Document:

Exhibit 10.1

 

Execution Copy

 

 

 

 

AGREEMENT AND PLAN OF MERGER

 

AMONG

 

PEREGRINE SYSTEMS, INC.,

 

HEWLETT-PACKARD COMPANY

 

AND

 

LAKE MERGER CORPORATION

 

DATED AS OF SEPTEMBER 19, 2005

 

 

 

 

TABLE OF
CONTENTS

 

	
  RECITALS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
   

  
	
   

  	
   

  
	
  Section 1.1

  	
  Usage

  	
   

  
	
  Section 1.2

  	
  Certain
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II THE MERGER

  	
   

  
	
   

  	
   

  
	
  Section 2.1

  	
  The Merger

  	
   

  
	
  Section 2.2

  	
  Effective
  Time

  	
   

  
	
  Section 2.3

  	
  Closing of the Merger

  	
   

  
	
  Section 2.4

  	
  Effects of the Merger

  	
   

  
	
  Section 2.5

  	
  Certificate of Incorporation and Bylaws

  	
   

  
	
  Section 2.6

  	
  Board of Directors of the Surviving Corporation

  	
   

  
	
  Section 2.7

  	
  Officers of the Surviving Corporation

  	
   

  
	
  Section 2.8

  	
  Subsequent Actions

  	
   

  
	
  Section 2.9

  	
  Conversion of Capital Stock

  	
   

  
	
  Section 2.10

  	
  Surrender of Certificates

  	
   

  
	
  Section 2.11

  	
  Stock
  Options

  	
   

  
	
  Section 2.12

  	
  Appraisal Rights

  	
   

  
	
  Section 2.13

  	
  Adjustments

  	
   

  
	
  Section 2.14

  	
  Withholding Taxes

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY

  	
   

  
	
   

  	
   

  
	
  Section 3.1

  	
  Organization and Standing

  	
   

  
	
  Section 3.2

  	
  Subsidiaries

  	
   

  
	
  Section 3.3

  	
  Authorization

  	
   

  
	
  Section 3.4

  	
  Capitalization

  	
   

  
	
  Section 3.5

  	
  Non-contravention; Required Consents

  	
   

  
	
  Section 3.6

  	
  SEC Reports

  	
   

  
	
  Section 3.7

  	
  Financial Statements

  	
   

  
	
  Section 3.8

  	
  Proxy Statement

  	
   

  
	
  Section 3.9

  	
  No Undisclosed Liabilities

  	
   

  
	
  Section 3.10

  	
  Absence of Certain Changes

  	
   

  
	
  Section 3.11

  	
  Material Contracts

  	
   

  
	
  Section 3.12

  	
  Compliance with Laws

  	
   

  
	
  Section 3.13

  	
  Permits

  	
   

  
	
  Section 3.14

  	
  Litigation

  	
   

  
	
  Section 3.15

  	
  Taxes

  	
   

  
	
  Section 3.16

  	
  Environmental Matters

  	
   

  
	
  Section 3.17

  	
  Employee Benefit Plans

  	
   

  

 

i

 

	
  Section 3.18

  	
  Labor Matters

  	
   

  
	
  Section 3.19

  	
  Real Property

  	
   

  
	
  Section 3.20

  	
  Assets; Personal Property

  	
   

  
	
  Section 3.21

  	
  Intellectual Property

  	
   

  
	
  Section 3.22

  	
  Insurance

  	
   

  
	
  Section 3.23

  	
  Related Party Transactions

  	
   

  
	
  Section 3.24

  	
  Vote Required

  	
   

  
	
  Section 3.25

  	
  Brokers

  	
   

  
	
  Section 3.26

  	
  Opinion of Financial Advisor

  	
   

  
	
  Section 3.27

  	
  Consent Agreement Compliance

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV REPRESENTATIONS AND
  WARRANTIES OF PARENT AND MERGER SUB

  	
   

  
	
   

  	
   

  
	
  Section 4.1

  	
  Organization

  	
   

  
	
  Section 4.2

  	
  Authorization

  	
   

  
	
  Section 4.3

  	
  Non-contravention; Required Consents

  	
   

  
	
  Section 4.4

  	
  Information Supplied

  	
   

  
	
  Section 4.5

  	
  Litigation

  	
   

  
	
  Section 4.6

  	
  Ownership of Company Capital Stock

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V COVENANTS

  	
   

  
	
   

  	
   

  
	
  Section 5.1

  	
  Conduct of Business by the Company

  	
   

  
	
  Section 5.2

  	
  Company Stockholders Meeting; Proxy
  Statement

  	
   

  
	
  Section 5.3

  	
  No Solicitation

  	
   

  
	
  Section 5.4

  	
  Access to Information

  	
   

  
	
  Section 5.5

  	
  Governmental Filings

  	
   

  
	
  Section 5.6

  	
  Approvals and Consents

  	
   

  
	
  Section 5.7

  	
  Employee Benefits

  	
   

  
	
  Section 5.8

  	
  Public Announcements

  	
   

  
	
  Section 5.9

  	
  Indemnification; Insurance

  	
   

  
	
  Section 5.10

  	
  Tax Election

  	
   

  
	
  Section 5.11

  	
  Obligations of Merger Sub; Voting of
  Company Common Stock

  	
   

  
	
  Section 5.12

  	
  Reasonable Efforts

  	
   

  
	
  Section 5.13

  	
  Internal Control Over Financial Reporting

  	
   

  
	
  Section 5.14

  	
  Notification of Certain Matters

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI CONDITIONS TO THE MERGER

  	
   

  
	
   

  	
   

  
	
  Section 6.1

  	
  Conditions to Each Party’s Obligations to
  Effect the Merger

  	
   

  
	
  Section 6.2

  	
  Conditions to the Obligation of the Company

  	
   

  
	
  Section 6.3

  	
  Conditions to the Obligations of Parent and
  Merger Sub

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII TERMINATION

  	
   

  
	
   

  	
   

  
	
  Section 7.1

  	
  Termination

  	
   

  

 

ii

 

	
  Section 7.2

  	
  Effect of Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
  Section 8.1

  	
  Nonsurvival of Representations and
  Warranties

  	
   

  
	
  Section 8.2

  	
  Notices

  	
   

  
	
  Section 8.3

  	
  Expenses

  	
   

  
	
  Section 8.4

  	
  Disclosure Generally

  	
   

  
	
  Section 8.5

  	
  Personal Liability

  	
   

  
	
  Section 8.6

  	
  Amendment

  	
   

  
	
  Section 8.7

  	
  Extension; Waiver

  	
   

  
	
  Section 8.8

  	
  Binding Effect; Assignment

  	
   

  
	
  Section 8.9

  	
  Governing Law

  	
   

  
	
  Section 8.10

  	
  Jurisdiction

  	
   

  
	
  Section 8.11

  	
  Specific Performance

  	
   

  
	
  Section 8.12

  	
  Severability

  	
   

  
	
  Section 8.13

  	
  Descriptive Headings

  	
   

  
	
  Section 8.14

  	
  Counterparts

  	
   

  
	
  Section 8.15

  	
  Entire Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Certificate of Incorporation

  	
   

  
				

 

iii

 

AGREEMENT
AND PLAN OF MERGER

 

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of September 19, 2005, is by and
among Peregrine Systems, Inc., a Delaware corporation (the “Company”), Hewlett-Packard Company, a Delaware corporation (“Parent”), and Lake Merger Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”).

 

RECITALS

 

WHEREAS, the respective boards of directors of the
Company, Parent and Merger Sub have approved, upon the terms and subject to the
conditions of this Agreement, the acquisition of the Company by Parent by means
of a merger of Merger Sub with and into the Company (the “Merger”)
with the Company continuing as the surviving corporation and a wholly-owned
subsidiary of Parent (as such, the “Surviving
Corporation”);

 

WHEREAS, the respective boards of directors of the
Company and Merger Sub have determined that the Merger is advisable and fair
to, and in the best interests of, their respective stockholders and have approved
this Agreement, the Merger and the transactions contemplated hereby, subject to
the terms and conditions of this Agreement; and

 

WHEREAS, the Company, Parent and Merger Sub desire to
make certain representations, warranties, covenants and agreements in
connection with this Agreement and also to prescribe various conditions to the
Merger.

 

NOW THEREFORE, in consideration of the foregoing
premises and the mutual covenants and agreements contained herein and intending
to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1             Usage.  Unless the context of this Agreement
otherwise requires, (i) words of any gender are deemed to include each
other gender; (ii) words using the singular or plural number also include
the plural or singular number, respectively; (iii) the terms “hereof,”
“herein,” “hereby,” “hereto,” and derivative or similar
words refer to this entire Agreement; (iv) the terms “Article” or “Section”
refer to the specified Article or Section of this Agreement; (v) all
references to “dollars” or “$” refer to currency of the United
States of America; (vi) the term “or” is not exclusive; (vii) ”ordinary
course of business” and “ordinary course of business consistent with
past practice”, mean, with respect to the Company and its Subsidiaries, the
ordinary course of business in manner consistent with the practices of the
Company and its Subsidiaries since August 18, 2003; and (viii) ”include,”
“including” and their derivatives mean “including without limitation.”

