Allocation Spreadsheet”).




               (e) Capital Stock of Merger Sub. At the Effective Time, each share of common stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation. Each stock certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.



               (f) Dissenters’ Rights. Notwithstanding any provision of this Agreement to the
contrary, any shares of Target Capital Stock held by a holder who has demanded and perfected such
holder’s right for appraisal of such shares in accordance with Delaware Law and who, as of the
Effective Time, has not effectively withdrawn or lost such right to appraisal (“Dissenting
Shares”), if any, shall not be converted into the Merger Consideration but shall instead be
converted into the right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Target shall give Acquiror prompt notice of
any demand received by Target to require Target to purchase shares of Target Capital Stock, and
Acquiror shall have the right to direct and participate in all negotiations and proceedings with
respect to such demand. Target agrees that, except with the prior written consent of Acquiror, or
as required under the Delaware Law, it will not voluntarily make any payment with respect to, or
settle or offer to settle, any such purchase demand. Each holder of Dissenting Shares
(“Dissenting Stockholder”) who, pursuant to the provisions of Delaware Law, becomes
entitled to payment of the fair value for shares of Target Capital Stock shall receive payment
therefore (but only after the value therefore shall have been agreed upon or finally determined
pursuant to such provisions). If, after the Effective Time, any Dissenting Shares shall lose their
status as Dissenting Shares, Acquiror shall issue and deliver, upon surrender by such stockholder
of a certificate or certificates representing shares of Target
Capital Stock, the portion of the Merger Consideration to which such stockholder would
otherwise be entitled under this Section 2.6 and the Certificate of Merger less the portion of the
Merger Consideration allocable to such stockholder that has been deposited in the Escrow Fund in
respect of such shares of Target Capital Stock pursuant to Section 2.7(e) and Section 9 hereof.



          2.7 Surrender of Certificates.




               (a) Exchange Procedures. Each holder of record of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares of Target Capital Stock (the
“Certificates”), whose shares were converted into the right to receive a portion of the
Merger Consideration pursuant to Section 2.6, shall deliver to Acquiror a letter of transmittal
(the form of which shall have been provided by Acquiror to each such individual prior to the
Effective Time), together with instructions for use in effecting the surrender of the Certificates
in exchange for such portion of the Merger Consideration. Upon surrender of a Certificate for
cancellation to Acquiror, together with such letter of transmittal and other documents specified in
the letter of transmittal, duly completed and validly executed in accordance with the instructions
thereto, and following the Effective Time, the holder of such



8









 




Certificate shall be entitled to
receive in exchange therefor that portion of the Merger Consideration to which such holder is
entitled pursuant to Section 2.6, less the amount of such Merger Consideration to be deposited in
the Escrow Fund on such holder’s behalf pursuant to Sections 2.7(e) and 9 hereof, and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Certificate that prior to the Effective Time represented shares of Target Capital Stock will be
deemed from and after the Effective Time to represent only the right to receive, upon such
surrender, that portion of the Merger Consideration to which such holder is entitled pursuant to
Section 2.6, less the amount of such Merger Consideration to be deposited in the Escrow Fund on
such holder’s behalf pursuant to Sections 2.7(e) and 9 hereof.




               (b) Transfers of Ownership. At the Effective Time, the stock transfer books of Target
shall be closed, and there shall be no further registration of transfers of Target Capital Stock
thereafter on the records of Target. If any portion of the Merger Consideration is to be paid to
any person other than the registered holder of the Certificate surrendered in exchange therefore,
it shall be a condition to such exchange that such surrendered Certificate shall be properly
endorsed and otherwise in proper form for transfer and such person either (i) shall pay to Acquiror
any transfer or other taxes required as a result of the distribution of such cash payment to such
person, or (ii) shall establish to the reasonable satisfaction of Acquiror that such tax has been
paid or is not applicable.



               (c) No Liability. Notwithstanding anything to the contrary in this Section 2.7, none
of Acquiror or any party hereto shall be liable to any person for any amount of the Merger
Consideration paid to a public official pursuant to any applicable abandoned property, escheat or
similar law.



               (d) Dissenting Shares. The provisions of this Section 2.7 shall also apply to
Dissenting Shares that lose their status as such, except that the obligations of Acquiror
under this Section 2.7 shall commence on the date of loss of such status and the holder of
such shares shall be entitled to receive in exchange for such shares that portion of the Merger
Consideration to which such holder is entitled pursuant to Section 2.6 hereof.



               (e) Escrow. Payment of the Merger Consideration shall be subject to a holdback by
Acquiror of an amount equal to $7,850,000 (the “Escrow Amount”). As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions of Section 9 hereof,
Acquiror shall deposit the Escrow Amount to be withheld by Acquiror pursuant to this Section 2.7(e)
and Section 9 into escrow with the Escrow Agent (as defined in Section 9 hereof) as a fund (the
“Escrow Fund”) for payment of indemnification claims, if any, made by Acquiror pursuant to
this Agreement, which Escrow Fund shall be subject to the terms and conditions of the Escrow
Agreement. To the extent not used for such purposes, such funds shall be released to the Target
stockholders, all as provided in Section 9.



          2.8 No Further Ownership Rights in Target Capital Stock. The Merger Consideration
delivered upon the surrender for exchange of shares of Target Capital Stock in accordance with the
terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Target Capital Stock. If, after the Effective Time, Certificates





9









 






are presented to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section 2.




          2.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have
been lost, stolen or destroyed, Acquiror shall pay in exchange for such lost, stolen or destroyed
Certificates, upon the making of an affidavit of that fact by the holder thereof that portion of
the Merger Consideration as may be required pursuant to Section 2.6; provided,
however, that Acquiror may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made against Acquiror or
the Surviving Corporation with respect to the Certificates alleged to have been lost, stolen or
destroyed.




          2.10 Taking of Necessary Action; Further Action. Each of Acquiror, Merger Sub and
Target will take all such reasonable and lawful action as may be necessary or desirable in order to
effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time
after the Effective Time, any further action is necessary or desirable to carry out the purposes of
this Agreement and to vest the Surviving Corporation with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of Target and Merger Sub, the officers
and directors of Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary action, so long as
such action is not inconsistent with this Agreement.




          2.11 Withholding Rights. Acquiror, the Surviving Corporation and the Escrow Agent
will be entitled to deduct and withhold from the consideration otherwise deliverable under this
Agreement, and from any other payments otherwise required pursuant to this Agreement, to any holder
of any shares of Target Capital Stock or any Target Option such amounts as Acquiror, the Surviving
Corporation or the Escrow Agent is required to deduct and withhold with respect to any such
deliveries and payments under the Code or any provision of state, local, provincial or foreign Tax
law. To the extent that amounts are so withheld, such amounts will be treated for all purposes of
this Agreement as having been delivered and paid to such holders in respect of which such deduction
and withholding was made.




     3. Representations and Warranties of Target. Target represents and warrants to
Acquiror and Merger Sub that the statements contained in this Section 3 are true and correct,
except as disclosed in a document of even date herewith and delivered by Target to Acquiror on the
date hereof referring to the representations and warranties in this Agreement (the “Target
Disclosure Schedule”). The Target Disclosure Schedule will be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Section 3, and the
disclosure in any such numbered and lettered section of the Target Disclosure Schedule shall
qualify only the corresponding subsection in this Section 3 (except to the extent disclosure in any
numbered and lettered section of the Target Disclosure Schedule is specifically cross-referenced in
another numbered and lettered section of the Target Disclosure Schedule or to the extent that it is
readily apparent from such disclosure that the information is clearly applicable to such other
sections of the Target Disclosure Schedule or such other representations and warranties).



10









 





          3.1 Organization, Standing and Power. Target is a corporation duly organized, validly
existing and in good standing under the laws of the state of Delaware. Target has the corporate
power to own, use and lease its properties and to carry on its business as now being conducted and
as proposed to be conducted and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing could reasonably be
expected to have a Material Adverse Effect (as defined in Section 10.2) on Target. Target has
delivered a true and correct copy of the Certificate of Incorporation and Bylaws of Target, each as
amended to date (the “Target Charter Documents”), to Acquiror. Target is not in violation
of any of the provisions of the Target Charter Documents. Target has no Subsidiaries (as defined
in Section 10.2). Target does not directly or indirectly own any equity or similar interest in, or
any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.




          3.2 Authority. Target has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Target subject only to the approval of
the Merger by Target’s stockholders as contemplated by Section 7.1(a). The affirmative vote of the
holders of (x) a majority of the shares of Target Common Stock and Target Preferred Stock, voting
together as a single class and on an as-converted basis, and (y) sixty-six and two-thirds percent
(66 2/3%) of the Target Preferred Stock, voting together as a single class, in each case
outstanding on the record date for the Written Consent of Stockholders relating to this Agreement
is the only vote of the holders of any of the Target Capital Stock necessary under Delaware Law and
the Target Charter Documents to approve this Agreement and the transactions contemplated hereby.
The Board of Directors of Target has unanimously (a) approved this Agreement and the Merger; (b)
determined that in its opinion the Merger is in the best interests of the stockholders of Target
and is on terms that are fair to such stockholders; and (c) recommended that the stockholders of
Target approve this Agreement and the Merger. This Agreement has been duly executed and delivered
by Target and constitutes the valid and binding obligation of Target enforceable against Target in
accordance with its terms, except that such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally,
and is subject to general principles of equity. The execution and delivery of this Agreement by
Target do not, and the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation or breach of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation, modification or acceleration
of any material obligation or loss of any material benefit under, or require Target to obtain any
consent or approval of, make any filing with or give any notice to, any person or entity as a
result or under the terms of, (a) any provision of the Certificate of Incorporation or Bylaws of
Target, as amended; or (b) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of their properties or assets, except in
the case of this clause (b), (x) as described in the next sentence, or (y) to the extent that such
conflict, violation, breach, default, right or loss, or the failure to obtain such consent or
approval or make such filing or give such notice, could not reasonably be expected to have a
material effect on Target. No consent, approval, order or authorization of, or registration,
declaration or filing with, any government, any governmental or




11









 







quasi-governmental entity or municipality or
political or other subdivision thereof, department, commission, board, self-regulating authority,
bureau, branch, authority, official, agency or instrumentality, and any court, tribunal, arbitrator
or judicial body, in each case, whether federal, state, city, county, local, provincial, foreign or
multi-national (a “Governmental Entity”) is required by or with respect to Target or its
Subsidiaries in connection with the execution and delivery of this Agreement by Target or the
consummation of the transactions contemplated hereby, except for (a) the filing of the Certificate
of Merger as provided in Section 2.2; (b) such filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”); and (c) such
other consents, authorizations, filings, approvals, notices and registrations which, if not
obtained or made, could not be reasonably expected to have a Material Adverse Effect on Target and
could not reasonably be expected to prevent, or materially alter or delay, any of the transactions
contemplated by this Agreement.




          3.3 Governmental Authorization. Target has obtained each federal, state, county,
local or foreign governmental consent, license, permit, grant, or other authorization of a
Governmental Entity (a) pursuant to which Target currently operates or holds any interest in any of
its properties; or (b) that is required for the operation of Target’s business or the holding of
any such interest, in each case which, if not obtained or made, could be reasonably expected to
have a material effect on Target. All of such authorizations are in full force and effect.




          3.4 Financial Statements.




               (a) Target has delivered to Acquiror its audited financial statements for each of the fiscal
years ended December 31, 2003 and December 31, 2004, respectively, and its unaudited financial
statements (balance sheet, statement of operations and statement of cash flows) as at and for the
fiscal year ended December 31, 2005 and the three-month period ended March 31, 2006 (collectively,
the “Target Financial Statements”). The Target Financial Statements have been prepared in
accordance with United States generally accepted accounting principles as in effect from time to
time as consistently applied (“GAAP”) (except that the unaudited financial statements do
not contain footnotes and are subject to normal recurring year-end audit adjustments, the effect of
which will not, individually or in the aggregate, be materially adverse) applied on a consistent
basis throughout the periods presented and consistent with each other. Target has in place a
revenue recognition policy consistent with GAAP. The Target Financial Statements fairly present in
all material respects the financial condition, operating results and cash flow of Target as of the
dates, and for the periods, indicated therein, subject to normal year-end audit adjustments and the
absence of footnotes in the case of the unaudited Target Financial Statements.



               (b) Target maintains and will continue to maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed with management’s
general or specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements of Target and to maintain accountability for assets; (iii)
access to Target’s assets is permitted only in accordance with management’s authorization; and (iv)
the recorded accountability for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences. Target is not party to or
otherwise involved in any “off-balance sheet arrangements” (as defined in Item 303 of
Regulation S-K under the Securities Act).



12









 





               (c) Section 3.4(c) of the Target Disclosure Schedule sets forth the Target’s pipeline of all
anticipated future orders for the sale of products and services by the Target as of the date of
this Agreement (the “Pipeline”). The Pipeline was prepared in good faith in accordance
with the past practices of the Target consistently applied and was based on assumptions that Target
believes to be reasonable as of the date of this Agreement. Acquiror and Merger Sub acknowledge,
however, that the Pipeline reflects estimates that are subject to economic, competitive and other
uncertainties beyond Target’s control and that there are no assurances that the Pipeline will be
realized.



          3.5 Capital Structure.




               (a) The authorized capital stock of Target consists of 52,256,803 shares of Target Common
Stock, of which there were issued and outstanding as of the date hereof 3,817,571 shares, and
44,449,104 shares of Target Preferred Stock, of which as of that same date there were designated
7,029,902 shares of Series A Preferred Stock, 7,029,902 shares of Series A-1 Preferred Stock,
10,936,850 shares of Series B Preferred Stock, 10,936,850 shares of Series B-1 Preferred Stock,
4,257,800 shares of Series C Preferred Stock and 4,257,800 shares of Series C-1 Preferred Stock.
As of that same date, there were issued and outstanding, 7,029,902 shares of Series A Preferred
Stock, convertible into 7,029,902 shares of Common Stock; no shares of Series A-1 Preferred Stock;
10,936,850 shares of Series B Preferred Stock, convertible into 10,936,850 shares of Common Stock;
no shares of Series B-1 Preferred Stock; 4,257,797 shares of Series C Preferred Stock, convertible
into 4,257,797 shares of Common Stock; and no shares of Series C-1 Preferred Stock. All
outstanding shares of Target Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and are not subject to preemptive rights or rights
of first refusal created by statute, the Target Charter Documents or any agreement to which Target
is a party or by which it is bound other than (x) that certain Investor Rights Agreement dated as
of November 5, 2002 among Target and certain of its stockholders (the “First Investor Rights
Agreement”), (y) that certain Amended and Restated Preferred Stock Investor Rights Agreement
dated as of May 2, 2005 among Target and certain of its stockholders (the “Second Investor
Rights Agreement” and together with the First Investor Rights Agreement, the “Investor
Rights Agreements”) and (z) that certain Second Amended and Restated Stock Purchase and Put
Right Agreement dated as of May 2, 2005 among Target and certain of its stockholders (the “Put
Right Agreement”).



               (b) As of the date hereof, there are 4,437,699 shares of Common Stock reserved for issuance
under the Target 2000 Equity Incentive Plan (including the Sub-Plan for UK Employees) (the
“Target Option Plan”), of which 2,936,470 shares were subject to outstanding options and
118,802 shares were reserved for future option grants. The spreadsheet attached as Schedule
B hereto (the “Option Spreadsheet”), which sets forth with respect to options to
purchase shares of Target Common Stock outstanding as of the date hereof, (a) the name of the
holder of such option, (b) the date of grant of such option as set forth in the corresponding stock
option agreement, (c) whether such option is an incentive stock option or a non-qualified stock
option, (d) the number of shares of



13









 







Target Common Stock initially issuable
upon exercise of such option, (e) the exercise price per share of such Target Common Stock,
(f) the date upon which vesting commenced under such option, (g) the number of shares of Target
Common Stock vested as of the date hereof under such option, (h) the number of shares of Target
Common Stock exercised under such option, (i) the number of shares of Target Common Stock issuable
upon exercise of such option (net of any exercises), (j) the term of such option, (k) the state of
residence of the holder of such option on the date of grant thereof and (l) the exercise or vesting
schedule of such option, including the terms of any acceleration of vesting potentially applicable
to the shares, is true and correct in all respects. All outstanding options have been duly
approved by the Target Board of Directors. Target has not issued any options to purchase Target
Common Stock with an exercise price of less than the fair market value of such Target Common Stock
on the date of grant to any employee, consultant or other provider of services to Target. Target
has not taken any other action that would cause a holder of such option, or the securities issued
or issuable upon exercise of such option, to be subject to taxation under Section 409A of the Code.
Target has not entered into any other arrangements that would constitute non-qualified deferred
compensation subject to taxation under Section 409A of the Code. All exercises of options to
purchase Target Common Stock have been paid in cash or check by the holder of such option, and no
such holder has received reimbursement, additional compensation or other monetary contribution from
the Target in connection therewith.



               (c) Except for the rights created pursuant to this Agreement, the Investor Rights Agreements,
the Put Right Agreement and the rights disclosed in the preceding paragraph (b), there are no other
options, warrants, calls, rights, commitments or agreements of any character to which Target is a
party or by which it is bound, obligating Target to issue, deliver, sell, repurchase or redeem or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of Target Capital Stock or
obligating Target to grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or agreement. All shares of
Common Stock issuable upon conversion of the Preferred Stock or upon exercise of the options
described in this Section 3.5, will be, when issued pursuant to the respective terms of such
Preferred Stock or options, duly authorized, validly issued, fully paid and nonassessable. There
are no other contracts, commitments or agreements relating to or restricting the voting, purchase
or sale of Target Capital Stock (a) between or among Target and any of its stockholders; and (b) to
Target’s knowledge, between or among any of Target’s stockholders, except for the Investor Rights
Agreements, the Put Right Agreement and that certain Second Amended and Restated Voting Agreement
dated as of May 2, 2005 among Target and certain of its stockholders (the “Voting Agreement”). All
shares of outstanding Target Capital Stock and rights to acquire Target Capital Stock, including
all options to purchase Target Common Stock, were issued in compliance with all applicable foreign,
federal and state laws.



          3.6 Absence of Certain Changes. Since March 31, 2006 (the “Target Balance Sheet
Date”) and through the Closing Date (except as permitted or consented to pursuant to Section
5.1 hereof), Target has conducted its business in the ordinary course consistent with past
practices and:




               (a) Target has not (i) amended, or agreed to amend, its Certificate of Incorporation or
Bylaws, (ii) merged with or into or consolidated with, or agreed to merge with or into or
consolidate with, any other person except pursuant to this Agreement, or (iii) except as
reasonably required in connection with the transactions contemplated by this Agreement or as
described elsewhere in this Agreement, changed, or agreed to change, in any material manner the
character of its business;



14









 





               (b) there has been no change, event, or condition (financial or otherwise, and whether or not
covered by insurance), individually or in the aggregate, that has had or reasonably could be
expected to have a Material Adverse Effect on Target;



               (c) Target has not made or promised to make any increase in or modification to the
compensation or benefits of any of its employees or directors, nor has Target made any accrual for
or commitment or agreement to make or pay the same, nor any payment or commitment to pay any
severance or termination pay to any of its employees;



               (d) Target has not suffered any strike or other labor trouble, or entered into any agreement
or negotiation with any labor union or other collective bargaining representative of its employees;



               (e) to Target’s knowledge, there has been no change, or any threat of any change, in any of
Target’s relations with, or any loss of or threat of loss of, any of the suppliers, distributors or
customers of its business, or any decrease or limitation, of any such supplier’s provision of
services, supplies or materials to Target or any such customer’s usage or purchase of services or
products of Target, other than downward fluctuations of not more than ten percent (10%) in the
volume of individual customer orders on a fiscal quarterly basis over the prior fiscal quarter in
the ordinary course of business;



               (f) there has been no change in the method of accounting or keeping of books of account or
accounting practices (including any change in depreciation or amortization policies or rates) with
respect to Target;



               (g) Target has not waived, or agreed to waive, any right of material value with respect to
Target, or any of its assets or properties;



               (h) Target has not materially changed, or agreed to materially change, any of its business
policies or practices, including advertising, purchasing, personnel, sales, returns or budget
policies or practices;



               (i) Target has not declared, set aside or paid any dividend or other distribution with respect
to the shares of Target Capital Stock, or made any direct or indirect redemption, purchase or other
acquisition of any Target Capital Stock;



               (j) Target has not entered into, or agreed to enter into, any Material Contract (as defined in
Section 3.14) or any material amendment of a Material Contract except as permitted pursuant to
Section 5.1 of the Disclosure Schedule;



               (k) there has been no termination of, or default under, any Material Contract (or contract,
agreement or commitment that would have been a Material Contract in the absence of any such
termination) by Target, or, to Target’s knowledge, by any other party thereto;



               (l) Target has not sold, abandoned or made, or agreed to sell, abandon or make, any other
disposition of any of the material assets or properties of Target other than



15









 







sales of inventory in
the ordinary course of business and sales or dispositions of obsolete or worn out equipment;



               (m) Target has not granted or suffered, or agreed to grant or suffer, any mortgage, pledge,
lien, charge or encumbrance on any assets or Target Capital Stock;



               (n) Target has not terminated, or agreed to terminate, or failed to renew or received any
written threat (that was not subsequently withdrawn) to terminate or fail to renew, any federal,
state, county, local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity;



               (o) Target has not entered into any transaction out of the ordinary course of business or that
could reasonably be expected to potentially have a Material Adverse Effect on Target; and



               (p) there has not been any negotiation or agreement by Target to do any of the things
described in the preceding clauses (a) through (o) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement). At the Effective Time,
there will be no accrued but unpaid dividends on shares of Target Capital Stock.



          3.7 Absence of Undisclosed Liabilities. Target has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than (a) those set
forth or adequately provided for in the balance sheet of Target as of the Target Balance Sheet Date
(the “Target Balance Sheet”); (b) those incurred after the Target Balance Sheet Date in the
ordinary course of business consistent with past practice or which are not required to be set forth
in the Target Balance Sheet under GAAP, in either case which individually or in the aggregate could
not be reasonably expected to have a material effect on Target; and (c) those that constitute
Expenses (as defined in Section 6.11) incurred or to be incurred by Target in connection with the
transactions contemplated hereby (the “Target Expenses”).




          3.8 Litigation. There is no private or governmental action, suit, proceeding, claim,
arbitration or governmental investigation pending before any Governmental Entity, foreign or
domestic, or, to the knowledge of Target, threatened against Target or any of its properties or any
of its officers or directors (in their capacities as such). There is no judgment, decree or order
against Target, or, to the knowledge of Target, any of its respective directors or officers (in
their capacities as such), that could reasonably be expected to prevent, enjoin, or materially
alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Target. All litigation to which Target is a party
(or, to the knowledge of Target, threatened to become a party) is described in Section 3.8 of the
Target Disclosure Schedule.




          3.9 Restrictions on Business Activities. There is no agreement, judgment, injunction,
order or decree binding
upon Target that has had or could reasonably be expected to have the effect of prohibiting or
materially impairing any current business practice of Target, any acquisition of property by Target
or the conduct of business by Target as currently conducted or as proposed to be conducted by
Target.




16









 








          3.10 Intellectual Property.




               (a) For purposes of this Agreement, “Intellectual Property” means:



                    (i) all issued patents, reissued or reexamined patents, revivals of patents, utility models,
certificates of invention, registrations of patents and extensions thereof, regardless of country
or formal name (collectively, “Issued Patents”);



                    (ii) all published or unpublished nonprovisional and provisional patent applications or
reexamination proceedings (collectively “Patent Applications” and, with the Issued Patents,
the “Patents”);



                    (iii) all copyrights, copyrightable works, semiconductor topography and mask work rights,
including all moral rights and rights of ownership of copyrightable works, semiconductor topography
works and mask works, and all rights to register and obtain renewals and extensions of
registrations, together with all other interests accruing by reason of international copyright,
semiconductor topography and mask work conventions (collectively, “Copyrights”);



                    (iv) trademarks, registered trademarks, applications for registration of trademarks, service
marks, registered service marks, applications for registration of service marks, trade names,
registered trade names and applications for registrations of trade names (collectively,
“Trademarks”) and domain name registrations;



                    (v) all technology, ideas, inventions, invention disclosures, records of invention, designs,
proprietary information, manufacturing and operating specifications, know-how, formulae, trade
secrets, technical data, computer programs, hardware, software and processes; and



                    (vi) all other intangible assets, properties and rights (whether or not appropriate steps have
been taken to protect, under applicable law, such other intangible assets, properties or rights).



               (b) Target owns and has good and marketable title to, or possesses legally enforceable rights
to use, all Intellectual Property used and currently proposed to be used in the business of Target
as currently conducted and as proposed to be conducted by Target, except for such items as have yet
to be conceived or developed. The Intellectual Property owned by and licensed to Target
collectively constitutes all of the Intellectual Property necessary to enable Target to conduct its
business as such business is currently being conducted. No current or former officer, director,
employee, consultant or independent contractor has any right, claim or interest in or with respect
to any Target Intellectual Property (as defined in Section 3.10(c) below) other than statutory
rights of reversion under the United States Copyright Act.



               (c) With respect to each item of Intellectual Property incorporated into any product of Target
or otherwise used in the business of Target (except “off the shelf” or other software widely
available through regular commercial distribution channels at a cost not exceeding $10,000 on
standard terms and conditions, as modified for Target’s operations) (“Target Intellectual
Property”), Section 3.10 of the Target Disclosure Schedule lists:



17









 





                    (i) all Issued Patents and Patent Applications, all registered Trademarks, and pending
trademark registrations and all registered Copyrights, including the jurisdictions in which each
such Intellectual Property has been issued or registered or in which any such application for such
issuance and registration has been filed if such Intellectual Property is owned by or exclusively
licensed to Target; and



                    (ii) the following agreements relating to each of the products of Target (the “Target
Products”) or other Target Intellectual Property: all (A) agreements granting any right to
distribute or sublicense a Target Product on any exclusive basis; (B) any exclusive licenses of
Intellectual Property to or from Target; (C) agreements pursuant to which the amounts actually or
expected to be paid by or payable to Target are $25,000 or more; (D) joint development agreements;
(E) any agreement by which Target grants to a third party any ownership right to any Target
Intellectual Property owned by Target; (F) any court or administrative agency order relating to
Target Intellectual Property owned by Target; (G) any option relating to any Target Intellectual
Property; and (H) agreements pursuant to which any party is granted any rights to access source
code or to use source code to create derivative works of Target Products.



               (d) Section 3.10 of the Target Disclosure Schedule contains an accurate list as of the date of
this Agreement of all licenses, sublicenses and other agreements to which Target is a party and
pursuant to which Target is authorized to use any Intellectual Property owned by any third party,
excluding “off the shelf” or other software widely available through regular commercial
distribution channels at a cost not exceeding $10,000 on standard terms and conditions (“Third
Party Intellectual Property”).



               (e) There is no unauthorized use, disclosure, infringement or misappropriation of any Target
Intellectual Property, including any Third Party Intellectual Property, by any third party,
including any employee or former employee of Target. Target has not entered into any agreement to
indemnify any other person against any charge of infringement of any Intellectual Property, other
than the standard indemnification provisions contained in Target’s standard form integrator
agreement (the “Integrator Agreement”), standard form purchase agreement for end users (the
“Purchase Agreement”) and standard end user license agreements (“End User License
Agreements”), the forms of which have been delivered to Acquiror or its counsel. Any
deviations from such standard indemnification provisions are set forth in the Target Disclosure
Schedule. There are no royalties, fees or other payments payable by Target to any person or entity
by reason of the ownership, use, sale or disposition of Target Intellectual Property.



               (f) Target is not in breach of any license, sublicense or other agreement relating to the
Target Intellectual Property or Third Party Intellectual Property. Neither the execution, delivery
or performance of this Agreement or any ancillary agreement
contemplated hereby nor the consummation of the Merger or any of the transactions contemplated
by this Agreement will contravene, conflict with or result in any limitation on the Acquiror’s
right to own or use any Target Intellectual Property, including any Third Party Intellectual
Property as currently used by Target.



18









 





               (g) All Issued Patents, registered Trademarks and registered Copyrights owned by Target are
valid and subsisting. All maintenance and annual fees due on or before the date hereof have been
fully paid and all fees paid during prosecution and after issuance of any Patent comprising or
relating to such item have been paid in the correct entity status amounts. Target is not
infringing, misappropriating, or making unlawful use of, or has not received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any proprietary asset owned or used by any third party. There
is no proceeding pending or threatened, nor has any claim or demand been made that challenges the
legality, validity, enforceability or ownership of any item of Target Intellectual Property owned
or exclusively licensed to Target or alleges a claim of infringement of any Patents, Copyrights or
Trademarks, or violation of any trade secret or other proprietary right of any party by Target or
Target Products. Target has not brought a proceeding alleging infringement of Target Intellectual
Property or breach of any license or agreement involving Intellectual Property against any third
party.



               (h) All current and former officers and employees of, and all current and former consultants
and independent contractors to Target have executed and delivered to Target an agreement regarding
the protection of proprietary information and the assignment to Target of any Intellectual Property
arising from services performed for Target by such persons in one of the forms attached to the
Disclosure Schedule (the “Inventions Assignment”) (with no deviations therefrom and
containing no exceptions or exclusions from the scope of its coverage). No employee or independent
contractor of Target is in violation of any term of the Inventions Assignment or any patent
disclosure agreement or employment contract or any other contract or agreement relating to the
relationship of any such employee or independent contractor with Target. Notwithstanding the
foregoing, all prior inventions technology, or portions thereof, disclosed or excepted by any of
Target’s current and former officers, employees, consultants and independent contractors in any
Inventions Assignment agreement, including, but not limited to, the prior inventions contained in
U.S. Patent Application Publication No. 2004/0030731 A1 (USSN 10/406,533) (hereinafter, the
“Prior Inventions Technology”), is not relevant to, and has not been incorporated into,
used in the development of, or used by, any Target Product or any Target Intellectual Property.



               (i) Target has taken all commercially reasonable and customary measures and precautions
necessary to protect and maintain the confidentiality of all Target Intellectual Property not
otherwise protected by patents or published patent applications (“Confidential
Information”) (except such Target Intellectual Property whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the full value of all Target Intellectual
Property. Without limiting the foregoing, Target has and enforces a policy requiring each third
party that Target discloses information to, to enter into non-disclosure and confidentiality
agreements restricting the use and disclosure of any Target Confidential Information.