 

1

 

Section 1.2             Certain
Definitions.  For purposes of this
Agreement, the following terms shall have the meanings specified in this Section 1.2:

 

“Acquisition Proposal” means, other than the
transactions contemplated by this Agreement, any proposal or offer, or any
indication of interest in making a proposal or offer, from a Third Party to
acquire beneficial ownership (as defined under Rule 13(d) of the
Exchange Act) of all or a material portion of the assets of the Company or any
of its material Subsidiaries or 25% or more of any class of equity securities
of the Company or any of such Subsidiaries pursuant to a merger, consolidation
or other business combination, sale of shares of capital stock, sale of assets,
tender offer, exchange offer or similar transaction, including any single step
or multi-step transaction or series of related transactions, with respect to
either the Company or any of such Subsidiaries.

 

“Adjusted Stock Option” has the meaning ascribed
to such term in Section 2.11(a).

 

“Affiliate” means, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by or is under
common control with such Person.  For
purposes of the immediately preceding sentence, the term “control” (including,
with correlative meanings, the terms “controlling,” “controlled by” and “under
common control with”), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the direction
of the management and policies of such Person, whether through ownership of
voting securities, by contract or otherwise.

 

“Agreement” has the meaning ascribed to such term in the
preamble hereof.

 

“Alternative Transaction” has the meaning
ascribed to such term in Section 7.2(b).

 

“Assets” has the meaning ascribed to such
term in Section 3.20.

 

“Associate” has the meaning ascribed to such
term in Rule 12b-2 under the Exchange Act.

 

“Balance Sheet” means the consolidated
balance sheet of the Company and its Subsidiaries as of March 31, 2005.

 

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

 

“Cancelled Stock Option” has the meaning
ascribed to such term in Section 2.11(a).

 

“Certificate of Merger” has the meaning
ascribed to such term in Section 2.2.

 

“Certificates” has the meaning ascribed to
such term in Section 2.10(b).

 

“Closing” has the meaning ascribed to such
term in Section 2.3.

 

2

 

“Closing Date” has the meaning ascribed to
such term in Section 2.3.

 

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

 

“Collective Bargaining Agreement” means any
agreement or arrangement between or applying to, one or more employees and a
trade union, works council, group of employees or any other employee
representative body, for collective bargaining or other negotiating or
consultation purposes.

 

“Company” has the meaning ascribed to such term in the
preamble hereof.

 

“Company Common Stock” means the common
stock, par value $0.0001 per share, of the Company.

 

“Company Disclosure Schedule” has the
meaning ascribed to such term in Article III.

 

“Company IP” means all Intellectual Property
that is used or held for use by the Company or any of its Subsidiaries in
connection with the business of the Company and its Subsidiaries.

 

“Company IP Agreements” has the meaning
ascribed to such term in Section 3.21(d).

 

“Company Material
Adverse Effect” means any circumstance, development, event,
condition, effect or change that, individually or when taken together with all
other circumstances, developments, events, conditions, effects and changes, had
or has or, with the passage of time, would be reasonably likely to have a
material adverse effect on (a) the ability of the Company to consummate
the Merger prior to the Outside Date or (b) the financial condition,
business, assets (including Company IP) or results of operations of the Company
and its Subsidiaries, taken as a whole, other than, in the case of
clause (b), (i) the effects, after the date hereof, of changes that
are generally applicable to the enterprise software industry, (ii) the
effects, after the date hereof, of changes in general economic or market conditions, (iii) the effect, after the
date hereof, of any change arising as a result of any natural disasters, acts
of war, sabotage or terrorism, military actions or the escalation thereof (in
the case of each of clauses (i), (ii) and (iii), other than any change
that had or has or with the passage of time, would be reasonably likely to have
a significantly disproportionate adverse effect on the Company and its
Subsidiaries, taken as a whole), (iv) the effect, after the date hereof,
of any changes in applicable Laws or accounting rules, (v) changes in the
market price of Company Common Stock, provided that nothing contained in this
clause (v) shall preclude Parent from asserting a Company Material Adverse
Effect as a result of any circumstance, development, event, condition, effect
or change of the type covered by clauses (a) or (b) of this
definition, or (vi) the effect of the public announcement of this
Agreement, the transactions contemplated hereby or the consummation of such
transactions.

 

“Company Products” has the meaning ascribed
to such term in Section 3.21(a).

 

“Company Securities” has the meaning
ascribed to such term in Section 3.4(c).

 

3

 

“Company Source Code” has the meaning
ascribed to such term in Section 3.21(n).

 

“Company Stockholders Meeting” has the
meaning ascribed to such term in Section 5.2(a).

 

“Confidentiality Agreement” has the meaning
ascribed to such term in Section 5.4(c).

 

“Consent” has the meaning ascribed to such
term in Section 3.5(b).

 

“Contract” means any agreement, contract,
lease, instrument, note, option, warranty, binding purchase order, license,
sublicense or legally binding commitment of any nature, whether written or
oral.

 

“Copyrights” means copyrights and extensions
or renewals thereof.

 

“Current Option” has the meaning ascribed to
such term in Section 2.11(a).

 

“Current Performance Unit” has the meaning
ascribed to such term in Section 2.11(b).

 

“Current Policy Coverage” has the meaning
ascribed to such term in Section 5.9(b).

 

“Current Restricted Share” has the meaning
ascribed to such term in Section 2.11(c).

 

“Derivative Work” has the meaning set forth
in 17 U.S.C. Section 101.

 

“DGCL” means the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended.

 

“Dissenting Shares” has the meaning ascribed
to such term in Section 2.12.

 

“Effective Time” has the meaning ascribed to
such term in Section 2.2.

 

“Employee Plans” has the meaning ascribed to
such term in Section 3.17(a).

 

“Environmental Law” means any and all applicable Laws and
regulations promulgated thereunder, relating to the protection of the
environment (including, without limitation, ambient air, surface water,
groundwater or land) or human health as affected by the environment or
Hazardous Substances or otherwise relating to the production, use, emission,
storage, treatment, transportation, recycling, disposal, discharge, release or
other handling of any Hazardous Substances or the investigation, clean-up or
other remediation or analysis thereof.

 

“Equity Compensation Plans” means the
Company’s 2003 Equity Incentive Plan, each individual agreement evidencing the
grant of Stock Options, Restricted Shares or

 

4

 

Performance Units under
the 2003 Equity Incentive Plan, and each individual agreement providing for the
grant, other than under the 2003 Equity Incentive Plan, of Stock Options,
Restricted Shares or Performance Units with respect to the Shares that is
listed on the Company Disclosure Schedule.

 

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

 

“ERISA Affiliate” has the meaning ascribed
to such term in Section 3.17(a).

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.

 

“Foreign Employees” has the meaning ascribed
to such term in Section 3.17(k)

 

“Funded International Employee Plan” has the
meaning ascribed to such term in Section 3.17(b).

 

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

 

“Governmental Entity” means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof,
or any court, tribunal or arbitrator (public or private).

 

“Hazardous Substance” means any substance, material or waste
that is characterized or regulated under any Environmental Law as “hazardous,” “pollutant,”
“contaminant,” “toxic” or words of similar meaning or effect, including,
without limitation, petroleum and petroleum products, polychlorinated biphenyls
and asbestos.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and the rules and regulations promulgated
thereunder.

 

“Incentives” has the meaning ascribed to
such term in Section 3.15(p).

 

“Indemnified Persons” has the meaning
ascribed to such term in Section 5.9(a).

 

“Intellectual Property” means all
Copyrights, Patents, Trademarks, domain name registrations, Trade Secrets, and
any applications and registrations therefor.

 

“International Employee Plans” has the
meaning ascribed to such term in Section 3.17(a).

 

“knowledge of the Company” means the actual knowledge of the
Company’s Chief Executive Officer, Chief Financial Officer, Chief Accounting
Officer, General Counsel, Senior Vice President – Product Delivery, Assistant
Vice President of Tax and Senior Vice President – Human Resources.

 

5

 

“Laws” means any laws, statutes, ordinances, regulations, rules and
orders of any Governmental Entity.

 

“Leased Real Property” has the meaning ascribed to such term
in Section 3.19(b).

 

“Leases” has the meaning ascribed to such term in Section 3.19(b).

 

“Legal Proceeding” means any action, claim, suit, litigation,
proceeding (public or private), criminal prosecution, audit or investigation by
or before any Governmental Entity.

 

“Letter of Transmittal” has the meaning
ascribed to such term in Section 2.10(b).

 

“Licensed Company IP” means all Company IP
other than the Owned Company IP.

 

“Liabilities” means any liability, indebtedness, obligation
or commitment of any kind (whether accrued, absolute, contingent, matured,
unmatured or otherwise and whether or not required to be recorded or reflected
on a balance sheet under GAAP).

 

“Lien” means any claim, lien, pledge, option, charge,
security interest, deed of trust, mortgage, encumbrance or other adverse claim
of any kind.

 

“Material Contract” has the meaning ascribed
to such term in Section 3.11(a).

 

“Merger” has the meaning ascribed to such term in the
recitals hereof.

 

“Merger Sub” has the meaning ascribed to such term in the
preamble hereof.

 

“Option Consideration” has the meaning
ascribed to such term in Section 2.11(a).

 

“Option Exchange Ratio” means a fraction,
the numerator of which is the Per Common Share Amount and the denominator of
which is the average closing sales price of Parent Common Stock on the New York
Stock Exchange as reported by The Wall Street Journal for the ten trading days
immediately preceding the date of the Effective Time.

 

“Order” means any judgment, decision, decree, injunction,
ruling, writ, assessment or order of any Governmental Entity that is binding on
any Person or its property under applicable Law.

 

“Outside Date” has the meaning ascribed to
such term in Section 7.1(b).