               (j) No product liability claims have been communicated in writing to or, to Target’s
knowledge, threatened against Target.



               (k) A complete list of each of the Target Products and Target’s proprietary software
(“Target Software”), together with a brief description of each, is set forth in



19









 







Section 3.10 of the Target Disclosure Schedule. The Target Software (other than that currently under
development) and Target Products (other than that currently under development) conform in all
material respects with any specification, documentation, performance standard or representation
provided with respect thereto by Target except for minor software errors that have no immediate
impact on the functionality of the Target Software and that have been resolved or will be resolved
in accordance with the terms of Target’s support and maintenance agreements and except as such
failure could not reasonably be expected to have a Material Adverse Effect on Target.



               (l) Target is not subject to any proceeding or outstanding decree, order, judgment or
stipulation restricting in any manner the use, transfer or licensing of any Target Intellectual
Property by Target, or which may affect the validity, use or enforceability of such Target
Intellectual Property. Target is not subject to any agreement that restricts in any material
respect the use, transfer, delivery or licensing by Target of the Target Intellectual Property
owned by Target or Target Products.



               (m) No Public Software (as defined below) forms part of the any Target Product, services
provided by Target (“Target Service”) or Target Intellectual Property, and no Public
Software was or is used in connection with the development of any Target Product, Target Service or
Target Intellectual Property or is incorporated into, in whole or in part, or has been distributed
with, in whole or in part, any Target Product, Target Service or Target Intellectual Property owned
by Target. As used in this Section 3.10(m), “Public Software” means any software that contains, or
is derived in any manner (in whole or in part) from, any software that is distributed as free
software (as defined by the Free Software Foundation), open source software (e.g., Linux or
software distributed under any license approved by the Open Source Initiative as set forth in
www.opensource.org) or similar licensing or distribution models which requires the distribution of
source code to licensees, including software licensed or distributed under any of the following
licenses or distribution models, or licenses or distribution models similar to any of the
following: (i) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL); (ii) the Artistic
License (e.g., PERL); (iii) the Mozilla Public License; (iv) the Netscape Public License; (v) the
Sun Community Source License (SCSL); (vi) the Sun Industry Standards License (SISL); (vii) the BSD
License; or (viii) the Apache License.



               (n) Target has all rights necessary to be in compliance with the terms and conditions of the
OEM Agreement with Brocade Communications, Inc. (“Brocade”) dated May 2, 2005 (the “Brocade
Agreement”), including without limitation with respect to Third Party Intellectual Property, and is
otherwise and in all respects in full compliance with the Brocade Agreement.



          3.11 Interested Party Transactions. Except as set forth in Section 3.11 of the Target
Disclosure Schedule, (a) Target is not indebted to any director, officer, employee, stockholder or agent of Target
(except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses),
and no such person is indebted to Target, and (b) there have been no transactions during the two
year period ending on the date hereof that would require disclosure if Target were subject to
disclosure under Item 404 of Regulation S-K under the Securities Act of 1933, as amended (the
“Securities Act”).




20









 








          3.12 Minute Books. The minute book of Target contains a materially complete and
accurate summary of all meetings of directors and stockholders or actions by written consent since
the time of incorporation of Target through the date of this Agreement, and reflects all
transactions referred to in such minutes accurately in all material respects.




          3.13 Complete Copies of Materials. Target has delivered or made available true and
complete copies of each document that (a) has been requested by Acquiror or its counsel prior to
the date hereof in connection with their due diligence review of Target, including without
limitation pursuant to the diligence request letter and list dated January 30, 2006, and (b)
exists.




          3.14 Material Contracts. All of Target’s Material Contracts (as defined in this
Section 3.14 below) are listed in Section 3.14 of the Target Disclosure Schedule (which may be
updated between the date of this Agreement and the Closing to include any Material Contracts
expressly permitted pursuant to Section 5.1 hereof or Section 5.1 of the Disclosure Schedule).
True and correct copies of each such written Material Contract, and a written summary setting forth
the terms and conditions of each oral Material Contract, have been provided to Acquiror. With
respect to each Material Contract: (a) the Material Contract constitutes the entire agreement
between Target, on the one hand, and the other party(ies) to such Material Contract, on the other
hand, with respect to the subject matter of the Material Contract and has not been modified,
amended or repudiated in any respect, or if modified or amended, such modification or amendment has
been noted in the Target Disclosure Schedule and provided to Acquiror; (b) the Material Contract is
legal, valid, binding and enforceable and in full force and effect with respect to Target, and, to
Target’s knowledge, is legal, valid, binding, enforceable and in full force and effect with respect
to each other party thereto, in either case subject to the effect of bankruptcy, insolvency,
moratorium or other similar laws affecting the enforcement of creditors’ rights generally and
except as the availability of equitable remedies may be limited by general principles of equity;
(c) the Material Contract will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Effective Time in accordance with its terms as in effect
prior to the Effective Time, subject to the effect of bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors’ rights generally and except as the
availability of equitable remedies may be limited by general principles of equity; (d) neither
Target nor, to Target’s knowledge, any other party is in breach or default, and no event has
occurred that with notice or lapse of time would constitute a breach or default by Target or, to
Target’s knowledge, by any such other party, or permit termination, modification or acceleration,
under such Material Contract; and (e) no party to the Material Contract has communicated to Target
any intention to cancel, withdraw, modify or amend such contract, agreement or arrangement whether
by reason of the transactions contemplated by this Agreement or otherwise. “Material
Contract” means any written or oral
contract, agreement or commitment to which Target is a party or by which any of Target’s
assets and properties is bound (a) under which there have been or are expected to be receipts to
the Target in excess of $25,000 or expenditures by the Target in excess of $25,000; (b) required to
be listed pursuant to Section 3.10(c)(ii) or Section 3.10(d); (c) requiring Target to indemnify any
person or entity other than pursuant to the unmodified, standard indemnification provision
contained in Target’s standard form Integrator Agreement, standard form Purchase Agreement and
standard form End User License Agreements; (d) including any provision or covenant prohibiting or
limiting the ability to Target to engage in any business activity or compete with any person,
including




21









 







without limitation any provision or covenant restricting the development, manufacture,
assembly, marketing, distribution, license or sale of Target’s products or services, (e) including
a warranty with respect to Target’s products or services other than pursuant to the unmodified,
standard product and services warranties contained in the Integrator Agreement, Purchase Agreement
and End User License Agreements, (f) granting any exclusive rights to any party (other than
exclusive licenses listed pursuant to Section 3.10(c)(ii)); (g) that cannot be terminated within
one hundred eighty (180) days after giving notice of termination without resulting in any cost or
penalty to Target (as explicitly stated in the Agreement), (h) required to be listed pursuant to
Section 3.18, (i) required to be listed pursuant to Section 3.11; (j) evidencing indebtedness for
borrowed or loaned money, including guarantees of such indebtedness; or (k) that could reasonably
be expected to have a Material Adverse Effect on Target if breached by Target in such a manner as
would (I) permit any other party to cancel or terminate the same (with or without notice of passage
of time); (II) provide a basis for any other party to claim money damages (either individually or
in the aggregate with all other such claims under that contract) from Target; or (III) give rise to
a right of acceleration of any material obligation or loss of any material benefit under such
Material Contract.




          3.15 Inventory. The inventories shown on the Target Balance Sheet or thereafter
acquired by Target, were acquired and maintained in the ordinary course of business, are of good
and merchantable quality, and consist of items of a quantity and quality usable or salable in the
ordinary course of business. Since the Target Balance Sheet Date, Target has continued to
replenish inventories in a normal and customary manner consistent with past practices. Section
3.15 of the Target Disclosure Schedule lists the suppliers used by the Target in the manufacture of
its products. Except as otherwise noted in Section 3.15 of the Target Disclosure Schedule, none of
such suppliers is a sole source. Target has not received written notice (nor does Target have any
other basis upon which it expects that there is a reasonable possibility) that it will experience
in the foreseeable future any difficulty in obtaining, in the desired quantity and quality and at a
reasonable price and upon reasonable terms and conditions, the raw materials, supplies or component
products required for the manufacture, assembly or production of its products. The values at which
inventories are carried reflect the inventory valuation policy of Target, which is consistent with
its past practice and in accordance with GAAP applied on a consistent basis. Target is not under
any liability or obligation with respect to the return of any item of inventory in the possession
of wholesalers, retailers or other customers. Since the Target Balance Sheet Date, adequate
provision has been made on the books of Target in the ordinary course of business consistent with
past practices to provide for all slow-moving, obsolete or unusable inventories to their estimated
useful or scrap values, and such inventory reserves are adequate to provide for such slow-moving,
obsolete or unusable inventory and inventory shrinkage.




          3.16 Accounts Receivable. Subject to any reserves set forth therein, the accounts
receivable shown on the Target Financial Statements are valid and genuine, have arisen solely out
of bona fide sales and deliveries of goods, performance of services, and other business
transactions in the ordinary course of business consistent with past practices in each case with
persons other than affiliates, are not subject to any prior assignment, lien or security interest,
and are not subject to valid defenses, set-offs or counter claims. Except to the extent paid prior
to the Closing Date or made uncollectible as a result of bad faith actions of Acquiror or the
Surviving Corporation after the Closing Date, the accounts receivable on the Target Balance Sheet
are




22









 







collectible in accordance with their terms at their recorded amounts, subject only to the
reserve for doubtful accounts on the Target Financial Statements.




          3.17 Customers and Suppliers. As of the date hereof, no customer that individually
accounted for more than 5% of Target’s gross revenues during the 12-month period ended on the
Target Balance Sheet Date and no supplier of Target that individually accounted for more than 5% of
Target’s purchases during the 12-month period ended on the Target Balance Sheet Date has canceled
or otherwise terminated, or made any written threat to Target to cancel or otherwise terminate its
relationship with Target or has at any time on or after the Target Balance Sheet Date, decreased
materially its services or supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target’s knowledge no such
supplier or customer has indicated either orally or in writing that it intends to cancel or
otherwise terminate its relationship with Target or to decrease materially its services or supplies
to Target or its usage of the services or products of Target, as the case may be, other than
downward fluctuations of not more than ten percent (10%) in the volume of individual customer
orders on a fiscal quarterly basis over the prior fiscal quarter in the ordinary course of
business. Target has not knowingly breached, so as to provide a benefit to Target that was not
intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to,
any customer or supplier of Target.




          3.18 Employees and Consultants.




               (a) Section 3.18(a) of the Target Disclosure Schedule lists all contracts, agreements or
commitments to which Target is a party (whether written or oral) providing for a commitment of
employment or consulting services (and provides a description of any such oral agreements) which
either (i) contain severance, bonus or other provisions triggered by the Closing or (ii) contain
obligations of any kind continuing beyond the Closing Date, and true, correct and complete copies
of all such written agreements have been delivered to Acquiror. In addition, Section 3.18 of the
Target Disclosure Schedule contains a list of the names of all employees (including without
limitation part-time employees and temporary employees), leased employees, independent contractors
and consultants of Target, together with their respective salaries or wages, other compensation
(including, without limitation, bonuses, perks and rights to severance payments upon termination of
service to Target), dates of employment and positions. None of such employees, contractors or
consultants has indicated to any executive officer or director of Target a present intention to
resign or retire, and Target does not have a present intention to terminate the employment or
services of any of them. No employee or independent contractor or consultant of Target is in
violation of any term of any employment or consulting
contract (whether written or oral), patent disclosure agreement or any other contract or
agreement relating to the relationship of any such person with Target or any other party (including
prior employers) because of the nature of the business now conducted or now proposed to be
conducted by Target. Target is not a party to any collective bargaining agreement or other labor
union contract. There is no strike, labor dispute or union organization activities pending or, to
Target’s knowledge, threatened, involving Target, or its employees. With respect to all of their
employees in the United States, Target has obtained documentation within the initial three days of
employment of each employee’s identity and eligibility to work in the United States, and no such
employees will lose their eligibility to work in the United States for the period of one year
following the Closing Date. Section 3.18(a) of the Target Disclosure



23









 




Schedule identifies each of
Target’s employees in the United States whose eligibility to work in the United States exists
pursuant to an issued work permit or visa, and describes the current status of each such
individual’s immigration status. Target has taken, and will have taken at all times prior to the
Closing Date, all steps to perfect each such employee’s immigration status.




               (b) Each of the employees of the Target identified in Section 3.18(b) of the Target Disclosure
Schedule (the “Key Employees”) has executed and delivered to Acquiror (i) an offer letter
for employment with Acquiror following the Closing, and (ii) a Non-Competition and Non-Solicitation
Agreement.



          3.19 Title to Property. Target has good and marketable title to all of its
properties, interests in properties and assets, real and personal, reflected in the Target Balance
Sheet or acquired after the Target Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Target Balance Sheet Date in the ordinary course
of business), or with respect to leased properties and assets, valid leasehold interests therein,
free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character,
except (a) any liens for current taxes not yet due and payable; (b) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair business operations
involving such properties; (c) liens securing debt that is reflected on the Target Balance Sheet;
and (d) such other mortgages, liens, pledges, charges or encumbrances as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on Target. The plants,
property and equipment of Target that are used in the operations of Target’s business are in all
material respects in good operating condition and repair, subject to normal wear and tear. All
properties used in the operations of Target are reflected in the Target Balance Sheet to the extent
required by GAAP. All leases to which Target is a party are in full force and effect and are
valid, binding and enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting
or relating to creditors’ rights generally; and general principles of equity, regardless of whether
asserted in a proceeding in equity or at law. True and correct copies of all such leases have been
provided to Acquiror. Target owns no real property.




          3.20 Environmental Matters.




               (a) The following terms shall be defined as follows:



                    (i) “Environmental Laws” shall mean any applicable foreign, federal, state or local
governmental laws (including common laws), statutes, ordinances, codes, regulations, rules,
policies, permits, licenses, certificates, approvals, judgments, decrees, orders, directives, or
requirements that pertain to the protection of the environment, protection of public health and
safety, or protection of worker health and safety, or that pertain to the handling, use,
manufacturing, processing, storage, treatment, transportation, discharge, release, emission,
disposal, re-use, recycling, or other contact or involvement with Hazardous Materials (as defined
in Section 3.20(a)(ii)), including, without limitation, the federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601, et seq., as amended
(“CERCLA”), and the federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., as amended (“RCRA”).



24









 





                    (ii) “Hazardous Materials” shall mean any material, chemical, compound, substance,
mixture or by-product that is identified, defined, designated, listed, restricted or otherwise
regulated under Environmental Laws as a “hazardous constituent,” “hazardous substance,” “hazardous
material,” “acutely hazardous material,” “extremely hazardous material,” “hazardous waste,”
“hazardous waste constituent,” “acutely hazardous waste,” “extremely hazardous waste,” “infectious
waste,” “medical waste,” “biomedical waste,” “pollutant,” “toxic pollutant,” “contaminant” or any
other formulation or terminology intended to classify or identify substances, constituents,
materials or wastes by reason of properties that are deleterious to the environment, natural
resources, worker health and safety, or public health and safety, including without limitation
ignitability, corrosivity, reactivity, carcinogenicity, toxicity and reproductive toxicity. The
term “Hazardous Materials” shall include without limitation any “hazardous substances” as defined,
listed, designated or regulated under CERCLA, any “hazardous wastes” or “solid wastes” as defined,
listed, designated or regulated under RCRA, any asbestos or asbestos-containing materials, any
polychlorinated biphenyls, and any petroleum or hydrocarbonic substance, fraction, distillate or
by-product.