 

“Owned Company IP” means that portion of the
Company IP that is owned by the Company and its Subsidiaries.  For the avoidance of doubt, Company IP with
respect to which the Company holds any security interest or exclusive license
shall not be deemed to be part of the Owned Company IP.

 

6

 

“Parent” has the meaning ascribed to such term in the
preamble hereof.

 

“Parent Common Stock” has the meaning
ascribed to such term in Section 2.11(a).

 

“Parent Material Adverse Effect” means any material adverse
effect on the ability of Parent or Merger Sub to consummate the Merger prior to
the Outside Date.

 

“Parent Plans” has the meaning ascribed to
such term in Section 5.7(a).

 

“Patents” means patents and patent
applications, and any and all divisions, continuations, continuations-in-part,
reissues, continuing patent applications, reexaminations and extensions
thereof.

 

“Paying Agent” has the meaning ascribed to such term in Section 2.10(a).

 

“Payment Fund” has the meaning ascribed to such term in Section 2.10(a).

 

“Per Common Share Amount” has the meaning
ascribed to such term in Section 2.9(a).

 

“Performance Units” means all performance units in respect of
the Shares granted to any employee or director of the Company or any of its
Subsidiaries under any Equity Compensation Plan.

 

“Permits” has the meaning ascribed to such
term in Section 3.13.

 

“Permitted Encumbrances” means (a) Liens for Taxes not
yet due and payable or that are being contested in good faith by appropriate
proceedings, (b) Liens imposed by law, such as landlord’s, mechanics’,
laborers’, carriers’, materialmen’s, suppliers’ and vendors’ Liens arising in
the ordinary course of business for sums not yet due and payable, or that are
being contested in good faith by appropriate proceedings and for which
appropriate reserves have been established in accordance with GAAP, (c) Liens
securing the performance of bids, tenders, leases, contracts (other than for
the payment of debt), statutory obligations, surety, customs and appeal bonds
and other obligations of like nature, incurred as an incident to and in the
ordinary course of business, and (d) such other imperfections of title,
charges, easements, restrictions and encumbrances as do not materially detract
from the value of or otherwise materially interfere with the present use of any
of the Company’s or its Subsidiaries’ properties or otherwise materially impair
the Company’s or its Subsidiaries’ business operations.

 

“Person” means any individual, corporation, partnership,
limited liability company, trust, unincorporated organization, association,
firm, joint venture, joint-stock company, Governmental Entity or other entity.

 

“Proxy Statement” has the meaning ascribed
to such term in Section 3.8.

 

“Restricted Shares” means all Shares of
restricted stock and any restricted stock units granted under any employee
stock option or compensation plan, agreement or arrangement of the Company, including
under any Equity Compensation Plan.

 

7

 

“Retention Bonus Plan” means the Company
retention bonus plan as effective on February 22, 2005.

 

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

 

“SEC” means the Securities and Exchange
Commission.

 

“SEC Reports” has the meaning ascribed to
such term in Section 3.6.

 

“Section 203 Approvals” has the meaning
ascribed to such term in Section 5.3(d).

 

“Securities Act” means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.

 

“Shares” means shares of the Company Common
Stock.

 

“Stock Options” means all options to
purchase Shares under any of the Equity Compensation Plans.

 

“Stockholder Approval” has the meaning ascribed
to such term in Section 3.24.

 

“Subsidiary” means, with respect to any Person, any
corporation or other legal entity of which 50% or more of the outstanding
voting securities or other voting equity interests are owned, directly or
indirectly, by such Person.

 

“Subsidiary Securities” has the meaning
ascribed to such term in Section 3.2(c).

 

“Superior Proposal” means an unsolicited
bona fide written Acquisition Proposal for at least a majority of the
outstanding equity securities of the Company or 50% or more of the consolidated
assets of the Company and its Subsidiaries and (a) on terms which the
board of directors of the Company determines in good faith, after taking into
account, among other things, all the terms and conditions of the Acquisition
Proposal and the advice of the Company’s independent financial advisor, to be
more favorable from a financial point of view to the Company’s stockholders in
their capacity as such than those provided hereunder (and any proposal by
Parent to amend the terms of this Agreement), (b) for which financing, to
the extent required, is then committed to the Third Party making such
Acquisition Proposal and (c) which, in the good faith reasonable judgment
of the board of directors of the Company, after consultation with the Company’s
outside counsel and independent financial advisor, is reasonably likely to be
consummated within a reasonable period of time.

 

“Surviving Corporation” has the meaning ascribed to such term
in the recitals hereof.

 

“Tax Returns” means all returns, declarations, reports,
statements and other documents required to be filed in respect of any Taxes.

 

8

 

“Taxes” means (a) all federal, state,
local or foreign taxes, charges, fees, levies or other assessments, including,
without limitation, all net income, gross income, gross receipts, capital,
sales, use, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, unemployment, disability, excise, severance, stamp,
property, alternative or add-on minimum, capital stock, estimated,
registration, social security (or similar) and value added taxes, customs,
duties, fees, assessments and charges of any kind whatsoever and (b) all
interest, penalties, fines, additions to tax or additional amounts imposed on
or with respect to any amount described in clause (a).

 

“Terminating Plan” has the meaning ascribed
to such term in Section 5.7(d).

 

“Termination Fee” has the meaning ascribed
to such term in Section 7.2(b).

 

“Third Party” means any Person or group
other than Parent, Merger Sub and their Affiliates.

 

“Trade Secrets” means all trade secrets
(including, those trade secrets defined in the Uniform Trade Secrets Act and
under corresponding foreign statutory and common law), business, technical and
know-how information, non-public information, and confidential information and
rights to limit the use or disclosure thereof by any Person.

 

“Trademarks” means all trademarks, trade
dress, service marks, certification marks, logos and trade names.

 

“Treasury Shares” means the Shares held by
the Company as treasury stock.

 

ARTICLE II

 

THE MERGER

 

Section 2.1             The
Merger.  At the Effective Time and
upon the terms and subject to the conditions of this Agreement and in
accordance with the DGCL, Merger Sub shall be merged with and into the Company,
the separate corporate existence of Merger Sub shall cease and the Company
shall continue as the Surviving Corporation.

 

Section 2.2             Effective
Time.  Subject to the terms and
conditions set forth in this Agreement, the parties hereto shall cause a
Certificate of Merger (the “Certificate of Merger”)
with respect to the Merger to be filed with the Secretary of State of the State
of Delaware on the Closing Date in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL.  The Merger shall be effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the
State of Delaware in accordance with the DGCL or at such later time as Parent
and the Company may agree upon and set forth in the Certificate of Merger (the “Effective Time”).

 

Section 2.3             Closing
of the Merger.  Unless this Agreement
shall have been terminated and the Merger shall have been abandoned pursuant to
Section 7.1, the closing of the Merger (the “Closing”)
will take place at a time and on a date (the “Closing Date”)
to be

 

9

 

specified by the parties,
which shall be no later than the third Business Day following the day on which
the last of the conditions set forth in Article VI is satisfied or
waived (other than delivery of items to be delivered at the Closing), at the
offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los
Angeles, CA 90071, unless another time, date or place is agreed to in writing
by the parties hereto.

 

Section 2.4             Effects
of the Merger.  The Merger shall have
the effects set forth in the DGCL. 
Without limiting the generality of the foregoing and subject thereto, at
the Effective Time all the properties, rights, privileges, powers and
franchises of the Company and Merger Sub shall vest in the Surviving
Corporation and all debts, liabilities, obligations and duties of the Company
and Merger Sub shall become the debts, liabilities, obligations and duties of
the Surviving Corporation.

 

Section 2.5             Certificate
of Incorporation and Bylaws.  At the
Effective Time, the certificate of incorporation of the Company shall be
amended to read as set forth in Exhibit A attached hereto and, as
so amended, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable Law and such
certificate of incorporation.  The bylaws
of the Company in effect immediately prior to the Effective Time shall be the
bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable Law, the certificate of incorporation of the Surviving Corporation
and such bylaws.

 

Section 2.6             Board
of Directors of the Surviving Corporation. 
The directors of Merger Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation until their successor have
been duly elected or appointed and qualified, or until their earlier death,
resignation or removal in accordance with the certificate of incorporation and
bylaws of the Surviving Corporation.

 

Section 2.7             Officers
of the Surviving Corporation.  The
officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation until their successor have been duly
elected or appointed and qualified, or until their earlier death, resignation
or removal in accordance with the certificate of incorporation and bylaws of
the Surviving Corporation.

 

Section 2.8             Subsequent
Actions.  If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
certificates, deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of either of the
Company or Merger Sub acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger or otherwise to carry out
this Agreement, the officers and directors of the Surviving Corporation shall
be authorized to execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such certificates, deeds, bills of sale, assignments
and assurances and to take and do, in the name and on behalf of each of such
corporations or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, title and
interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.

 

10

 

Section 2.9             Conversion
of Capital Stock.  At the Effective
Time, by virtue of the Merger and without any action on the part of Merger Sub,
the Company or the holder of any of the following securities:

 

(a)           Company
Common Stock. Each Share (other than Shares owned by Parent, Merger Sub or
any Subsidiary of Parent or Merger Sub, Treasury Shares and Dissenting Shares)
issued and outstanding immediately prior to the Effective Time shall be
converted into and represent the right to receive $26.08 (the “Per Common Share Amount”) in cash and
without interest thereon (subject to any applicable withholding tax), upon
surrender of the corresponding Certificate in accordance with Section 2.10.

 

(b)           Capital
Stock of Merger Sub.  Each share of
common stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock, par value $0.01 per share,
of the Surviving Corporation with the same rights, powers and privileges as the
shares so converted.

 

(c)           Cancellation
of Treasury Shares and Parent and Merger Sub-Owned Stock.  Each Treasury Share and each Share held by
Parent, Merger Sub or any Subsidiary of Parent or Merger Sub immediately prior
to the Effective Time shall automatically be canceled and retired and shall
cease to exist and no consideration shall be delivered or deliverable in
exchange therefor.

 

(d)           Cancellation
and Retirement of Shares.  As of the
Effective Time, all Shares (other than Dissenting Shares) issued and
outstanding immediately prior to the Effective Time, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall, to
the extent such certificate represents such Shares, cease to have any rights
with respect thereto, except, in all cases other than Shares to be canceled in
accordance with Section 2.9(a), the right to receive the Per Common
Share Amount upon surrender of such certificate in accordance with Section 2.10.

 

Section 2.10           Surrender
of Certificates.

 

(a)           Paying
Agent.  Prior to the Effective Time,
Parent shall appoint an institution reasonably acceptable to the Company to act
as paying agent (the “Paying Agent”)
in accordance with an agreement reasonably satisfactory to the Company to
receive the funds necessary to make the payments contemplated by Section 2.9,
and Parent shall, at or prior to the Effective Time, deposit or cause to be
deposited with the Paying Agent, for the benefit of the holders of Shares for
exchange in accordance with this Article II, cash in an amount
sufficient to make payments of the Per Common Share Amount upon surrender of
Certificates (such cash consideration being deposited hereinafter referred to
as the “Payment Fund”).  The Paying Agent shall, pursuant to
irrevocable instructions, make payments out of the Payment Fund as provided for
in this Article II and the Payment Fund shall not be used for any
other purpose.  All expenses of the
Paying Agent shall be paid by Parent or the Surviving Corporation.

 

11

 

(b)           Exchange
Procedures for Company Common Stock. 
As soon as reasonably practicable after the Effective Time, Parent shall
mail, or shall cause the Paying Agent to mail, to each holder of record of a
certificate or certificates (collectively, the “Certificates”) which immediately prior to the Effective Time
represented Shares (other than Shares held by Parent, Merger Sub or any
Subsidiary of Parent or Merger Sub immediately prior to the Effective Time,
Treasury Shares and Dissenting Shares) (i) a letter of transmittal (a “Letter of Transmittal”) (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent may reasonably specify), and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for payment
of the Per Common Share Amount.  Upon
surrender to the Paying Agent of a Certificate for cancellation, together with
such Letter of Transmittal duly executed, and such other customary documents as
may reasonably be required by the Paying Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor by check an amount in cash,
without interest, equal to the Per Common Share Amount for each Share formerly
represented by such Certificate.  Such
payment of the Per Common Share Amount shall be sent to such holder by the
Paying Agent promptly after receipt by the Paying Agent of such Certificate,
together with such Letter of Transmittal duly executed, and such other
customary documents as may reasonably be required by the Paying Agent, and the
Shares formerly represented by such Certificate so surrendered shall forthwith
be canceled.  The right of any
stockholder to receive the Per Common Share Amount, shall be subject to and
reduced by any applicable withholding obligation as set forth in Section 2.14.  No interest will be paid or will accrue on
any cash payable upon the surrender of a Certificate.

 

(c)           No
Further Ownership Rights in Capital Stock. 
Until surrendered as contemplated by this Section 2.10, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Per Common Share Amount in
respect of the Shares formerly represented by such Certificate as contemplated
by this Section 2.10.  All
cash paid upon the surrender for exchange of Certificates in accordance with
the terms of this Article II shall be deemed to have been paid in
full satisfaction of all rights pertaining to the Shares represented by such
Certificates.  After the Effective Time,
there shall be no further registration of transfers of Shares on the records of
the Company, and if Certificates are presented to the Surviving Corporation,
they shall be canceled and exchanged as provided for, and in accordance with
the procedures set forth, in this Article II.

 

(d)           Unregistered
Transfer of Capital Stock.  If
payment of the Per Common Share Amount is to be made to a Person other than the
Person in whose name the surrendered Certificate is registered, it shall be a
condition of such payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the Person
requesting such payment shall have paid any transfer and any other Taxes
required by reason of the payment to a Person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such Tax either has been paid or is not
applicable.

 

(e)           Lost
Certificates.  In the event that any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the

 

12

 

posting by such Person of a bond in such reasonable amount as the
Surviving Corporation may require as indemnity against any claim that may be
made against it with respect to such Certificate, the Paying Agent will issue,
in exchange for such lost, stolen or destroyed Certificate, the Per Common
Share Amount payable pursuant to this Article II.

 

(f)            Investment
of Payment Fund.  The Paying Agent
shall invest the cash included in the Payment Fund as directed by Parent.  Any interest and other income resulting from
such investments shall be paid as directed by Parent.  To the extent that there are losses with
respect to such investments, Parent shall promptly replace or restore the
portion of the Payment Fund lost through investments so as to ensure that the
Payment Fund is maintained at a level sufficient to make such payments.

 

(g)           Termination
of Payment Fund.  Any portion of the
Payment Fund that remains unclaimed by the former holders of Company Common
Stock one year after the Effective Time shall be delivered to Parent upon
demand.  Any such holders who have not
complied with this Article II prior to that time shall thereafter
look only to Parent, and Parent shall thereafter be liable, for payment of the
Per Common Share Amount (subject to abandoned property, escheat and similar
Laws).  Any such portion of the Payment
Fund remaining unclaimed by holders of Shares immediately prior to such time as
such amounts would otherwise escheat to or become property of any Governmental
Entity shall, to the extent permitted by applicable Law, become the property of
Parent free and clear of all claims or interest of any Persons previously
entitled thereto.

 

(h)           No
Liability.  None of Parent, Merger
Sub, the Company or the Paying Agent, or any employee, officer, director, agent
or Affiliate thereof, shall be liable to any Person in respect of any cash from
the Payment Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law.

 

Section 2.11           Stock
Options.

 

(a)           Stock
Options.

 

(i)            Each
Stock Option that is outstanding immediately prior to the Effective Time (each,
a “Current Option”), other than
the Cancelled Stock Options shall be converted as of the Effective Time into an
option to acquire, on substantially similar terms and conditions applicable to
such Current Option immediately prior to the Effective Time (except for the adjustments
provided herein), the number of shares of common stock, rounded to the nearest
whole share, par value $0.01 per share, of Parent (the “Parent Common Stock”), that is equal to the
product, rounded to the nearest whole share, of (i) the number of Shares
subject to such Current Option immediately prior to the Effective Time
multiplied by (ii) the Option Exchange Ratio, at an exercise price per
share of Parent Common Stock equal to the quotient, rounded down to the nearest
whole cent, of (x) the exercise price per Share applicable under such
Current Option immediately prior to the Effective Time divided by (y) the
Option Exchange Ratio (each Current Option, as so adjusted, an “Adjusted Stock Option”); provided, however,
that the foregoing adjustments shall comply with Section 424(a) of
the Code.

 

13

 

(ii)           At or
immediately prior to the Effective Time, each Current Option that (x) is vested
(after giving effect to any acceleration of vesting due to consummation of the
Merger provided for under the terms of the applicable Equity Compensation Plan
or employment agreement as in effect on the date hereof or as modified to
reflect the proposed changes set forth in Section 5.1(g) of the
Company Disclosure Schedule) or (y) is subject to the laws of a non-U.S.
jurisdiction and/or held by an employee of the Company or any of its
Subsidiaries located in a non-U.S. jurisdiction and which Parent determines may
not be converted into an Adjusted Stock Option under Section 2.11(a) (1) under
the applicable laws or regulatory requirements of the relevant non-U.S.
jurisdiction (including by reason of a failure to obtain any required consents
or approvals after making reasonable commercial efforts) or (2) under the
generally applicable policies and practices of Parent with respect to the grant
of equity awards in the relevant non-U.S. jurisdiction (each such Current
Option, a “Cancelled Stock Option”)
shall be cancelled and in lieu thereof, the holder of each such Cancelled Stock
Option will be entitled to receive from the Surviving Corporation an amount in
cash equal to the product of (i) the excess, if any of the Per Common
Share Amount over the exercise price per Share under such Cancelled Stock
Option multiplied by (ii) the number of Shares subject to such Cancelled
Stock Option immediately prior to the Effective Time, without interest (the “Option Consideration”), reduced by any
income or employment taxes required to be withheld under the Code or any
provision of state, local or foreign tax law.

 

(b)           Performance
Units.  As of the Effective Time,
each Performance Unit that is outstanding immediately prior to the Effective
Time (each, a “Current Performance Unit”)
that, pursuant to the terms thereof described in Section 5.1(g) of
the Company Disclosure Schedule, is or becomes vested in connection with the
satisfaction of applicable performance thresholds and is granted upon
consummation of the Merger shall be cancelled in exchange for the right to
receive an amount in cash, without interest, equal to the Per Share Common
Amount, reduced by any income or employment taxes required to be withheld under
the Code or any provision of state, local or foreign tax law.  All Current Performance Units that are not
vested or granted in accordance with the preceding sentence shall automatically
be cancelled at the Effective Time for no consideration.

 

(c)           Restricted
Shares.  As of the Effective Time,
each Restricted Share that is outstanding immediately prior to the Effective
Time (each, a “Current Restricted Share”)
shall be cancelled and converted into the right to receive, at the Effective
Time, the Per Common Share Amount, without interest, reduced by any income or
employment taxes required to be withheld under the Code or any provision of state,
local or foreign tax law.