               (b) Target is and has been in compliance in all material respects with all Environmental Laws
relating to the properties or facilities used, leased or occupied by Target at any time
(collectively, “Target’s Facilities;” such properties or facilities currently used, leased
or occupied by Target are defined herein as “Target’s Current Facilities”), and no
discharge, emission, release, leak or spill of Hazardous Materials has occurred at any of Target’s
Facilities during Target’s use, lease or occupancy thereof (or, to Target’s knowledge, at any time
prior to Target’s use, lease or occupancy thereof) that could reasonably be expected to give rise
to liability of Target under Environmental Laws. To Target’s knowledge, there are no Hazardous
Materials (including without limitation asbestos) present in the surface waters, structures,
groundwaters or soils of or beneath any of Target’s Current Facilities. To Target’s knowledge,
there neither are nor have been any aboveground or underground storage tanks for Hazardous
Materials at Target’s Current Facilities. To Target’s knowledge, no Target employee or other
person has claimed that Target is liable for alleged injury or illness resulting from an alleged
exposure to a Hazardous Material. No civil, criminal or administrative action, proceeding or
investigation is pending against Target, or, to Target’s knowledge, threatened against Target,
with respect to Hazardous Materials or Environmental Laws; and Target is not aware of any
facts or circumstances that could form the basis for assertion of a claim against Target or that
could reasonably be expected to form the basis for liability of Target, regarding Hazardous
Materials or regarding actual or potential noncompliance with Environmental Laws.



          3.21 Taxes.




               (a) As used in this Agreement, the terms “Tax” and, collectively, “Taxes” mean
any and all federal, state and local taxes of any country, assessments and other governmental
charges, duties, impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad valorem, stamp transfer,
franchise, withholding, payroll, recapture, employment, excise and property taxes, together with
all interest, penalties and additions imposed with respect to such amounts and any monetary
obligations under any agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity;



25









 





               (b) Target has or will have prepared and timely filed all returns, estimates, information
statements and reports required to be filed by Target on or prior to the Closing Date with any
taxing authority (“Returns”) relating to any and all Taxes concerning or attributable to
Target or its operations with respect to Taxes for any period ending on or before the Closing Date
and such Returns are true and correct in all material respects and have been or will be completed
in accordance with applicable law;



               (c) Target, as of the Effective Time, (i) will have paid all Taxes shown to be payable on such
Returns covered by Section 3.21(a), and (ii) will have withheld with respect to its employees,
independent contractors, creditors, stockholders or other third parties all Taxes required to be
withheld (including withholding of Taxes pursuant to Sections 1441, 1442, 1445 and 1446 of the Code
or similar provisions under any foreign laws);



               (d) There is no Tax deficiency outstanding or assessed or, to Target’s knowledge, proposed
against Target that is not reflected as a liability on the Target Balance Sheet, nor has Target
executed any agreements or waivers extending any statute of limitations on or extending the period
for the assessment or collection of any Tax;



               (e) Target has no liabilities for unpaid Taxes with respect to periods ending on or prior to
the Target Balance Sheet Date that have not been accrued for or reserved on the Target Balance
Sheet, whether asserted or unasserted, contingent or otherwise and Target has no knowledge of any
basis for the assertion of any such liability attributable to Target, its assets or operations and
Target has not incurred any liability for Taxes since the Target Balance Sheet Date other than in
the ordinary course of business or pursuant to the transaction contemplated herein, and the accrual
for Tax liabilities on the Target’s financial statements is in accordance with past custom and
practice;



               (f) Target is not a party to any tax-sharing agreement or similar arrangement with any other
party, and Target has not assumed any obligation to pay any Tax obligations of, or with respect to
any transaction relating to, any other person or agreed to indemnify any other person with respect
to any Tax;



               (g) Target’s Returns have never been audited by a government or taxing authority, nor, to
Target’s knowledge, is any such audit in process or pending, and Target has not been notified of
any request for such an audit or other examination;



               (h) Target has never been a member of an affiliated group of corporations filing a
consolidated federal income tax return;



               (i) Target has disclosed to Acquiror (i) any Tax exemption, Tax holiday or other Tax-sparing
arrangement that Target has in any jurisdiction, including the nature, amount and lengths of such
Tax exemption, Tax holiday or other Tax-sparing arrangement; and (ii) any expatriate tax programs
or policies affecting Target. Target is in compliance with all terms and conditions required to
maintain such Tax exemption, Tax holiday or other Tax-sparing arrangement or order of any
governmental entity and the consummation of the transactions contemplated hereby will not have any
adverse effect on the continuing validity



26









 







and effectiveness of any such Tax exemption, Tax holiday
or other Tax-sparing arrangement or order;



               (j) Target has made available to Acquiror copies of all Returns filed for all periods since
Target’s inception;



               (k) Target has not filed any consent agreement under former Section 341(f) of the Code or
agreed to have former Section 341(f)(4) apply to any disposition of assets owned by Target;



               (l) Target has not been at any time a United States Real Property Holding Corporation within
the meaning of Section 897(c)(2) of the Code;



               (m) Target is not a party to any contract, agreement, plan or arrangement, including but not
limited to the provisions of this Agreement, covering any employee or former employee of Target
that, individually or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404, or 162(m) of the Code by Target or Merger Sub as an
expense under applicable law;



               (n) Neither the Target nor a Subsidiary has distributed to its stockholders or security
holders stock or securities of a controlled corporation, nor has stock or securities of the Target
or any Subsidiary been distributed, in a transaction to which Section 355 of the Code applies (i)
in the two years prior to the date of this Agreement or (ii) in a distribution that could otherwise
constitute part of a “plan” or “series of related transactions” (within the meaning of Section
355(e) of the Code) that includes the transactions contemplated by this Agreement;



               (o) Target has not entered into any “listed transactions” as defined in Treasury regulation
1.6011-4(b)(2), and the Target has properly disclosed all reportable transactions as required by
Treasury regulation 1.6011-4, including filing Form 8886 with its Tax Returns and with the Office
of Tax Shelter Analysis;



               (p) No claim has ever been made by a Governmental Authority in a jurisdiction where Target, or
any Subsidiary, does not file Tax Returns that it is or may be subject to taxation by that
jurisdiction; and



               (q) Target will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing
Date as a result of (i) any change in method of accounting adopted for a taxable period ending on
or prior to the Closing Date, other than a change mandated by the transaction contemplated herein,
or (ii) prepaid amounts received or accrued for a taxable period on or prior to the Closing Date.



          3.22 Employee Benefit Plans.




               (a) Section 3.22 of the Target Disclosure Schedule contains a complete and accurate list of
each plan, program, policy, practice, contract, agreement or other arrangement providing for
employment, compensation, retirement, deferred compensation, loans,



27









 







severance, separation,
relocation, repatriation, expatriation, visas, work permits, termination pay, performance awards,
bonus, incentive, stock option, stock purchase, stock bonus, phantom stock, stock appreciation
right, supplemental retirement, fringe benefits, cafeteria benefits or other benefits, whether
written or unwritten, including without limitation each “employee benefit plan” within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”), which is or has been sponsored, maintained, contributed to, or required to be
contributed to by Target and, with respect to any such plans which are subject to Code Section
401(a), any trade or business (whether or not incorporated) that is or at any relevant time was
treated as a single employer with Target within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (an “ERISA Affiliate”) for the benefit of any person who performs or who has
performed services for Target or with respect to which Target or any ERISA Affiliate has or may
have any liability (including without limitation contingent liability) or obligation (collectively,
the “Target Employee Plans”). Section 3.22 of the Target Disclosure Schedule separately
lists each Target Employee Plan that has been adopted or maintained by Target, whether formally or
informally, for the benefit of employees outside the United States (collectively, the “Target
International Employee Plans”).



               (b) Documents. Target has furnished to Acquiror true and complete copies of documents
embodying each of the Target Employee Plans and related plan documents, including without
limitation trust documents, group annuity contracts, plan amendments, insurance policies or
contracts, participant agreements, employee booklets, administrative service agreements, summary
plan descriptions, compliance and nondiscrimination tests for the last three plan years, standard
COBRA forms and related notices, registration statements and prospectuses and, to the extent still
in its possession, any material employee communications relating thereto. With respect to each
Target Employee Plan that is subject to ERISA reporting requirements, Target has provided copies of
the Form 5500 reports filed for the last three plan years. Target has furnished Acquiror with the
most recent Internal Revenue Service determination or opinion letter issued with respect to each
such Target Employee Plan, and to Target’s knowledge nothing has occurred since the issuance of
each such letter that could reasonably be expected to cause the loss of the tax-qualified status of
any Target Employee Plan subject to Code Section 401(a).



               (c) Compliance. (i) Each Target Employee Plan has been administered in accordance
with its terms and in compliance with the requirements prescribed by any and all statutes, rules
and regulations (including ERISA and the Code), except as could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Target; and Target and each ERISA
Affiliate have performed all material obligations required to be performed by them under, are not
in material respect in default under or violation of and have no knowledge of any material default
or violation by any other party to, any of the Target Employee Plans; (ii) any Target Employee Plan
intended to be qualified under Section 401(a) of the Code has either obtained from the Internal
Revenue Service a favorable determination or opinion letter as to its qualified status under the
Code, including all currently effective amendments to the Code, or has time remaining to apply
under applicable Treasury Regulations or Internal Revenue Service pronouncements for a
determination or opinion letter and to make any amendments necessary to obtain a favorable
determination or opinion letter; (iii) none of the Target Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person; (iv) there has been no “prohibited
transaction,” as such term is defined in



28









 







Section 406 of ERISA or Section 4975 of the Code, with
respect to any Target Employee Plan, unless an exemption is available for such transaction under
applicable law; (v) none of Target or any ERISA Affiliate is subject to any liability or penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any Target
Employee Plan; (vi) all contributions required to be made by Target or any ERISA Affiliate to any
Target Employee Plan have been paid or accrued; (vii) with respect to each Target Employee Plan, no
“reportable event” within the meaning of Section 4043 of ERISA (excluding any such event for which
the thirty (30) day notice requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 or ERISA has occurred; (viii) each
Target Employee Plan subject to ERISA has prepared in good faith and timely filed all requisite
governmental reports, which were true and correct as of the date filed, and has properly and timely
filed and distributed or posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such Target Employee Plan; (ix) no suit, administrative
proceeding, action or other litigation has been brought, or to the knowledge of Target is
threatened, against or with respect to any such Target Employee Plan, including any audit or
inquiry by the IRS or United States Department of Labor; and (x) there has been no amendment to,
written interpretation or announcement by Target or any ERISA Affiliate that would materially
increase the expense of maintaining any Target Employee Plan above the level of expense incurred
with respect to that Plan for the most recent fiscal year included in the Target Financial
Statements.



               (d) No Title IV or Multiemployer Plan. Neither Target nor any ERISA Affiliate has
ever maintained, established, sponsored, participated in, contributed to, or is obligated to
contribute to, or otherwise incurred any obligation or liability (including without limitation any
contingent liability) under any “multiemployer plan” (as defined in Section 3(37) of ERISA) or to
any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section
412 of the Code. None of Target or any ERISA Affiliate has any actual or potential withdrawal
liability (including without limitation any contingent liability) for any complete or partial
withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.



               (e) COBRA, FMLA, HIPAA, Cancer Rights. With respect to each Target Employee Plan,
Target has complied with (i) the applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) and the regulations
thereunder or any state law governing health care coverage extension or continuation; (ii) the
applicable requirements of the Family and Medical Leave Act of 1993 and the regulations thereunder;
(iii) the applicable requirements of the Health Insurance Portability and Accountability Act of
1996 (“HIPAA”); and (iv) the applicable requirements of the Cancer Rights Act of 1998,
except to the extent that such failure to comply could not reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect on Target. Target has no material unsatisfied
obligations to any employees, former employees or qualified beneficiaries pursuant to COBRA, HIPAA
or any state law governing health care coverage extension or continuation.



               (f) Effect of Transaction. The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service provider of Target
or any ERISA Affiliate to severance benefits or any other payment



29









 







(including without limitation
unemployment compensation, golden parachute, bonus or benefits under any Target Employee Plan),
except as expressly provided in this Agreement; or (ii) accelerate the time of payment or vesting
of any such benefits or increase the amount of compensation due any such employee or service
provider. No benefit payable or that may become payable by Target pursuant to any Target Employee
Plan or as a result of or arising under this Agreement shall constitute an “excess parachute
payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax
under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section
280G of the Code. Each Target Employee Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without material liability to Acquirer or
Target other than ordinary administration expenses typically incurred in a termination event.



               (g) International Employee Plans. Each of the Target International Employee Plans has
been established, maintained and administered in compliance in all material respects with its terms
and conditions and with the requirements prescribed by any and all statutory or regulatory laws
applicable to such International Target Employee Plan. No Target International Employee Plan has
unfunded liabilities that as of the Effective Time will not be offset by insurance or fully
accrued. Except as required by law, no condition exists that would prevent Target or Acquiror from
terminating or amending any International Target Employee Plan at any time for any reason.



          3.23 Employee Matters. Target is in compliance in all material respects with all
currently applicable federal, state, local and foreign laws and regulations respecting terms and
conditions of employment, including without limitation applicant and employee background checking,
immigration laws, discrimination laws, verification of employment eligibility, employee leave laws,
classification of workers as employees and independent contractors as well as classification of
employees as exempt and non-exempt, wage and hour laws, and occupational safety and health laws.
There are no proceedings pending or, to Target’s knowledge, reasonably expected or threatened,
between Target, on the one hand, and any or all of its current or former employees, on the other
hand, including without limitation any claims for actual or alleged harassment or discrimination
based on race, national origin, age, sex, sexual orientation, religion, disability, or similar
tortious conduct, breach of contract, wrongful termination, defamation, intentional or negligent
infliction of emotional distress, interference with contract or interference with actual or
prospective economic disadvantage. There are no claims pending, or, to Target’s knowledge,
reasonably expected or threatened, against Target under any workers’ compensation or long-term
disability plan or policy. Target has provided all employees with all wages (including payment of
overtime), benefits, relocation benefits, stock options, bonuses and incentives, and all other
compensation that became due and payable through the date of this Agreement.




          3.24 Insurance. Target has delivered to Acquiror copies of each insurance policy
(including policies providing property, casualty, liability, and workers’ compensation coverage and
bond and surety arrangements) with respect to which Target is a party, a named insured, or
otherwise the beneficiary of coverage as of the date of this Agreement. Such policies are (a)
sufficient to meet Target’s existing legal and contractual obligations, and (b) in amounts
customarily carried by persons conducting businesses or owning assets similar to those of Target.
Each of the policies is legal, valid, binding, enforceable and in full force and effect in all




30









 







respects. There is no material claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such policies or bonds, and
there has been no notice of pending or actual cancellation or nonrenewal of any of such policies.
All premiums due and payable under all such policies and bonds have been paid and Target is
otherwise in compliance with the terms of such policies and bonds, and no event has occurred which,
with notice or the lapse of time, would permit the termination or modification of, or acceleration
of payments due under, the policies. Target has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. Section 3.24 of the Target
Disclosure Schedule describes all such policies and any self-insurance arrangements presently
maintained by, or for the benefit of, Target as of the date of this Agreement.