 

(d)           Amendment
and Administration of Equity Arrangements. 
As soon as reasonably practicable following the date of this Agreement
and conditional upon the Closing, the Company (and its board of directors)
shall take all requisite actions and/or adopt such resolutions as may be
required in order to give effect to and accomplish the transactions
contemplated by this Section 2.11, including, without limitation,
amending each of the Equity Compensation Plans (i) if and to the extent
necessary and practicable, to reflect the transactions contemplated by this
Agreement, including, but not limited to, the adjustment of the Current Options
pursuant to Section 2.11(a)(i) and the cancellation of the
Cancelled Stock Options, Current Performance Units and Current Restricted
Shares pursuant to clauses (a)(ii), (b) and (c)

 

14

 

of this Section 2.11 and (ii) to
preclude any discretionary, automatic or formulaic grant of any Stock Options,
Restricted Shares, Performance Units or other equity-based awards thereunder on
or after the date hereto except as permitted pursuant to Section 5.1(b) hereof.

 

(e)           Withholding
Taxes.  In accordance with this Section 2.11,
the Surviving Corporation will promptly pay or cause to be paid any amounts
withheld pursuant to this Section 2.11 for applicable foreign,
federal, state and local taxes to the appropriate Governmental Entity on behalf
of such holders of the applicable Cancelled Stock Options, Restricted Shares
and/or Performance Units.

 

(f)            Actions
by Parent.  As soon as reasonably
practicable following the date of this Agreement and conditional upon the
Closing, Parent (and its board of directors) shall take all requisite actions
and/or adopt such resolutions necessary to authorize Parent to, convert all of
the Current Options, other than the Cancelled Options, in accordance with Section 2.11(a).  As soon as practicable after the Effective
Time, Parent shall make available to the holders of Adjusted Stock Options
appropriate documents setting forth such holders’ rights pursuant to the
applicable equity compensation plan and the Adjusted Stock Options shall
continue in effect on substantially the same terms and conditions (subject to
changes in accordance with this Section 2.11 and after giving
effect to the Merger).

 

(g)           Reservation
of Parent Common Stock.  At the
Effective Time, Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of the Adjusted Stock Options assumed in accordance with this Section 2.11.  To the extent necessary, as soon as
reasonably practicable after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate
form) with respect to the shares of Parent Common Stock subject to such
Adjusted Stock Options and shall use all commercially reasonable efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Adjusted Stock Options remain
outstanding.

 

Section 2.12           Appraisal
Rights.  Notwithstanding anything in
this Agreement to the contrary, Shares that are issued and outstanding
immediately prior to the Effective Time and that are held by a holder who has
not voted in favor of the Merger or consented thereto in writing and who shall
have properly demanded and perfected appraisal rights under Section 262 of
the DGCL (the “Dissenting Shares”) shall not be
converted into or represent the right to receive the applicable Per Common
Share Amount but instead shall be entitled to receive such payment from the
Surviving Corporation with respect to such Dissenting Shares as shall be
determined pursuant to Section 262 of the DGCL; provided, however,
that if such holder shall have failed to perfect or shall have effectively
withdrawn or otherwise lost such holder’s right to appraisal and payment under
the DGCL, each such Share held by such holder shall thereupon be deemed to have
been converted into and to have become exchangeable for, as of the Effective
Time, the right to receive, without any interest thereon, the Per Common Share
Amount in accordance with Section 2.9(a), and such Share shall no
longer be a Dissenting Share.  The
Company shall give prompt notice to Parent of any written demands received by
the Company for appraisals of any Shares and attempted withdrawals of such
demands and any other instruments served pursuant to Section 262 of the
DGCL and received by the Company relating to rights to be paid the “fair

 

15

 

value” of Dissenting
Shares, as provided in Section 262 of the DGCL, and Parent shall have the
right to direct all negotiations and proceedings with respect to such
demands.  The Company shall not, except
with the prior written consent of Parent, voluntarily make or agree to make any
payment with respect to any demands for appraisals of Shares, offer to settle
or settle any demands or approve any withdrawal of any such demands.

 

Section 2.13           Adjustments.  Notwithstanding anything in this Agreement to
the contrary, if, between the date of this Agreement and the Effective Time,
the outstanding Shares shall be changed into a different number, class or
series of shares by reason of any stock dividend, subdivision,
reclassification, recapitalization, stock split, combination or exchange of
shares, then the Per Common Share Amount payable with respect thereto and any
other amounts payable pursuant to this Agreement shall be appropriately
adjusted.

 

Section 2.14           Withholding
Taxes.  Parent and the Surviving Corporation shall be entitled to deduct and
withhold from the consideration otherwise payable to a holder of Shares
pursuant to the Merger any amounts as are required to be deducted and withheld
under the Code, the rules and regulations promulgated thereunder, or any
provision of state, local or foreign tax Law. 
To the extent that amounts are so withheld, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the Shares or Stock Options in respect of which such deduction and
withholding was made.

 

ARTICLE III

 

REPRESENTATIONS AND
WARRANTIES OF THE COMPANY

 

Except, with respect to any Section of this Article III,
as set forth in the section of the disclosure schedule delivered by
the Company to Parent on the date of this Agreement (the “Company
Disclosure Schedule”) that specifically relates to such Section or
in another section of the Company Disclosure Schedule to the extent
it is reasonably apparent from the text of such disclosure that such disclosure
is applicable to such Section, the Company hereby represents and warrants to
Parent and Merger Sub as follows:

 

Section 3.1             Organization
and Standing.  The Company is a
corporation duly organized, validly existing and in good standing under the
Laws of the State of Delaware.  Each of
the Company’s Subsidiaries is duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its respective organization (to
the extent the “good standing” concept is applicable in the case of any
jurisdiction outside the United States). 
Each of the Company and its Subsidiaries has the requisite corporate power
and authority to carry on its respective business as it is presently being
conducted and to own, lease or operate its respective properties and
assets.  Each of the Company and its
Subsidiaries is duly qualified to do business and is in good standing in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities make such qualification necessary (to the extent the “good
standing” concept is applicable in the case of any jurisdiction outside the
United States), except where the failure to be so qualified or in good standing
would not, individually or in the aggregate, have a Company Material Adverse
Effect.  The Company has delivered or
made available to Parent complete and correct copies of (a) the certificates
of incorporation and bylaws or other constituent documents,

 

16

 

as amended to date, of
the Company and (b) the minutes (or, in the case of draft minutes, the
most recent drafts thereof) of all meetings of the stockholders, the boards of
directors of the Company and each committee of the board of directors of the
Company other than the Special Committee held since August 7, 2003.  Neither the Company nor any of its
Subsidiaries is in violation of its certificate of incorporation, bylaws or
other applicable constituent documents, except for such violations that would
not, individually or in the aggregate, have a Company Material Adverse Effect.

 

Section 3.2             Subsidiaries.

 

(a)           Section 3.2(a)(i) of
the Company Disclosure Schedule sets forth the name and jurisdiction of
organization of each Subsidiary of the Company. 
Except for the Subsidiaries the Company does not own, directly or
indirectly, any capital stock of, or other equity or voting interest in, any
Person.

 

(b)           All of the
outstanding capital stock of, or other equity or voting interest in, each
Subsidiary of the Company (i) have been duly authorized, validly issued
and are fully paid and nonassessable and (ii) are owned, directly or
indirectly, by the Company, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other equity or voting interest) that would
prevent the operation by the Surviving Corporation of such Subsidiary’s
business as presently conducted.

 

(c)           There are
no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock of, or other
equity or voting interest in, any Subsidiary of the Company, (ii) options,
warrants, rights or other commitments or agreements to acquire from the Company
or any of its Subsidiaries, or that obligate the Company or any of its
Subsidiaries to issue, any capital stock of, or other equity or voting interest
in, or any securities convertible into or exchangeable for shares of capital
stock of, or other equity or voting interest in, any Subsidiary of the Company,
(iii) obligations of the Company to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment relating to any capital stock of, or other
equity or voting interest (including any voting debt) in, any Subsidiary of the
Company (the items in clauses (i), (ii) and (iii), together with the
capital stock of the Subsidiaries of the Company, being referred to
collectively as “Subsidiary Securities”)
or (iv) other obligations by the Company or any of its Subsidiaries to
make any payments based on the price or value of any shares of any Subsidiary
of the Company.  There are no outstanding
agreements of any kind which obligate the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding Subsidiary Securities.

 

17

 

Section 3.3             Authorization.  The Company has all requisite power and
authority to execute and deliver this Agreement and subject, in the case of the
consummation of the Merger, to obtaining the Stockholder Approval, to consummate
the transactions contemplated hereby and to perform its obligations
hereunder.  The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no additional corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or the consummation of the transactions contemplated hereby, other
than in the case of the consummation of the Merger to obtaining the Stockholder
Approval.  This Agreement has been duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery by Parent and Merger Sub, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except that such enforceability (a) may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar Laws affecting or relating to creditors’ rights generally and (b) is
subject to general principles of equity.

 

Section 3.4             Capitalization.

 

(a)           The
authorized capital stock of the Company consists of (i) One Hundred
Million (100,000,000) Shares and (ii) Five Million (5,000,000) shares of
preferred stock, par value $0.0001 per share. 
As of September 16, 2005: (A) 15,074,981 Shares were issued
and outstanding, (B) no shares of preferred stock were issued and
outstanding and (C) there were no Treasury Shares.  All outstanding Shares are validly issued,
fully paid, nonassessable and free of any preemptive rights.  Since September 16, 2005, the Company
has not issued any Shares other than pursuant to the exercise of Stock Options
granted under an Equity Compensation Plan.