          3.25 Compliance With Laws. Target has complied in all material respects with, is not
in material violation of and has not received any notices of violation with respect to, any federal
state, local or foreign statute, law or regulation with respect to the conduct of its business, or
the ownership or operation of its business.




          3.26 Brokers’ and Finders’ Fee. Except for UBS Investment Bank, as to which neither
Acquiror nor Merger Sub shall have any liability, no broker, finder or investment banker engaged by
or acting on behalf of Target or its stockholders is entitled to brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any similar charges in connection with the
Merger, this Agreement or any transaction contemplated hereby. Target has provided a complete and
correct copy of Target’s agreement with UBS Investment Bank to Acquiror or its counsel.




          3.27 Privacy Policies. Target and its employees, have (i) complied in all material
respects at all times with all applicable privacy laws and regulations and contractual obligations
regarding the collection, processing, disclosure and use of all data consisting of personally
identifiable information that is, or is capable of being, associated with specific individuals;
(ii) complied in all material respects with Target’s privacy
policy substantially in the form provided to Acquiror or its counsel with respect to
personally identifiable information; and (iii) taken all appropriate and industry standard measures
to protect and maintain the confidential nature of any personally identifiable information that
Target has collected or otherwise acquired.




          3.28 International Trade Matters. Target is, and at all times has been, in compliance
in all material respects with and has not been and is not in violation of any International Trade
Law (defined below), including but not limited to, all laws and regulations related to the import
and export of commodities, software, and technology from and into the United States, and the
payment of required duties and tariffs in connection with same. Target has no basis to expect, nor
has Target or any other person for whose conduct they are or may reasonably be held to be
responsible received, any actual or threatened order, notice, or other communication from any
governmental body of any actual or potential violation or failure to comply with any International
Trade Law. “International Trade Law” shall mean U.S. statutes, laws and regulations applicable to
international transactions, including, but not limited to, the Export Administration Act, the
Export Administration Regulations, the Foreign Corrupt Practices Act, the Arms Export Control Act,
the International Traffic in Arms Regulations, the International Emergency Economic Powers Act, the
Trading with the Enemy Act, the U.S.




31









 







Customs laws and regulations, the Foreign Asset Control
Regulations, and any regulations or orders issued thereunder.




          3.29 Government Contracts. Target is, and at all times has been, in compliance in all
material respects with the terms and conditions of each Government Contract and Bid (defined below)
to which it is a party or subject, and each such Government Contract and Bid has been issued to or
submitted by Target in Target’s name. Target has complied with all requirements of all laws and
regulations pertaining to each Government Contract or Bid, and has not received notice from a
Governmental Agency or any other entity or person that Target has breached or violated any law,
certification, representation, clause, provision, or requirement pertaining to any Government
Contract or Bid. All representations and certifications made by Target with respect to any
Government Contract or Bid were current, complete, and accurate as of their effective date and
Target has complied with all such representations and certifications. There exists no irregularity,
misstatement, omission, or noncompliance arising under or relating to any Government Contract or
Bid or any law or regulation applicable thereto that has led or could lead to an internal
investigation (other than inquiries in the ordinary course of business), a voluntary disclosure to
any Governmental Agency arising under or relating to a Government Contract or Bid or any law or
regulation applicable thereto, or any other damage, penalty assessment, recoupment of payment or
disallowance of cost. As used in this Section 3.29, “Government Contract” means any
agreement entered into by Target with any Governmental Agency or with any prime contractor or
upper-tier subcontractor relating to an agreement where any Governmental Agency is a party thereto.
“Bid” means any outstanding quotation, bid, proposal or grant application by Target that,
if accepted or awarded, would lead to a Government Contract.”




          3.30 Representations Complete. None of the representations or warranties made by
Target herein or in any Schedule or Exhibit hereto, including the Target Disclosure Schedule, or
certificate furnished by Target pursuant to this Agreement when all such documents are read
together in their entirety, contain,
or will contain at the Effective Time, any untrue statement of a material fact, or omits or
will omit at the Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under which made, not
misleading.




     4. Representations and Warranties of Acquiror and Merger Sub. Acquiror and Merger Sub
represent and warrant to Target that the statements contained in this Section 4 are true and
correct, except as disclosed in a document of even date herewith and delivered by Acquiror to
Target on the date hereof referring to the representations and warranties in this Agreement (the
“Acquiror Disclosure Schedule”). The Acquiror Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4, and
the disclosure in any such numbered and lettered section of the Acquiror Disclosure Schedule shall
qualify only the corresponding subsection in this Section 4 (except to the extent disclosure in any
numbered and lettered section of the Acquiror Disclosure Schedule is specifically cross-referenced
in another numbered and lettered section of the Acquiror Disclosure Schedule or to the extent that
it is readily apparent from such disclosure that the information is clearly applicable to such
other sections of the Acquiror Disclosure Schedule or such other representations and warranties).



32









 





          4.1 Organization, Standing and Power. Each of Acquiror and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws of the state of
Delaware. Each of Acquiror and Merger Sub is duly qualified to do business and is in good standing
in each jurisdiction in which the failure to be so qualified and in good standing could reasonably
be expected to have a Material Adverse Effect on Acquiror.




          4.2 Authority. Acquiror and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part of Acquiror and
Merger Sub. This Agreement has been duly executed and delivered by Acquiror and Merger Sub and
constitutes the valid and binding obligations of Acquiror and Merger Sub enforceable against
Acquiror and Merger Sub in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors’
rights generally, and subject to general principles of equity. The execution and delivery of this
Agreement by Acquiror and Merger Sub do not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any material obligation or loss of a material benefit under, or require Acquiror or
Merger Sub to obtain any consent or approval of, make any filing with or give any notice to, any
person or entity as a result or under the terms of any provision of the Certificate of
Incorporation or Bylaws of Acquiror or any of its Subsidiaries, except as described in the next
sentence. No consent, approval, order or authorization of or registration, declaration or filing
with any Governmental Entity is required by or with respect to Acquiror or any of its Subsidiaries
in connection with the execution and delivery of this Agreement by Acquiror and Merger Sub or the
consummation by Acquiror and Merger Sub of the transactions contemplated hereby, except for (a) the
filing of the Certificate of Merger as provided in Section 2.2; (b)
the filing of a Current Report on Form 8-K with the Securities and Exchange Commission
(“SEC”); (c) such filings as may be required under HSR; and (d) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or made, could not
reasonably be expected to have a Material Adverse Effect on Acquiror and could not reasonably be
expected to prevent, materially alter or delay any of the transactions contemplated by this
Agreement.




          4.3 Litigation. There is no judgment, decree or order pending or, to the knowledge of
Acquiror, threatened against, relating to or affecting Acquiror or Merger Sub that could reasonably
be expected to prevent, enjoin or materially alter or delay any of the transactions contemplated by
this Agreement.




          4.4 Interim Operations of Merger Sub. Merger Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no other business
activities and has conducted its operations only as contemplated by this Agreement.




          4.5 Brokers’ and Finders’ Fee. Except for Wachovia Securities, as to which neither
Target stockholders nor, prior to the Closing Date, Target shall have any liability, no broker,
finder or investment banker engaged by or acting on behalf of Acquiror or Merger Sub is entitled to
brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any





33










 






similar charges in connection with the Merger, this Agreement or any transaction contemplated
hereby.




          4.6 Representations Complete. None of the representations or warranties made by
Acquiror or Merger Sub herein or in any Schedule hereto, including the Acquiror Disclosure
Schedule, or certificate furnished by Acquiror or Merger Sub pursuant to this Agreement when all
such documents are read together in their entirety, contains or will contain at the Effective Time
any untrue statement of a material fact or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or therein, in the light
of the circumstances under which made, not misleading.




     5. Conduct Prior to the Effective Time.



          5.1 Conduct of Business of Target. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the Effective Time, Target
agrees (except to the extent expressly contemplated by this Agreement or as consented to in writing
by Acquiror: (a) to carry on its business in the ordinary course in substantially the same manner
as heretofore conducted; (b) to pay its debts and Taxes when due subject (i) to good faith disputes
over such debts or Taxes; and (ii) to Acquiror’s consent to the filing of material Tax Returns, if
applicable; (c) to pay or perform other obligations when due; (d) to use all reasonable efforts to
preserve intact its present business organizations, keep available the services of its present
officers and employees and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it; and (e) maintain Target
Intellectual Property and preserve all protections thereof, including but not limited to responding
appropriately and in a timely manner to any office action issued by the United States Patent and
Trademark Office or to any other inquiry by any other governmental or regulatory agency or any
third party regarding Target Intellectual Property. Target agrees to promptly notify Acquiror of
(a) any event or occurrence not in the ordinary course of Target’s business, and of any event which
could reasonably be expected to potentially have a Material Adverse Effect on Target; and (b) any
change in its capitalization as set forth in Section 3.5 except as the result of exercises of
Target Options outstanding as of the date hereof. Without limiting the foregoing, except as
expressly contemplated by this Agreement or Section 5.1 of the Target Disclosure Schedule, or as
required by law, Target shall not do, cause or permit any of the following during the period from
the date of this Agreement until the earlier of the termination of this Agreement or the Effective
Time, without the prior written consent of Acquiror, unless otherwise required by applicable law:




               (a) Charter Documents. Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;



               (b) Dividends; Changes in Capital Stock. Declare or pay any dividends on or make any
other distributions (whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with



34









 







agreements providing for the repurchase of shares in connection with any termination of
service to it;



               (c) Stock Option Plans, Etc. Accelerate, amend or change the period of exercisability
or vesting of options or other rights granted under its stock plans or authorize cash payments in
exchange for any options or other rights granted under any of such plans, except in each case to
the extent required by the terms thereof as in effect on the date hereof and described in Section
5.1 of the Target Disclosure Schedule;



               (d) Issuance of Securities. Issue, deliver or sell or authorize or propose the
issuance, delivery or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or options to acquire, or
other agreements or commitments of any character obligating it to issue any such shares or other
convertible securities other than (i) the issuance of shares of its Common Stock pursuant to the
exercise of Target Options outstanding as of the date of this Agreement, and (ii) purchases of
shares of Target Capital Stock from former employees, directors and consultants in accordance with
agreements providing for the repurchase of such shares in connection with any termination of
service to the Target of such employee, director or consultant.



               (e) Intellectual Property. Transfer to any person or entity any rights to its
Intellectual Property except for product sales under Target’s standard sales contracts;



               (f) Exclusive Rights. Enter into or amend any agreements pursuant to which any other
party is granted exclusive marketing or other exclusive rights of any type or scope with respect to
any of Target Products or Target Intellectual Property;



               (g) Dispositions. Sell, lease, license or otherwise dispose of or encumber any of its
properties or assets that are material, individually or in the aggregate, to its business, taken as
a whole, except for sales of inventory in the ordinary course of business;



               (h) Indebtedness. Incur any indebtedness for borrowed money, or guarantee any such
indebtedness, or issue or sell any debt securities or guaranty any debt securities of others;



               (i) Agreements. Enter into, terminate or amend any agreement that is or would be a
Material Contract, provided that Target may enter into agreements as provided in Section 5.1 of the
Target Disclosure Schedule;



               (j) Payment of Obligations. Pay, discharge or satisfy, in an amount in excess of
$10,000 in the aggregate, any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the ordinary course of business, other
than the payment, discharge or satisfaction of (A) liabilities reflected or reserved against in the
Target Financial Statements, or (B) Target Expenses.



               (k) Capital Expenditures. Make any capital expenditures, capital additions or capital
improvements, provided that if the Closing has not occurred within ten business days of the date of
this Agreement, Target, with prior consultation with Acquiror, may



35









 







make expenditures up to the amounts authorized by the Board of Directors of Target and set
forth in the 2006 budget of Target previously delivered to Acquiror;



               (l) Insurance. Materially reduce the amount of any material insurance coverage
provided by existing insurance policies;



               (m) Termination or Waiver. Terminate or waive any right of substantial value, other
than in the ordinary course of business;



               (n) Employee Benefit Plans; New Hires; Pay Increases. (i) Amend any Target Employee
Plan or adopt any plan that would constitute a Target Employee Plan except in order to comply with
applicable laws or regulations, (ii) hire any new officer-level employee, or (iii) pay any special
bonus, special remuneration or special noncash benefit (except payments and benefits made pursuant
to written agreements outstanding on the date hereof), or increase the benefits, salaries or wage
rates of its employees;



               (o) Severance Arrangements. Grant or pay any severance or termination pay or
benefits, except for payments made pursuant to written agreements outstanding on the date hereof
and disclosed on the Target Disclosure Schedule, or enter into any new agreements (whether written
or oral) to providing for any rights to severance or termination pay or benefits upon termination
of service;



               (p) Lawsuits. Commence a lawsuit other than (i) for the routine collection of bills,
(ii) in such cases where Target in good faith determines that failure to commence suit would result
in the material impairment of a valuable aspect of Target’s business, provided that it consults
with Acquiror prior to the filing of such a suit or (iii) for a breach of this Agreement;



               (q) Acquisitions. Acquire or agree to acquire by merging with, or by purchasing a
substantial portion of the stock or assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire any assets that are material individually or in the
aggregate, to its business, taken as a whole; provided that if the Closing has not occurred within
ten business days of the date of this Agreement, Target, with prior consultation with Acquiror, may
make expenditures up to the amounts authorized by the Board of Directors of Target and set forth in
the 2006 budget of Target previously delivered to Acquiror;



               (r) Taxes. Other than in the ordinary course of business, make or change any material
election in respect of Taxes, adopt or change any accounting method in respect of Taxes, file any
material tax Return or any amendment to a material tax Return, enter into any closing agreement,
settle any material claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any material claim or assessment in respect of Taxes;



               (s) Revaluation. Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in the ordinary
course of business or as required by changes in GAAP; or



36









 





               (t) Other. Take or agree in writing or otherwise to take, any of the actions
described in Sections 5.2(a) through (s) above, or any action that would cause a material breach of
its representations or warranties contained in this Agreement or prevent it from materially
performing or cause it not to materially perform its covenants hereunder.



     Except as set forth above, nothing in this Agreement shall give to Acquiror, directly or
indirectly, rights to control or direct the operations of the Target prior to the Effective Time.
Prior to the Effective Time, Target shall exercise, consistent with the terms and conditions of
this Agreement (including without limitation this Section 5.1), control and supervision of its
operations.



          5.2 No Solicitation.




               (a) From and after the date of this Agreement until the earlier of the Effective Time and the
termination of this Agreement pursuant to Section 8 hereof, Target shall not, directly or
indirectly through any officer, director, employee, representative or agent of Target or otherwise:
(i) solicit, initiate, or encourage any inquiries or proposals that constitute, or could reasonably
be expected to lead to, a proposal or offer for a merger, consolidation, share exchange, business
combination, sale of all or substantially all assets, sale of shares of capital stock or similar
transactions involving Target other than the transactions contemplated by this Agreement (any of
the foregoing inquiries or proposals an “Acquisition Proposal”); (ii) engage or participate
in negotiations or discussions concerning, or provide any non-public information to any person or
entity relating to, any Acquisition Proposal; or (iii) agree to, enter into, accept, approve or
recommend any Acquisition Proposal. Target represents and warrants that it has the legal right to
terminate any pending discussions or negotiations relating to an Acquisition Proposal without
payment of any fee or other penalty.