 

(b)           The
Company has reserved 3,140,083 Shares for issuance under the Equity
Compensation Plans, of which 223,083 Shares have been reserved for issuance
pursuant to Equity Compensation Plans other than the Company’s 2003 Equity
Compensation Plan.  As of August 31,
2005, with respect to the Equity Compensation Plans, there were outstanding
Stock Options with respect to 2,433,840 Shares, 484,000 Restricted Shares and
the outstanding Performance Units described on Section 3.4(b) of the
Company Disclosure Schedule and, since such date, other than the grant of
Stock Options with respect to 1,000 Shares, the Company has not granted,
committed to grant or otherwise created or assumed any obligation with respect
to any Stock Options, other than as permitted by Section 5.1(b),
Restricted Shares, Performance Units or other rights or awards under any of the
Equity Compensation Plans.

 

(c)           Except
as set forth in this Section 3.4, there are (i) no outstanding
shares of capital stock of, or other equity or voting interest in, the Company,
(ii) no outstanding securities of the Company convertible into or
exchangeable for shares of capital stock of, or other equity or voting interest
in, the Company, (iii) no outstanding options, warrants, rights or other
commitments or agreements to acquire from the Company, or that obligates the
Company to issue, any capital stock of, or other equity or voting interest in,
or any securities convertible into or exchangeable for shares of capital stock
of, or other equity or voting interest in, the Company, (iv) no obligations
of the Company to grant, extend or enter into any subscription, warrant, right,
convertible or exchangeable security or other similar agreement or commitment
relating to any capital stock of, or other equity or voting interest (including
any voting debt) in,

 

18

 

the Company (the items in
clauses (i), (ii), (iii) and (iv), together with the capital stock of the
Company, being referred to collectively as “Company
Securities”) or (v) no other obligations by the Company or any
of its Subsidiaries to make any payments based on the price or value of the
Shares.  There are no outstanding
agreements of any kind which obligate the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities.

 

(d)           Neither
the Company nor any of its Subsidiaries is a party to any agreement restricting
the transfer of, relating to the voting of, requiring registration of, or
granting any preemptive rights, antidilutive rights or rights of first refusal
or similar rights with respect to any securities of the Company.

 

Section 3.5             Non-contravention;
Required Consents.

 

(a)           The
execution, delivery or performance by the Company of this Agreement, the
consummation by the Company of the transactions contemplated hereby and the
compliance by the Company with any of the provisions hereof do not and will not
(i) violate or conflict with any provision of the certificates of
incorporation or bylaws or other constituent documents of the Company or any of
its Subsidiaries, (ii) subject to obtaining such Consents set forth in Section 3.5(a)(ii) of
the Company Disclosure Schedule, violate, conflict with, or result in the
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which the Company, any of its
Subsidiaries or any of their properties or assets may be bound, (iii) assuming
compliance with the matters referred to in Section 3.5(b) and,
in the case of the consummation of the Merger, to obtaining the Stockholder
Approval, violate or conflict with any Order or Law applicable to the Company
or any of its Subsidiaries or by which any of their properties or assets are
bound or (iv) result in the creation of any Lien upon any of the
properties or assets of the Company or any of its Subsidiaries, except in the
case of each of clauses (ii), (iii) and (iv) above, for such
violations, conflicts, defaults, terminations, accelerations or Liens which would
not, individually or in the aggregate, have a Company Material Adverse Effect.

 

(b)           No
consent, approval, order or authorization of, or filing or registration with,
or notification to (any of the foregoing being a “Consent”), any Governmental Entity is required on the part of
the Company or any of its Subsidiaries in connection with the execution,
delivery and performance by the Company of this Agreement and the consummation
by the Company of the transactions contemplated hereby, except (i) the
filing and recordation of the Certificate of Merger with the Secretary of State
of the State of Delaware and such filings with Governmental Entities to satisfy
the applicable Laws of states in which the Company and its Subsidiaries are
qualified to do business, (ii) such filings and approvals as may be
required by any federal or state securities Laws, including compliance with any
applicable requirements of the Exchange Act, (iii) compliance with any
applicable requirements of the HSR Act and any applicable foreign antitrust,
competition or merger control Laws, and (iv) such other Consents, the
failure of which to obtain would not, individually or in the aggregate, have a
Company Material Adverse Effect.

 

19

 

Section 3.6             SEC
Reports.  The Company has filed all
forms, reports and documents with the SEC that have from and after August 7,
2003 been required to be filed by it (such forms, reports and documents,
together with the Company’s annual report on Form 10-K for the fiscal year
ended March 31, 2003, the “SEC Reports”).  Each SEC Report complied, as of its filing
date, as to form in all material respects with the applicable requirements of
the Securities Act or the Exchange Act, as the case may be, each as in effect on
the date such SEC Report was filed, except as disclosed in any such SEC
Report.  True and correct copies of all
Company SEC Reports filed prior to the date hereof, whether or not required
under applicable Laws, have been furnished to Parent or are publicly available
in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database
of the SEC.  As of its filing date (or,
if amended or superseded by a filing prior to the date of this Agreement, on
the date of such amended or superseded filing), each SEC Report did not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.  None of the Company’s Subsidiaries is
required to file any forms, reports or other documents with the SEC.  No executive officer of the Company has
failed to make the certifications required of him or her under Section 302
or 906 of the Sarbanes-Oxley Act with respect to any SEC Report, except as
disclosed in certifications filed with the SEC Reports.  Neither the Company nor, to the knowledge of
the Company, any of its executive officers has received notice from any
Governmental Entity challenging or questioning the accuracy, completeness, form
or manner of filing of such certifications.

 

Section 3.7             Financial
Statements.

 

(a)           The
consolidated financial statements of the Company and its Subsidiaries included
in the SEC Reports have been prepared in accordance with GAAP consistently
applied during the periods and at the dates involved (except as may be
indicated in the notes thereto) except, in the case of unaudited interim
financial statements, as may be permitted by the Exchange Act, and fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of operations and cash flows for the periods then ended, provided that
the unaudited interim financial statements may not contain footnotes and are
subject to normal year-end adjustments, in each case as permitted by GAAP and
the applicable rules and regulations promulgated by the SEC.

 

(b)           The
records, systems, controls, data and information of the Company and its
Subsidiaries are recorded, stored, maintained and operated under means
(including any electronic, mechanical or photographic process, whether
computerized or not) that are under the exclusive ownership and direct control
of the Company or its Subsidiaries or accountants (including all means of
access thereto and therefrom), except for any non-exclusive ownership and
non-direct control that would not reasonably be expected to have a material
adverse effect on the Company’s system of internal accounting controls.

 

(c)           The
Company and its Subsidiaries have completed internal testing with respect to
the effectiveness of the Company’s internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act).  The Company has delivered or made
available to Parent a draft of an amendment to the disclosure set forth in Section 9A
of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2005, reflecting

 

20

 

management’s
assessment of its internal controls over financial reporting, which draft
disclosure was complete and accurate as of the date hereof.

 

(d)           Neither
the Company nor any of its Subsidiaries is a party to, or has any commitment to
become a party to, any joint venture, partnership agreement or any similar
Contract (including without limitation any Contract relating to any
transaction, arrangement or relationship between or among the Company or any of
its Subsidiaries, on the one hand, and any unconsolidated affiliate, including
any structured finance, special purpose or limited purpose entity or Person, on
the other hand (such as any arrangement described in Section 303(a)(4) of
Regulation S-K of the SEC)) where the purpose or effect of such arrangement is
to avoid disclosure of any material transaction involving the Company or any
its Subsidiaries in the Company’s consolidated financial statements.

 

(e)           Neither
the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any
director, officer, employee, auditor, accountant, consultant or representative
of the Company or any of its Subsidiaries has received or otherwise had or
obtained knowledge of any substantive complaint, allegation, assertion or
claim, whether written or oral, that the Company or any of its Subsidiaries
has, on or after August 7, 2003, engaged in questionable accounting or
auditing practices.  Since August 7,
2003, no current or former attorney representing the Company or any of its
Subsidiaries has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Company or any of its
officers, directors, employees or agents to the Company’s board of directors or
any committee thereof or to any director or executive officer of the Company.

 

(f)            To
the Company’s knowledge, no employee of the Company or any of its Subsidiaries
has provided or is providing information to any law enforcement agency
regarding the commission or possible commission of any crime or the violation
or possible violation of any applicable Law of the type described in Section 806
of the Sarbanes-Oxley Act by the Company or any of its Subsidiaries on or after
August 7, 2003.  Neither the Company
nor any of its Subsidiaries nor, to the knowledge of the Company, any director,
officer, employee, contractor, subcontractor or agent of the Company or any
such Subsidiary has discharged, demoted, suspended, threatened, harassed or in
any other manner discriminated against an employee of the Company or any of its
Subsidiaries in the terms and conditions of employment because of any lawful
act of such employee described in Section 806 of the Sarbanes-Oxley Act.

 

Section 3.8             Proxy
Statement.  The letter to
stockholders, notice of meeting, proxy statement and form of proxy that will be
provided to stockholders of the Company in connection with the solicitation of
proxies from stockholders at the Company Stockholders Meeting and any schedules
required to be filed with the SEC in connection therewith (collectively, as
amended or supplemented, the “Proxy Statement”)
will, when filed with the SEC, comply as to form in all material respects with
the applicable requirements of the Exchange Act.  At the time the Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company
and at the time of the Company Stockholders Meeting, the Proxy Statement will
not 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 were made, not misleading.  Notwithstanding any of the foregoing, the
Company does not make any representations or warranties with respect to
information supplied by Parent, Merger

 

21

 

Sub or any of their
officers, directors, representatives, agents or employees for inclusion or
incorporation by reference in the Proxy Statement.