               (b) Target shall notify Acquiror immediately (and no later than 24 hours) after receipt by
Target (or its advisors) of any Acquisition Proposal or any request for nonpublic information in
connection with an Acquisition Proposal or for access to the properties, books or records of Target
by any person or entity that informs Target that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in writing and shall indicate in
reasonable detail the identity of the offeror and the terms and conditions of such proposal,
inquiry or contact.



     6. Additional Agreements.



          6.1 Preparation of Information Statement.




               (a) As soon as practicable after the execution of this Agreement, Target shall prepare, with
the cooperation of Acquiror, an information statement (as amended or supplemented, the
“Information Statement”) for the solicitation of approval of the stockholders of Target
describing this Agreement, the Certificate of Merger and the transactions contemplated hereby and
thereby. Acquiror shall provide such information about Acquiror as Target shall reasonably
request. The information supplied by Target for inclusion in the Information Statement to be sent
to the stockholders of Target shall not, on the date the Information Statement is first mailed to
Target’s stockholders or at the Effective Time, contain any untrue



37









 







statement of a material fact, or omit to state any material fact necessary in order to make
the statements made therein, in light of the circumstances under which they are made, not
misleading. Notwithstanding the foregoing, Target makes no representation, warranty or covenant
with respect to any information supplied by Acquiror or Merger Sub that is contained in any of the
foregoing documents. The information supplied by Acquiror or Merger Sub for inclusion in the
Information Statement shall not, on the date the Information Statement is first mailed to Target’s
stockholders or at the Effective Time, contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Notwithstanding the foregoing, Acquiror
and Merger Sub make no representation, warranty or covenant with respect to any information
supplied by Target that is contained in any of the foregoing documents.



               (b) Each of Acquiror and Target agrees to provide promptly to the other such information
concerning its business and affairs as, in the reasonable judgment of the providing party or its
counsel, may be required or appropriate for inclusion in the Information Statement or in any
amendments or supplements thereto, and to cause its counsel and auditors to cooperate with the
other’s counsel and auditors in the preparation of the Information Statement. Target will promptly
advise Acquiror, and Acquiror will promptly advise Target, in writing if at any time prior to the
Effective Time either Target or Acquiror shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Information Statement in order to make the
statements contained or incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall contain the recommendation of the Board of
Directors of Target that the Target stockholders approve the Merger and this Agreement and the
conclusion of the Board of Directors that the terms and conditions of the Merger are fair and
reasonable to the stockholders of Target. Anything to the contrary contained herein
notwithstanding, Target shall not include in the Information Statement any information with respect
to Acquiror or its affiliates or associates, the form and content of which information shall not
have been approved by Acquiror prior to such inclusion, such approval not to be unreasonably
withheld or delayed.



          6.2 Approval of Stockholders. Target shall promptly after the date hereof take all
action necessary in accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to obtain the written consent of the Target stockholders approving the Merger as soon as
practicable. Subject to Section 6.1, Target shall use its efforts to solicit from stockholders of
Target written consents in favor of the Merger and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required to effect the Merger.




          6.3 Access to Information.




               (a) Subject to compliance with applicable law, upon reasonable prior notice and at Acquiror’s
expense, Target shall afford Acquiror and its accountants, counsel and other representatives,
reasonable access during normal business hours during the period prior to the Effective Time to (i)
all of Target’s properties, personnel, books, contracts, commitments and records and (ii) all other
information concerning the business, properties and personnel of Target as Acquiror may reasonably
request. All such information shall be governed by the terms of the Confidentiality Agreement (as
defined in Section 6.4).



38









 





               (b) Subject to compliance with applicable law, from the date hereof until the earlier of the
Effective Time or the termination of this Agreement, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.



               (c) No information or knowledge obtained in any investigation pursuant to this Section 6.3 or
otherwise shall affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Merger.



          6.4 Confidentiality. The parties acknowledge that Acquiror and Target have previously
executed a Mutual Nondisclosure Agreement dated January 26, 2006 (the “Confidentiality
Agreement”), which Confidentiality Agreement is hereby incorporated herein by reference and
shall continue in full force and effect in accordance with its terms.




          6.5 Public Disclosure. Unless otherwise permitted by this Agreement, Acquiror and
Target shall consult with each other before issuing any press release or otherwise making any
public statement or making any other public (or non-confidential) disclosure (whether or not in
response to an inquiry) regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such statement or disclosure
without the prior approval of the other (which approval shall not be unreasonably withheld), except
as may be required by law or by obligations pursuant to any listing agreement with any national
securities exchange or with Nasdaq.




          6.6 Regulatory Approval; Further Assurances.




               (a) Each party shall use all reasonable efforts to file, as promptly as practicable after the
date of this Agreement, all notices, reports and other documents required to be filed by such party
with any Governmental Entity with respect to the Merger and the other transactions contemplated by
this Agreement, and to submit promptly any additional information requested by any such
Governmental Entity. Target and Acquiror shall respond as promptly as practicable to (i) any
inquiries or requests received from the Federal Trade Commission or the Department of Justice for
additional information or documentations and (ii) any inquiries or requests received from any state
attorney general or other Governmental Entity in connection with antitrust or related matters.
Each of Target and Acquiror shall (i) give the other party prompt notice of the commencement of any
Legal Proceeding by or before any Governmental Entity with respect to the Merger or any of the
other transactions contemplated by this Agreement, (ii) keep the other party informed as to the
status of any such Legal Proceeding and (iii) promptly inform the other party of any communication
to or from the Federal Trade Commission, the Department of Justice or any other Governmental Entity
regarding the Merger. Target and Acquiror will consult and cooperate with one another, and will
consider in good faith the views of one another, in connection with any analysis, appearance,
presentation, memorandum, brief, argument, opinion or proposal made or submitted in connection with
any legal proceeding under or relating to HSR or any other federal or state antitrust or fair trade
law. In addition, except as may be prohibited by any Governmental Entity or by any legal
requirement, in connection with any possible or actual investigation of the Merger by a
Governmental Entity under or relating to HSR or any other federal or state antitrust or fair trade



39









 







law or any other similar legal proceeding, each of Target and Acquiror will permit authorized
representatives of the other party to be present at each meeting, conference or telephone call with
a Governmental Entity relating to any such possible or actual investigation of the Merger or any
other similar legal proceeding, and to have access to and be consulted in connection with any oral
or written analyses, presentations, memoranda, briefs, arguments, opinions or proposals made or
submitted to any Governmental Entity in connection with any such possible or actual investigation
of the Merger any other similar legal proceeding.



               (b) Subject to Section 6.6(b), Acquiror and Target shall use all reasonable efforts to take,
or cause to be taken, all actions necessary to effectuate the Merger and make effective the other
transactions contemplated by this Agreement. Without limiting the generality of the foregoing, but
subject to Section 6.6(b), each party to this Agreement shall: (i) make any filings and give any
notices required to be made and given by such party in connection with the Merger and the other
transactions contemplated by this Agreement; (ii) use all reasonable efforts to obtain any consent
required to be obtained (pursuant to any applicable legal requirement or contract, or otherwise) by
such party in connection with the Merger or any of the other transactions contemplated by this
Agreement; and (iii) use all reasonable efforts to lift any restraint, injunction or other legal
bar to the Merger. Each party shall promptly deliver to the other a copy of each such filing made,
each such notice given and each such consent obtained by such party during the period prior to the
Effective Time. Each party, at the reasonable request of the other party, shall execute and
deliver such other instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.



               (c) Notwithstanding anything to the contrary contained in this Agreement, Acquiror shall not
have any obligation under this Agreement to: (i) dispose or transfer or cause any of its
Subsidiaries to dispose of or transfer any assets, or to commit to cause Target to dispose of any
assets; (ii) discontinue or cause any of its Subsidiaries to discontinue offering any product or
service, or commit to cause Target to discontinue offering any product or service; (iii) license or
otherwise make available, or cause any of its Subsidiaries to license or otherwise make available,
to any person, any technology, software or other Intellectual Property, or commit to cause Target
to license or otherwise make available to any person any technology, software or other Intellectual
Property; (iv) hold separate or cause any of its Subsidiaries to hold separate any assets or
operations (either before or after the Closing Date), or commit to cause Target to hold separate
any assets or operations; or (v) make or cause any of its Subsidiaries to make any commitment (to
any Governmental Entity or otherwise) regarding its future operations or the future operations of
Target.



          6.7 Target Options. At the Effective Time, each Target Option, whether vested or
unvested, will be assumed by Acquiror. Each option assumed by Acquiror under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth in the Target Option
Plan and any other document governing such option immediately prior to the Effective Time, except
that: (a) such Target Option will be exercisable for that number of whole shares of the common
stock of Acquiror (the “Acquiror Common Stock”) equal to the product of (i) the number of
shares of Target Common Stock that were issuable upon exercise of such option immediately prior to
the Effective Time, multiplied by (ii) an amount equal to (A) the Secondary Per Share Merger
Consideration, divided by (B) the average of the closing prices of




40









 







Acquiror Common Stock as reported on the Nasdaq National Market during the 10 trading days
ending one day prior to the Effective Time (the “Exchange Ratio”) and rounded down to the
nearest whole number of shares of Acquiror Common Stock; (b) the per share exercise price for the
shares of Acquiror Common Stock issuable upon exercise of such Target Option will be equal to the
quotient determined by dividing the exercise price per share of Target Common Stock at which such
Target Option was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded up to the nearest whole tenth of a cent; and (c) any restriction on the exercisability of
such Target Option will continue in full force and effect, and the term, exercisability, vesting
schedule and other provisions of such Target Option will remain unchanged. Consistent with the
terms of the Target Option Plan and the documents governing the outstanding options under the
Target Option Plan, the Merger will not terminate any of the outstanding Target Options or
accelerate the exercisability or vesting of such Target Options or the shares of Acquiror Common
Stock underlying Target Options upon the Acquiror’s assumption thereof in the Merger. It is the
intention of the parties that Target Options so assumed by Acquiror will remain incentive stock
options as defined in Section 422 of the Code to the extent such Target Options qualified as
incentive stock options prior to the Effective Time.




          6.8 Form S-8. Acquiror agrees to file, within ten (10) business days after the
Closing, a registration statement on Form S-8 covering the shares of Acquiror Common Stock issuable
pursuant to outstanding options under the Target Option Plan assumed by Acquiror. Target shall
cooperate with and assist Acquiror in the preparation of such registration statement.




          6.9 Escrow Agreement On or before the Effective Time, Acquiror, Merger Sub, Escrow
Agent and the Stockholders’ Agent will execute the Escrow Agreement contemplated by Section 9 in
substantially the form attached as Exhibit B (“Escrow Agreement”).




          6.10 Termination of 401(k) Plan. Target shall have taken all actions necessary or
appropriate to terminate, effective no later than the date immediately prior to the Closing, any
Target Employee Plan that contains a cash or deferred arrangement intended to qualify under Section
401(k) of the Code (a “401(k) Plan”). Acquiror shall have received from Target evidence
that that Target’s board of directors has adopted resolutions to terminate such plans effective as
of the date immediately preceding the Closing (the form and substance of which resolutions shall be
subject to the review and approval of the Acquiror). Immediately prior to such termination, Target
will make all necessary payments to fund the contributions: (i) necessary or required to maintain
the tax-qualified status of the 401(k) Plan; (ii) for elective deferrals made pursuant to the
401(k) Plan for the period prior to termination; and (iii) for employer matching contributions (if
any) for the period prior to termination.




          6.11 Expenses. Except as expressly provided otherwise herein, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby (collectively, the “Expenses”) shall be paid by the party
incurring such expense; provided that Acquiror shall pay all HSR filing fees.




          6.12 Employee Matters. Prior to the Effective Time, Acquiror shall make offers of
employment with Acquiror after the Closing Date to such employees of Target as it selects. Each
such offer made to a Target employee other than the Key Employees that (i) is for




41









 







the same or comparable positions, and with at least the same base pay and comparable total
compensation and benefits (taking into account base pay, bonus, and other incentive compensation,
but excluding any rights to severance payments upon termination of service) as was in effect for
such employee immediately prior to the Closing Date, and (ii) is made pursuant to an offer letter,
the form of which has been provided to Target prior to the date hereof (a “Qualified Offer
Letter”) shall be deemed a “Qualified Offer” hereunder.




          6.13 Return of Certain Receivables. To the extent the Target stockholders indemnify
any Acquiror Indemnified Person pursuant to Section 9.2(b)(i) because any account receivable is not
collectible as represented and warranted by Target in Section 3.16, Acquiror shall continue to use
reasonable commercial efforts to collect such receivable and in the event of any subsequent
collection of same within twelve months of the Closing Date, shall pay such amount to the Escrow
Agent for contribution to the Escrow Fund.




     7. Conditions to the Merger.



          7.1 Conditions to Obligations of Each Party to Effect the Merger. The respective
obligations of each party to this Agreement to consummate and effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, by agreement of all the parties hereto:




               (a) Stockholder Approval. This Agreement and the Merger shall be approved by the
stockholders of Target by the requisite vote under Delaware Law and Target’s Certificate of
Incorporation.



               (b) No Injunctions or Restraints; Illegality. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of competent jurisdiction or
other legal or regulatory restraint or prohibition preventing the consummation of the Merger shall
be and remain in effect, nor shall any proceeding brought by an administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign, seeking any of the
foregoing be pending, in each case which could reasonably be expected to have a Material Adverse
Effect on Acquiror, either individually or combined with the Surviving Corporation after the
Effective Time, nor shall there be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger, which makes the consummation of the
Merger illegal.



               (c) Governmental Approval. Acquiror, Target and Merger Sub shall have timely obtained
from each Governmental Entity all approvals, waivers and consents, necessary for consummation of or
in connection with the Merger and the several transactions contemplated hereby, including such
approvals, waivers and consents as may be required under the Securities Act, under state blue sky
laws and under HSR, other than approvals, waivers and consents relating to the Merger or affecting
Acquiror’s ownership of Target or any of its properties if failure to obtain such approval, waiver
or consent could not reasonably be expected to have a Material Adverse Effect on Acquiror after the
Effective Time. The applicable waiting period (and any extension thereof) under HSR shall have
expired or been early terminated.



42









 





               (d) No Governmental Litigation. There shall not be pending or threatened any legal
proceeding in which a Governmental Entity is or is threatened to become a party or is otherwise
involved, and neither Acquiror nor Target shall have received any communication from any
Governmental Entity in which such Governmental Entity indicates the probability of commencing any
legal proceeding or taking any other action: (i) challenging or seeking to restrain or prohibit
the consummation of the Merger; (ii) relating to the Merger and seeking to obtain from Acquiror or
any of its Subsidiaries, or Target, any damages or other relief that would be material to Acquiror;
(iii) seeking to prohibit or limit in any material respect Acquiror’s ability to vote, receive
dividends with respect to or otherwise exercise ownership rights with respect to the stock of
Target; or (iv) that would materially and adversely affect the right of Acquiror or Target to own
the assets or operate the business of Target.



               (e) No Other Litigation. There shall not be pending any legal proceeding (other than
legal proceedings addressed in Section 7.1(d)): (i) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated by this Agreement;
(ii) relating to the Merger and seeking to obtain from Acquiror or any of its Subsidiaries, or
Target, any damages or other relief that would be material to Acquiror; (iii) seeking to prohibit
or limit in any material respect Acquiror’s ability to vote, receive dividends with respect to or
otherwise exercise ownership rights with respect to any of Target Capital Stock; or (iv) which
would affect adversely the right of Acquiror or Target to own the assets or operate the business of
Target.



          7.2 Additional Conditions to the Obligations of Acquiror and Merger Sub. The
obligations of Acquiror and Merger Sub to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror:




               (a) Representations and Warranties. The representations and warranties of Target in
this Agreement that are qualified by materiality or Material Adverse Effect shall be true and
correct and the representations and warranties of Target in this Agreement that are not so
qualified shall be true and correct in all material respects, in each case as of the Closing as
though such representations and warranties were made on and as of such time (except for such
representations and warranties that speak specifically as of the date hereof or as of another date,
which shall be true and correct, or true and correct in all material respects, as the case may be,
as of such date).



               (b) Performance of Obligations. Target shall have performed and complied in all
material respects with all covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Closing.



               (c) Allocation and Option Spreadsheets. Target shall have delivered to Acquiror (i)
an Option Spreadsheet updated as of the Closing Date (the “Final Option Spreadsheet”) and
(ii) an Allocation Spreadsheet updated as of the Closing Date and reflecting any and all grants or
exercises of Target Options following the date hereof (the “Final Allocation Spreadsheet”).



43









 





               (d) Certificate of Officers. Acquiror and Merger Sub shall have received a
certificate executed on behalf of Target by the chief executive officer and chief financial officer
of Target (i) certifying that the conditions set forth in Sections 7.2(a) and 7.2(b) have been
satisfied, and (ii) certifying that the Final Allocation Spreadsheet and Final Option Spreadsheet
are each complete and correct as of the Closing Date.



               (e) Third Party Consents. All consents or approvals required to be obtained or
notices required to be provided in connection with the Merger and the other transactions
contemplated by this Agreement and set forth in Section 7.2(e) of the Target Disclosure Schedule
shall have been obtained and shall be in full force and effect.



               (f) Escrow Agreement. Target, Escrow Agent and the Stockholders’ Agent shall have
entered into an Escrow Agreement substantially in the form attached hereto as Exhibit B.



               (g) No Material Adverse Change. There shall not have occurred any change, event, or
condition (financial or otherwise, and whether or not covered by insurance), individually or in the
aggregate, that has had or reasonably could be expected to have a Material Adverse Effect on
Target.



               (h) Offer Letters. At least eighty percent (80%) of the employees of Target to whom
Acquiror makes a Qualified Offer shall have executed a Qualified Offer Letter with Acquiror.



               (i) Dissenters’ Rights. Not more than twenty percent (20%) of the Target Capital
Stock outstanding immediately prior to the Effective Time shall be, or be eligible as, Dissenting
Shares.



               (j) Opinion. Counsel for Target shall have delivered to Acquiror an opinion in the
form attached hereto as Exhibit C.



               (k) Resignations. Each of the directors of Target shall have resigned from the Board
of Directors of Target.



               (l) Termination of Agreements. Each of the Investor Rights Agreements, the Put Right
Agreement and the Voting Agreement shall have been terminated pursuant to a Termination Agreement
in the form provided to Acquiror.



               (m) Audited Financials. Acquiror shall have received reasonable assurances that
audited financial statements for Target will be delivered on a timely basis so as to enable
Acquiror to satisfy its SEC filing obligations.



               (n) Target Expenses. Target shall have delivered to Acquiror a detailed written
statement of the Target Expenses along with confirmation in writing from Target’s legal counsel,
auditors, investment bankers and financial advisors that they have agreed to the relevant amounts
set forth in such statement.



44









 





          7.3 Additional Conditions to Obligations of Target. The obligations of Target to
consummate and effect the Merger shall be subject to the satisfaction at or prior to the Effective
Time of each of the following conditions, any of which may be waived, in writing, by Target:




               (a) Representations and Warranties. The representations and warranties of Acquiror
and Merger Sub in this Agreement that are qualified by materiality or Material Adverse Effect shall
be true and correct and the representations and warranties of Acquiror and Merger Sub in this
Agreement that are not so qualified shall be true and correct in all material respects, in each
case as of the Closing as though such representations and warranties were made on and as of such
time (except for such representations and warranties that speak specifically as of the date hereof
or as of another date, which shall be true and correct, or true and correct in all material
respects, as the case may be, as of such date).



               (b) Performance of Obligations. Acquiror and Merger Sub shall have performed and
complied in all material respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Closing.



               (c) Certificate of Officers. Target shall have received a certificate executed on
behalf of Acquiror and Merger Sub by the chief executive officer and chief financial officer of
Acquiror and Merger Sub, respectively, certifying that the conditions set forth in Sections 7.3(a)
and 7.3(b) have been satisfied.



               (d) Escrow Agreement. Acquiror and Merger Sub shall have entered into an Escrow
Agreement substantially in the form attached hereto as Exhibit B.



     8. Termination, Amendment and Waiver.



          8.1 Termination. This Agreement may be terminated at any time prior to the Effective
Time , whether before or after adoption of this Agreement by the Target stockholders or by Acquiror
(with respect to Section 8.1(b) through Section 8.1(d), by written notice by the terminating party
to the other party):




               (a) by the mutual written consent of Acquiror and Target;



               (b) by either Acquiror or Target if the Merger shall not have been consummated by June 22,
2006; provided, however, that the right to terminate this Agreement under this
Section 8.1(b) shall not be available to any party whose failure to fulfill any obligation under
this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before
such date;



               (c) by either Acquiror or Target if a court of competent jurisdiction or other Governmental
Entity shall have issued a nonappealable final order, decree or ruling or taken any other action,
in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, unless the party relying on such order, decree or ruling or other action has not complied
in all material respects with its obligations under this Agreement; or



45









 





               (d) by Acquiror or Target, if there has been a breach of any representation, warranty,
covenant or agreement on the part of the other party set forth in this Agreement, which breach (i)
causes the conditions set forth in Section 7.1 or 7.2 (in the case of termination by Acquiror) or
Section 7.1 or 7.3 (in the case of termination by Target) not to be satisfied and (ii) shall not
have been cured within twenty (20) business days following receipt by the breaching party of
written notice of such breach from the other party.



          8.2 Effect of Termination. In the event of termination of this Agreement as provided
in Section 8.1, there shall be no liability or obligation on the part of Acquiror, Target, Merger
Sub or their respective officers, directors, or stockholders, except to the extent that such
termination results from the willful breach by a party of any of its representations, warranties or
covenants set forth in this Agreement; provided, however, that the provisions of
Sections 6.4, 6.5, 6.11 and 10 shall remain in full force and effect and survive any termination of
this Agreement.




          8.3 Amendment. This Agreement may be amended by the parties hereto, by action taken
or authorized by their respective Boards of Directors. This Agreement may not be amended except by
an instrument in writing signed on behalf of each of the parties hereto.




          8.4 Extension; Waiver. At any time prior to the Effective Time, the parties hereto,
by action taken or authorized by their respective Boards of Directors, may, to the extent legally
allowed: (i) extend the time for the performance of any of the obligations or other acts of the
other parties hereto; (ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in a written instrument signed on behalf of
such party.




     9. Escrow and Indemnification.



          9.1 Escrow Fund.




               (a) On the Closing Date, Acquiror shall deposit with U.S. Bank, National Association (or other
institution selected by Acquiror with the reasonable consent of Target) as escrow agent (the
“Escrow Agent”), the Escrow Amount to constitute the Escrow Fund and to be governed by the
terms set forth herein and in the Escrow Agreement attached hereto as Exhibit B. The
Escrow Fund shall be available to compensate Acquiror pursuant to the indemnification obligations
of the stockholders of Target.



          9.2 Indemnification.




               (a) Survival of Warranties. All representations and warranties made by Target,
herein, or in any certificate, schedule or exhibit delivered pursuant hereto, shall survive the
Closing and continue in full force and effect until the later of (i) the date which is 90 days
following the completion of the independent audit of Acquiror’s financial statements for the year
ending December 31, 2006, or (ii) the first anniversary of the Closing Date (the “Termination
Date”).



46









 





               (b) From and after the Effective Time and subject to the limitations set forth in this Section
9, the stockholders of Target will severally (based on each such stockholder’s Applicable Escrow
Ownership Percentage) and not jointly indemnify and hold harmless Acquiror and the Surviving
Corporation and their respective officers, directors, agents, attorneys and employees, and each
person, if any, who controls or may control Acquiror or the Surviving Corporation within the
meaning of the Securities Act (individually an “Acquiror Indemnified Person” and
collectively the “Acquiror Indemnified Persons”) from and against the following
(collectively, “Damages”): (i) any and all losses, costs, damages, liabilities and expenses,
including, without limitation, reasonable legal fees, arising (A) out of the failure of any
representation or warranty of Target in this Agreement, the Target Disclosure Schedule or any
exhibit or schedule to this Agreement to be true and correct as of the Closing Date or any breach
of or default in connection with any of the covenants and agreements given or made by Target in
this Agreement, the Target Disclosure Schedule or any exhibit or schedule to this Agreement or (B)
the matters set forth in Section 9.2(b) of the Target Disclosure Schedule; and (ii) any payments
required to be made to Dissenting Stockholders in excess of amounts payable per this Agreement, as
determined pursuant to Section 2.6(f). From and after the Effective Time, the sole recourse of the
Acquiror Indemnified Persons shall be against the Escrow Fund and claims against the Escrow Fund
shall be the sole and exclusive remedy of Acquiror Indemnified Persons for any Damages or other
claims relating to the subject matter of this Agreement; provided, however, that nothing in this
Agreement shall limit the liability in amount or otherwise of (i) Target to the extent provided for
in Section 8.2; or (ii) any Target stockholder in connection with any breach by such stockholder of
any representation or covenant in any written consent of stockholders delivered to the Target in
connection with the Merger; or (iii) Target or Target stockholders with respect to fraud, or
criminal activity in connection with the transactions contemplated by this Agreement or intentional
breach of any covenant contained in this Agreement. Subject to the provisions in the preceding
sentence, the maximum amount payable by the stockholders of Target in respect of all claims for
indemnification under this Agreement will not exceed the Escrow Amount.



               (c) Threshold for Claims. No claim for Damages shall be made under Section 9.2(b)(i)
(“Breach Damages”) unless the aggregate of Breach Damages for which claims are made
hereunder by the Acquiror Indemnified Persons and for which indemnity would otherwise be payable
exceeds $250,000, in which case the Acquiror Indemnified Person shall be entitled to seek
compensation for all Breach Damages without regard to the limitation set forth in this Section
9.2(c) (the “Limitation”); provided, however, that notwithstanding the foregoing, any
claims made for Damages resulting from the matters set forth in Section 9.2(b) of the Target
Disclosure Schedule shall not be subject to the Limitation.



          9.3 Escrow Period; Release From Escrow.




               (a) The period of time during which the Escrow Amount shall remain in the Escrow Fund shall
terminate upon the Release Date; provided, however, that a portion of the Escrow
Fund that equals the total amount of Damages claimed in any unsatisfied claims specified in any
Officer’s Certificate (as defined in Section 9.4 below) delivered to the Escrow Agent prior to the
Release Date with respect to facts and circumstances existing on or prior to the Termination Date,
shall remain in the Escrow Fund until such claims have been resolved.



47









 





               (b) Within fifteen (15) business days after the Termination Date (the “Release Date”),
the Escrow Agent shall release from escrow to the stockholders of Target their pro rata portion of
the Escrow Fund, less with respect to each such stockholder an amount equal to the sum of (i) such
stockholder’s pro rata portion of any liability described in an Officer’s Certificate delivered to
Acquiror in accordance with Section 9.4 and (ii) such stockholder’s pro rata portion of any
liability described in an Officer’s Certificate delivered to the Escrow Agent in accordance with
Section 9.3(a) with respect to any pending but unresolved indemnification claims of Acquiror
Indemnified Person. Any amount of the Escrow Fund held as a result of clause (ii) shall be
released to the stockholders of Target or released to Acquiror (as appropriate) promptly upon
resolution of each specific indemnification claim involved. A Target stockholder’s pro rata
portion of any amount released from the Escrow Fund shall be in proportion to their Applicable
Escrow Ownership Percentage. Any fractional amounts to be released and delivered from the Escrow
Fund to the stockholders of Target shall be rounded to the nearest whole cent.



               (c) None of the Escrow Fund or any beneficial interest therein may be pledged, sold, assigned
or transferred, including by operation of law, by any stockholder of Target or be taken or reached
by any legal or equitable process in satisfaction of any debt or other liability of any such
stockholder, prior to the delivery to such stockholder of such stockholder’s pro rata portion of
the Escrow Fund by the Escrow Agent as provided herein.



               (d) The Escrow Agent is hereby granted the power to effect any transfer of the Escrow Fund
contemplated by this Agreement.



          9.4 Claims Upon Escrow Fund. Upon receipt by the Escrow Agent on or before the
Release Date of a certificate signed by any officer of Acquiror (an “Officer’s
Certificate”) stating that Damages exist for which indemnification may be sought from the
stockholders of Target under Section 9.2, and specifying in reasonable detail the individual items
of such Damages included in the amount so stated, the date each such item was paid, or properly
accrued or arose, and the nature of the misrepresentation, breach of warranty, covenant, claim,
payment or amount to which such item is related, the Escrow Agent shall, subject to the provisions
of this Section 9, deliver to Acquiror out of the Escrow Fund, as promptly as practicable, an
amount equal to such Damages.




          9.5 Objections to Claims.




               (a) At the time of delivery of any Officer’s Certificate to the Escrow Agent, the Acquiror
shall also deliver a duplicate copy of such Officer’s Certificate to the Stockholders’ Agent. For
a period of thirty (30) days after delivery of such Officer’s Certificate, the Escrow Agent shall
make no payment of amounts from the Escrow Fund pursuant to Section 9.4 hereof unless the Escrow
Agent shall have received written authorization from the Stockholders’ Agent to make such payment.
After the expiration of such thirty (30) day period, the Escrow Agent shall make payment of the
amounts in the Escrow Fund in accordance with Section 9.4 hereof, provided that no such payment may
be made if the Stockholders’ Agent shall object in a written statement to the claim made in the
Officer’s Certificate, and such statement shall have been delivered to the Escrow Agent and to
Acquiror prior to the expiration of such thirty (30) day period.



48









 





               (b) In case the Stockholders’ Agent shall so object in writing to any claim or claims by
Acquiror made in any Officer’s Certificate, Acquiror shall have thirty (30) days to respond in a
written statement to the objection of the Stockholders’ Agent. If after such thirty (30) day
period there remains a dispute as to any claims, the Stockholders’ Agent and Acquiror shall attempt
in good faith for thirty (30) days to agree upon the rights of the respective parties with respect
to each of such claims. If the Stockholders’ Agent and Acquiror should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the amounts in the Escrow Fund in accordance with the terms thereof



               (c) Notwithstanding anything to the contrary in this Section 9.5 or in Section 9.6, the Escrow
Agent shall make payment of the amounts in the Escrow Fund in accordance with Section 9.4 hereof if
the Damages described in the Officer’s Certificate are of the nature described in Section
9.2(b)(ii) or (iii).