 

Section 3.9             No
Undisclosed Liabilities.  Neither the
Company nor any of its Subsidiaries has any Liabilities other than (a) Liabilities
reflected or otherwise reserved against in the Balance Sheet or in the
consolidated financial statements of the Company and its Subsidiaries included
in the SEC Reports filed prior to the date of this Agreement, (b) Liabilities
under this Agreement, (c) Liabilities incurred in connection with the
transactions contemplated by this Agreement, (d) executory obligations
under any contract to which the Company is a party or is bound and (e) other
Liabilities the existence of which would not, individually or in the aggregate,
have a Company Material Adverse Effect.

 

Section 3.10           Absence
of Certain Changes.  Since March 31,
2005, except for actions expressly contemplated by this Agreement, the business
of the Company and its Subsidiaries has been conducted, in all material
respects, in the ordinary course consistent with past practice and there has
not been:

 

(a)           any
Company Material Adverse Effect;

 

(b)           other than
cash dividends made by any wholly owned Subsidiary of the Company to the Company
or one of its Subsidiaries, any split, combination or reclassification of any
shares of capital stock, declaration, setting aside or paying of any dividend
or other distribution (whether in cash, shares or property or any combination
thereof) in respect of any shares of capital stock of the Company or any
Subsidiary;

 

(c)           any
damage, destruction or other casualty loss (whether or not covered by
insurance) with respect to any Assets that, individually or in the aggregate,
are material to the Company and its Subsidiaries, taken as a whole;

 

(d)           any change
in any method of accounting or accounting principles or practice by the Company
or any of its Subsidiaries, except for any such change required by reason of a
change in GAAP or regulatory accounting principles;

 

(e)           any
amendment of the Company’s certificate of incorporation or bylaws;

 

(f)            any
acquisition, redemption or amendment of any Company Securities or Subsidiary
Securities;

 

(g)           (A) any
incurrence or assumption of any long-term or short-term debt or issuance of any
debt securities by the Company or any of its Subsidiaries except for short-term
debt incurred to fund operations of the business or owed to the Company or any
of its wholly-owned Subsidiaries, in each case, in the ordinary course of business
consistent with past practice, (B) any assumption, guarantee or
endorsement of the obligations of any other Person (except direct or indirect
wholly-owned Subsidiaries of the Company) by the Company or any of its
Subsidiaries, (C) any loan, advance or capital contribution to, or other
investment in, any other Person by the Company or any of its Subsidiaries
(other than customary loans or advances to employees or direct or 

 

22

 

indirect wholly-owned Subsidiaries, in each case in the ordinary course
of business consistent with past practice) or (D) any mortgage or pledge
of the Company’s or any of its Subsidiaries’ assets, tangible or intangible, or
any creation of any Lien thereupon (other than Permitted Encumbrances); or

 

(h)           any plan
of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any
of its Subsidiaries (other than the Merger).

 

Section 3.11           Material
Contracts.

 

(a)           For
purposes of this Agreement, a “Material
Contract” shall mean:

 

(i)            any
“material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC, other than those agreements and arrangements
described in Item 601(b)(10)(iii)) with respect to the Company and its
Subsidiaries;

 

(ii)           any
employment or consulting Contract (in each case, under which the Company has
continuing obligations as of the date hereof) with any current or former
executive officer or other employee of the Company or its Subsidiaries or
member of the board of directors of the Company providing for an annual base
compensation in excess of $200,000;

 

(iii)          any
Contract or plan, including, without limitation, any stock option plan, stock
appreciation right plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the consummation of the Merger or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by this
Agreement;

 

(iv)          any
agreement of indemnification or any guaranty (in each case, under which the
Company has continuing obligations as of the date hereof), other than any
guaranty by the Company of any of its Subsidiary’s obligations or any agreement
of indemnification entered into in connection with the distribution, sale or
license of services or hardware or software products in the ordinary course of
business, which indemnification does not materially differ from the provisions
embedded in Company’s standard forms of software license agreements as provided
or made available to Parent;

 

(v)           any
Contract containing any covenant (A) limiting the right of the Company or
any of its Subsidiaries to engage in any line of business, to make use of any
material Intellectual Property or to compete with any Person in any line of
business, (B) granting any exclusive rights, (C) prohibiting the
Company or any of its Subsidiaries (or, after the Closing Date, Parent) from
engaging in business with any Person or levying a fine, charge or other payment
for doing so, or (D) otherwise prohibiting or limiting the right of the
Company or its Subsidiaries to sell, distribute or manufacture any products or
services or to purchase or otherwise obtain any software, components, parts or
subassemblies in each case, other than any such Contracts that (x) may be
cancelled without material liability to the Company or its Subsidiaries upon
notice of 90 days or less or (y) are not, individually or in the aggregate,
material to the Company and its Subsidiaries, taken as a whole;

 

23

 

(vi)          any
Contract (A) relating to the disposition or acquisition by the Company or
any of its Subsidiaries after the date of this Agreement of a material amount
of assets other than in the ordinary course of business or (B) pursuant to
which the Company or any of its Subsidiaries will acquire any material
ownership interest in any other Person or other business enterprise other than
the Company’s Subsidiaries;

 

(vii)         any
dealer, distributor, joint marketing or development agreement, under which the
Company or any of its Subsidiaries have continuing obligations or costs in
excess of $200,000 per year, to jointly market any product, technology or
service, and which may not be canceled without material liability to the
Company or its Subsidiaries upon notice of 90 days or less;

 

(viii)        any
Contract to provide source code to any third party for any Company Product,
including any Contract to put such source code in escrow with a third party on
behalf of a licensee or contracting party, other than any customer Contract
entered into in the ordinary course of business consistent with past practice
and substantially on the Company’s standard terms and conditions providing for
placement of such source code into escrow solely for the purpose of permitting
the customer or its agents to use such source code in support of internal use
of the Company Product;

 

(ix)           any
Contract (A) containing any financial penalty for the failure by the
Company or any of its Subsidiaries to comply with any support or maintenance
obligation, (B) containing any service obligation or cost on the part of
the Company or any of its Subsidiaries in excess of $200,000, other than those
obligations that are terminable by the Company or any of its Subsidiaries on no
more than 90 days notice without material liability or financial obligation to
the Company or its Subsidiaries, or (C) containing any obligation to
provide support or maintenance for the Company Products for any period in
excess of twelve months, other than those obligations that are terminable by
the Company or any of its Subsidiaries on no more than twelve months’ notice
without material liability or financial obligation to the Company or its
Subsidiaries;

 

(x)            any
Contract authorizing another Person to provide support or maintenance to
customers of the Company Products on behalf of the Company, including
distributors or resellers that are obligated to provide such support or
maintenance;

 

(xi)           any
Contract to license any third party to manufacture or reproduce any Company
Products or any Contract to sell or distribute any Company Products, except (A) agreements
with distributors or sales representatives in the ordinary course of business
consistent with past practice, or (B) agreements allowing internal copies
made or to be made by end-user customers in the ordinary course of business
consistent with past practice;

 

(xii)          any
mortgages, indentures, guarantees, loans or credit agreements, security
agreements or other Contracts relating to the borrowing of money or extension
of credit, in each case in excess of $200,000, other than (A) accounts
receivables and payables and (B) loans to direct or indirect wholly-owned
Subsidiaries, in each case in the ordinary course of business;

 

24

 

(xiii)         (A) any
settlement agreement entered into within four years prior to the date of this
Agreement relating primarily to Intellectual Property claims that has not been
discharged in connection with the Company’s bankruptcy filing on September 22,
2002, and (B) any settlement agreement not relating to Intellectual
Property entered into since August 7, 2003, in each case other than (I)
releases immaterial in nature or amount entered into with former employees or
independent contractors of the Company in the ordinary course of business,
(II) settlement agreements for cash only (which has been paid) and does
not exceed $300,000 as to such settlement, or (III) settlement agreements
related to general unsecured claims (Class 8) asserted against the Company
in connection with its bankruptcy filing;

 

(xiv)        any
other agreement, contract or commitment that provides for payment obligations
by the Company or any of its Subsidiaries of $200,000 or more in any individual
case that is not terminable by the Company or its Subsidiaries upon notice of
90 days or less without material liability to the Company or its Subsidiary and
is not disclosed pursuant to clauses (i) through (xiii) above; and

 

(xv)
any Contract, or group of Contracts with a Person (or group of affiliated
Persons), the termination or breach of which would be reasonably expected to
have a material adverse effect on any material product or service offerings of
the Company or otherwise have a Company Material Adverse Effect and is not
disclosed pursuant to clauses (i) through (xv) above.

 

(b)           Section 3.11(b) of
the Company Disclosure Schedule sets forth a list of all Material
Contracts to or by which the Company or any of its Subsidiaries is a party or
is bound, and identifies each subsection of Section 3.11(a) that
describes such Material Contract.

 

(c)           Each
Material Contract is valid and binding on the Company (or such Subsidiary of
the Company party thereto) and is in full force and effect, and neither the
Company nor any of its Subsidiaries party thereto, nor, to the knowledge of the
Company, any other party thereto, is in breach of, or default under, any such
Material Contract, and no event has occurred that with notice or lapse of time
or both would constitute such a breach or default thereunder by the Company or
any of its Subsidiaries, or, to the knowledge of the Company, any other party
thereto, except for such failures to be in full force and effect and such
breaches and defaults that would not, individually or in the aggregate, have a
Company Material Adverse Effect.

 

Section 3.12           Compliance
with Laws.  The Company and each of
its Subsidiaries is in compliance with all Laws and Orders applicable to the
Company and its Subsidiaries or to the conduct of the business or operations of
the Company and its Subsidiaries, except for such violations or noncompliance
that would not, individually or in the aggregate, have a Company Material
Adverse Effect.  No representation or
warranty is made in this Section 3.12 with respect to (a) compliance
with the Exchange Act, to the extent such compliance is covered in Section 3.6
and Section 3.8, (b) applicable Laws with respect to Taxes,
which are covered in Section 3.15, (c) Environmental Laws,
which are covered in Section 3.16 or (d) ERISA matters, which
are covered in Section 3.17.

 

25

 

Section 3.13           Permits.  The Company and its Subsidiaries have, and
are in compliance with the terms of, all permits, licenses, authorizations,
consents, approvals and franchises from Governmental Entities required to
conduct their businesses as currently conducted (“Permits”), and no suspension or cancellation of any such
Permits is pending or, to the knowledge of the Company, threatened, except for
such noncompliance, suspensions or cancellations that would not, individually
or in the aggregate, have a Company Material Adverse Effect.

 

Section 3.14           Litigation.  There is no Legal Proceeding pending or, to
the knowledge of the Company, threatened against the Company, any of its
Subsidiaries or any of the respective properties of the Company or any of its
Subsidiaries that (a) involves an amount in controversy in excess of
$200,000, (b) seeks material injunctive relief, (c) seeks to impose
any legal restraint on or prohibition against or limit the Surviving
Corporation’s ability to operate the business of the Company and its
Subsidiaries substantially as it was operated immediately prior to the date of
this Agreement or (d) would, individually or in the aggregate with all
other pending or threatened Legal Proceedings, have a Company Material Adverse
Effect.  Neither the Company nor any of
its Subsidiaries is subject to any outstanding Order that would, individually
or in the aggregate, have a Company Material Adverse Effect.

 

Section 3.15           Taxes.

 

(a)           All
material Tax Returns required by applicable Law to be filed by or on behalf of
the Company or any of its Subsidiaries have been filed in accordance with all
applicable Laws, and all such Tax Returns were, at the time of the original
filing of the Tax Return or any amendment thereto, true and complete in all
material respects.

 

(b)           The
Company and each of its Subsidiaries has paid (or has had paid on its behalf)
or has withheld and remitted to the appropriate Governmental Entity all Taxes
(including income Taxes, withholding Taxes and estimated Taxes) due and payable
without regard to whether such Taxes have been assessed or has established (or has
had established on its behalf) in accordance with GAAP an adequate accrual for
all Taxes (including Taxes that are not yet due or payable) through the end of
the last period for which the Company and its Subsidiaries ordinarily record
items on their respective books, and regardless of whether the liability for
such Taxes is disputed.  The Company has
made available to Parent and Merger Sub complete and accurate copies of the
portions applicable to each of the Company and its Subsidiaries of all income, franchise,
and foreign Tax Returns that have been requested by or on behalf of Parent, and
any amendments thereto, filed by or on behalf of the Company or any of its
Subsidiaries or any member of a group of corporations including the Company or
any of its Subsidiaries for the taxable years ending 1999 through 2004.

 

(c)           There
are no Liens on the assets of the Company or any of its Subsidiaries relating
or attributable to Taxes, other than Liens for Taxes not yet due and payable.

 

(d)           As
of the date of this Agreement, there are no Legal Proceedings now pending, or
to the knowledge of the Company, threatened against or with respect to the
Company or any of its Subsidiaries with respect to any Tax, and none of the
Company or any of its Subsidiaries knows of any audit or investigation with
respect to any Liability of the Company or

 

26

 

any of its Subsidiaries
for Taxes, and there are no agreements in effect to extend the period of
limitations for the assessment or collection of any Tax for which the Company
or any of its Subsidiaries may be liable.

 

(e)           The
Company and its Subsidiaries have not executed any closing agreement pursuant
to Section 7121 of the Code or any predecessor provision thereof, or any
similar provision of state or local Law.

 

(f)            Each
of the Company and its Subsidiaries has disclosed on its Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Section 6662 of the Code or any
similar provision of state or local Law.

 

(g)           Neither
the Company nor any of its Subsidiaries have (i) ever been a party to a
contract, agreement or intercompany account system in existence under which the
Company or any of its Subsidiaries has, or may at any time in the future have,
an obligation to contribute to the payment of any portion of a Tax (or pay any
amount calculated with reference to any portion of a Tax) of any group of
corporations of which the Company or any of its Subsidiaries is or was a part
(other than a group the common parent of which is the Company), and (ii) any
Liability for Taxes of any Person (other than the Company or any of its
Subsidiaries) under Treasury regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law) as a transferee or successor, by
contract or otherwise.

 

(h)           No
written claim has been made during the past five years by any appropriate
Governmental Entity in a jurisdiction where neither the Company nor any of its
Subsidiaries filed Tax Returns that it is or may be subject to any material
taxation by that jurisdiction.

 

(i)            Neither
the Company nor any of its Subsidiaries has participated or engaged in
transactions that constitute “reportable transactions” as such term is defined
in Treasury Regulation Section 1.6011-4(b)(1) (other than such
transactions that have been properly reported or are not yet required to have
been reported), or transactions that constitute “listed transactions” as such
term is defined in Treasury Regulation Section 1.6011-4(b)(2).

 

(j)            Neither
the Company nor any of its Subsidiaries has agreed or is required to make any
adjustments pursuant to Section 481(a) of the Code or any similar
provision of state, local or foreign Law by reason of a change in accounting
method initiated by it or any other relevant party and neither the Company nor
any of its Subsidiaries has any knowledge that the appropriate Governmental
Entity has proposed any such adjustment or change in accounting method, nor is
any application pending with any appropriate Governmental Entity requesting
permission for any changes in accounting methods that relate to the business or
assets of the Company or any of its Subsidiaries.

 

(k)           The
Company and its Subsidiaries 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
installment sale or open

 

27

 

transaction disposition
made on or prior to the Closing Date or (ii) any prepaid amount received
on or prior to the Closing Date.

 

(l)            The
Company and its Subsidiaries are not United States Real Property Holding
Corporations within the meaning of Section 897 of the Code and were not
United States Real Property Holding Corporations on any “determination date”
(as defined in §1.897-2(c) of the United States Treasury Regulations
promulgated under the Code) that occurred in the five-year period preceding the
Closing.

 

(m)          Neither
the Company nor any of its Subsidiaries has undergone an ownership change under
Section 382 of the Code since the Company’s bankruptcy reorganization in
2003, other than the ownership change arising from the transaction contemplated
by this Agreement.

 

(n)           The
transactions contemplated by this Agreement will not result in the payment or
series of payments by the Company or any of its Subsidiaries to any person of
an “excess parachute payment” within the meaning of Section 280G of the
Code, or any other similar payment, which is not deductible for federal, state,
local or foreign Tax purposes.

 

(o)           The
Company and its Subsidiaries have delivered or made available to Parent
complete and accurate copies of each of all letter rulings, technical advice
memoranda, and similar documents issued since 1999 by a Governmental Entity
relating to federal, state, local or foreign Taxes due from or with respect to
the Company or any of its Subsidiaries. 
The Company will deliver to Parent all materials with respect to the
foregoing for all matters arising after the date hereof through the Closing
Date.

 

(p)           Section 3.15(p)
of the Company Disclosure Schedule lists each jurisdiction in which the
Company or any of its Subsidiaries benefits from (i) exemptions from
taxation, Tax holidays, reduction in Tax rate or similar Tax reliefs and (ii) other
financial grants, subsidies or similar incentives granted by a Governmental
Entity, whether or not relating to Taxes (together with the Tax incentives
described in subclause (i), the “Incentives”)
and describes the details of such Incentives. 
The Company and its Subsidiaries are in full compliance with all terms
and conditions of any agreement or order relating to such Incentives in such
jurisdictions where such Incentives are available, and have received no written
notice from any Governmental Entity claiming that such Incentives were not, or
will not in the future, be available.

 

(q)           None
of the assets of the Company or any of its Subsidiaries is treated as “tax
exempt use property,” within the meaning of Section 168(h) of the
Code.

 

(r)            Section 3.15(r)
of the Company Disclosure Schedule lists each Subsidiary for which an
election has been made pursuant to Section 7701 of the Code and the
Treasury regulations thereunder to be treated other than its default
classification for U.S. Federal income tax purposes.  Except as disclosed on such Section, each
Subsidiary will be classified for U.S. Federal income tax purposes according to
its default classification.

 

28

 

(s)           The
Company and its Subsidiaries have maintained the books and records required to
be maintained pursuant to Section 6001 of the Code and the rules and
regulations thereunder, and comparable Laws of the countries, states, counties,
provinces, localities and other political divisions wherein it is required to
file Tax Returns and other reports relating to Taxes.

 

(t)            During
the two-year period ending on the date of this Agreement, neither the Company
nor any of its Subsidiaries was a distributing corporation or a controlled
corporation in a transaction intended to be governed by Section 355 of the
Code.

 

Section 3.16           Environmental
Matters.  Except for such matters as
would not, individually