          9.6 Resolution of Conflicts and Arbitration.




               (a) If no agreement can be reached after good faith negotiation between the parties pursuant
to Section 9.5, either Acquiror or the Stockholders’ Agent may, by written notice to the other,
demand arbitration of the matter unless the amount of the Damages is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by one arbitrator. Acquiror and the Stockholders’ Agent shall
agree on the arbitrator, provided that if Acquiror and the Stockholders’ Agent cannot agree on such
arbitrator, either Acquiror or Stockholders’ Agent can request that Judicial Arbitration and
Mediation Services (“JAMS”) select the arbitrator. The arbitrator shall set a limited time
period and establish procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgment of the arbitrator, to discover relevant
information from the opposing parties about the subject matter of the dispute. The arbitrator
shall rule upon motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys’ fees and costs, to the same extent as a court of competent law or
equity, should the arbitrator determine that discovery was sought without substantial justification
or that discovery was refused or objected to without substantial justification. The decision of
the arbitrator shall be written, shall be in accordance with applicable law and with this
Agreement, and shall be supported by written findings of fact and conclusions of law which shall
set forth the basis for the decision of the arbitrator. The decision of the arbitrator as to the
validity and amount of any claim in such Officer’s Certificate shall be binding and conclusive upon
the parties to this Agreement, and notwithstanding anything in Section 9 hereof, the Escrow Agent
and the parties shall be entitled to act in accordance with such decision and the Escrow Agent
shall be entitled to make or withhold payments out of the Escrow Fund in accordance therewith.



               (b) Judgment upon any award rendered by the arbitrator may be entered in any court having
jurisdiction. Any such arbitration shall be held in Santa Clara or San Mateo County, California
under the commercial rules then in effect of JAMS. The non-prevailing party to an arbitration
shall pay its own expenses, the fees of the arbitrator, any



49









 







administrative fee of JAMS, and the expenses, including attorneys’ fees and costs, reasonably
incurred by the other party to the arbitration. For purposes of this Section 9.6(b), in any
arbitration hereunder in which any claim or the amount thereof stated in the Officer’s Certificate
is at issue, the party seeking indemnification shall be deemed to be the non-prevailing party
unless the arbitrators award the party seeking indemnification more than one-half (1/2) of the
amount in dispute, plus any amounts not in dispute; otherwise, the person against whom
indemnification is sought shall be deemed to be the non-prevailing party.



          9.7 Stockholders’ Agent.




               (a) The Target stockholders, by virtue of the approval of this Agreement, hereby irrevocably
appoint the Stockholders’ Agent as his, her or its true and lawful agent and attorney-in-fact, with
full power of substitution (such power of attorney being deemed to be an irrevocable power coupled
with an interest) to act on his, her or its behalf with respect to any and all matters, claims,
controversies, or disputes arising out of the terms of this Agreement after the Closing Date. The
Stockholders’ Agent shall have the power to take any and all actions which the Stockholders’ Agent
believes are necessary or appropriate or in the best interests of the Target stockholders, as fully
as if each such stockholder was acting on its, his or her own behalf, with respect to
indemnification claims made under Section 9 of this Agreement including (a) following the Closing,
to give and receive notices and communications made pursuant to this Agreement and the other
documents executed in connection herewith relating to Section 9, (b) to administer, negotiate and
settle any claims with respect to indemnification claims made under Section 9 of this Agreement, or
any disputes arising in connection therewith, (c) to object to such claims, (d) to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such claims, (e) to take all actions necessary
or appropriate in the judgment of the Stockholders’ Agent for the accomplishment of the foregoing
or as may be necessary or appropriate in the judgment of the Stockholders’ Agent to implement the
transactions contemplated hereby, and (f) to employ accountants, attorneys and other professionals,
and incur and pay all costs and expenses related to the performance of the Stockholders’ Agent’s
duties and obligations. Notices or communications to or from the Stockholders’ Agent shall
constitute notice to or from each of the stockholders for purposes of this Agreement and the other
documents executed in connection herewith. The death or incapacity of any Target stockholder shall
not terminate the authority and agency of the Stockholders’ Agent. If the Stockholders’ Agent
shall be unable or unwilling to serve in such capacity, his successor shall be named by those
persons holding a majority of the shares of Target Capital Stock, on an as-if converted basis, held
by all stockholders immediately prior to the Effective Time under this Agreement, and such
successor shall serve and exercise the powers of Stockholders’ Agent under this Agreement.



               (b) The Stockholders’ Agent shall not be liable for any act done or omitted hereunder as
Stockholder’ Agent (i) with the written consent of Target stockholders who, immediately prior to
the Effective Time, held a majority of the outstanding Target Capital Stock (calculated on an
as-converted basis) or (ii) while acting in good faith and in the exercise of reasonable judgment
and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such
good faith. The Target stockholders shall severally indemnify and hold the Stockholders’ Agent
harmless against any loss, liability or expense incurred without



50









 







gross negligence or bad faith on the part of the Stockholders’ Agent and arising out of or in
connection with the acceptance or administration of his duties hereunder.



               (c) Subject to applicable law, the Stockholders’ Agent shall, upon reasonable prior notice and
at the expense of the Target stockholders, have reasonable access during normal business hours and
upon reasonable notice to information about Target and the Surviving Corporation and the reasonable
assistance of Target’s and the Surviving Corporation’s officers and employees for purposes of
performing his duties and exercising his rights hereunder, provided that the Stockholders’ Agent
shall treat confidentially and not disclose any nonpublic information from or about Target or the
Surviving Corporation to anyone (except on a need to know basis to individuals who agree to treat
such information confidentially).



               (d) Acquiror acknowledges that the Stockholders’ Agent may have a conflict of interest with
respect to his duties as Stockholders’ Agent, and in such regard the Stockholders’ Agent has
informed Acquiror that he will act in the best interests of the Target stockholders.



               (e) Any portion of the Escrow Amount released by the Escrow Agent for the benefit of the
Target stockholders shall first be used for the purpose of reimbursing the Stockholders’ Agent for
losses and expenses incurred in connection with its acting as the Stockholders’ Agent pursuant to
this Agreement. In furtherance of the foregoing and to enable the Stockholders’ Agent to pay all
costs and expenses payable pursuant to this Agreement, the Stockholders’ Agent shall be authorized
to direct the Escrow Agent to pay the Stockholders’ Agent (for its own account) for such amounts
from any Escrow Amount released by the Escrow Agent for the benefit of the Target stockholders.



          9.8 Actions of the Stockholders’ Agent. A decision, act, consent or instruction of
the Stockholders’ Agent shall constitute a decision of all Target stockholders and shall be final,
binding and conclusive upon each such Target stockholder, and the Escrow Agent and Acquiror may
rely upon any decision, act, consent or instruction of the Stockholders’ Agent as being the
decision, act, consent or instruction of each and every such Target stockholder. The Escrow Agent
and Acquiror are hereby relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholders’ Agent.




          9.9 Third-Party Claims.




               (a) Notice of Third Party Claims. In the event Acquiror receives written notice of a
third-party claim which Acquiror believes may result in a demand against the Escrow Fund by an
Acquiror Indemnified Person, Acquiror shall notify the Stockholders’ Agent of such claim in writing
(a “Claim Notice”) promptly after the Acquiror becomes aware of such claim, and in any
event within ten (10) business days thereof; provided that no delay on the part of the Acquiror in
providing such notice to Stockholders’ Agent shall relieve the Target stockholders from any
obligation hereunder unless, and then solely to the extent that, the Target stockholders are
prejudiced thereby.



51









 





               (b) Defense. The Acquiror will have the right to defend, at the sole cost and expense
of the Acquiror, such third party claim by all appropriate proceedings, which proceedings will be
prosecuted reasonably and in good faith by the Acquiror to final conclusion or will be settled at
the discretion of the Acquiror with the consent of the Stockholder’s Agent, which consent shall not
be unreasonably withheld or delayed. In the event that the Stockholders’ Agent consents to any
such settlement, the Stockholders’ Agent shall have no power or authority to object under Section
9.5 or any other provision of this Section 9 to the amount of any claim by Acquiror against the
Escrow Fund for indemnity with respect to such settlement. The Acquiror will have full control of
such defense and proceedings, including any compromise or settlement thereof. If requested by the
Acquiror, the Stockholders’ Agent and the Target stockholders will, at the sole cost and expense of
the Acquiror, provide reasonable cooperation to the Acquiror in contesting any third party claim
that the Acquiror elects to contest. The Stockholder’s Agent and the Target stockholders shall be
entitled, at their expense, to participate in, but not control, any defense or settlement of such
third party claim controlled by the Acquiror pursuant to this Section 9.9(b)



          9.10 Adjustment for Insurance. For purposes of this Section 9, all Damages shall be
measured net of any amounts actually recovered (after deducting related costs and expenses) by the
Acquiror Indemnified Persons for the Damages for which such indemnification payment is payable
under any insurance policy, warranty or indemnity from any third party. Acquiror shall use its
commercially reasonable efforts to collect any amounts available under any such insurance policy,
warranty or indemnity.




     10. General Provisions.



          10.1 Notices. All notices and other communications hereunder shall be in writing and
shall be deemed duly delivered: (i) upon receipt if delivered personally; (ii) three (3) business
days after being mailed by registered or certified mail, postage prepaid, return receipt requested;
(iii) one (1) business day after it is sent by commercial overnight courier service; or (iv) upon
transmission if sent via facsimile with confirmation of receipt to the parties at the following
address (or at such other address for a party as shall be specified upon like notice:



(a) if to Acquiror or Merger Sub, to:




52









 







Packeteer, Inc.

10201 N. De Anza Blvd.

Cupertino, CA 95014

(408) 873-4410

Attn: Chief Financial Officer



with a copy to:



DLA Piper Rudnick Gray Cary US LLP

2000 University Avenue

East Palo Alto, CA 94303-2248

Fax: 650-833-2001

Attn: Peter Astiz, Esq.



(b) if to Target, to:



Tacit Networks, Inc.

4081G Hadley Road

South Plainfield, NJ 07080

Fax: 908-845-0370

Attention: Chief Financial Officer



with a copy to:



Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

220 W. 42nd Street, 20th Floor

New York, NY 10036

Fax: (877) 881-9076

Attention: Kenneth R. McVay, Esq.



(c) if to Stockholders’ Agent, to:



Vikram Gupta

Panorama Capital

2440 Sand Hill Road, Suite 302

Menlo Park, CA 94025

Fax: (650) 234-1437



with a copy to:



Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

220 W. 42nd Street, 20th Floor

New York, NY 10036

Fax: (877) 881-9076

Attention: Kenneth R. McVay, Esq.




53









 








          10.2 Definitions. In this Agreement any reference to any event, change, condition or
effect being “material” with respect to any entity or group of entities means any material
event, change, condition or effect related to the financial condition, properties, assets
(including intangible assets), liabilities, business, operations or results of operations of such
entity or group of entities. In this Agreement any reference to a “Material Adverse
Effect” with respect to any entity or group of entities means any event, change or effect that
is materially adverse to the financial condition, properties, assets, liabilities, business,
operations, results of operations or prospects of such entity and its subsidiaries, taken as a
whole, but excluding any event, change or effect that is generally applicable to the United States
economy or financial, securities or capital markets or to the industries in which Target operates.
In this Agreement any reference to a party’s “knowledge” means such party’s actual knowledge after
reasonable inquiry of officers, directors and other employees of such party reasonably believed to
have knowledge of such matters. In this Agreement, an entity shall be deemed to be a
“Subsidiary” of a party if such party directly or indirectly owns, beneficially or of
record, at least 50% of the outstanding equity or financial interests of such entity.




          10.3 Counterparts. This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.




          10.4 Entire Agreement; Nonassignability; Parties in Interest. This Agreement and the
documents and instruments and other agreements specifically referred to herein or delivered
pursuant hereto, including the exhibits and schedules hereto, including the Target Disclosure
Schedule and the Acquiror Disclosure Schedule: (a) together constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the subject matter hereof
except for the Confidentiality Agreement, which shall continue in full force and effect, and shall
survive any termination of this Agreement or the Closing, in accordance with its terms; and (b) are
not intended to confer upon any other person any rights or remedies hereunder and shall not be
assigned by operation of law or otherwise without the written consent of the other parties.




          10.5 Severability. In the event that any provision of this Agreement or the
application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void
or unenforceable, the remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of such void or
unenforceable provision.




          10.6 Remedies Cumulative. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any
other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of
any one remedy will not preclude the exercise of any other remedy.




54









 








          10.7 Governing Law. This Agreement shall be governed by and construed in accordance
with the internal laws of California applicable to parties residing in California, without regard
applicable principles of conflicts of law. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within the County of Santa Clara, in connection with
any matter based upon or arising out of this Agreement or the matters contemplated hereby and it
agrees that process may be served upon it in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead any objection which it
might otherwise have to such jurisdiction and such process.




          10.8 Rules of Construction. The parties hereto agree that they have been represented
by counsel during the negotiation, preparation and execution of this Agreement and, therefore,
waive the application of any law, regulation, holding or rule of construction providing that
ambiguities in an agreement or other document will be construed against the party drafting such
agreement or document.




          10.9 Amendment; Waiver. Any amendment or waiver of any of the terms or conditions of
this Agreement must be in writing and must be duly executed by or on behalf of the party to be
charged with such waiver. The failure of a party to exercise any of its rights hereunder or to
insist upon strict adherence to any term or condition hereof on any one occasion shall not be
construed as a waiver or deprive that party of the right thereafter to insist upon strict adherence
to the terms and conditions of this Agreement at a later date. Further, no waiver of any of the
terms and conditions of this Agreement shall be deemed to or shall constitute a waiver of any other
term of condition hereof (whether or not similar).




55









 








          IN WITNESS WHEREOF, Target, Acquiror, Merger Sub and Stockholders’ Agent have caused this
Agreement to be executed and delivered by each of them or their respective officers thereunto duly
authorized, all as of the date first written above.




	 	 	 	 	 
	TACIT NETWORKS, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Greg Grodhaus	 	 
	 

	 	 	 	 
	 

	 	Greg Grodhaus	 	 
	 

	 	Chairman and Chief Executive Officer	 	 
	 
	 	 	 	 
	PACKETEER, INC.	 	 
	 
	 	 	 	 
	By:

	 	/s/ David Yntema	 	 
	 

	 	 	 	 
	 

	 	David Yntema	 	 
	 

	 	Chief Financial Officer	 	 
	 
	 	 	 	 
	OSLO ACQUISITION CORPORATION
	 
	 	 	 	 
	By:

	 	/s/ David Yntema	 	 
	 

	 	 	 	 
	 

	 	David Yntema	 	 
	 

	 	President	 	 
	 
	 	 	 	 
	STOCKHOLDERS’ AGENT	 	 
	 
	 	 	 	 
	/s/ Vikram Gupta	 	 
	 	 	 
	Vikram Gupta	 	 






SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION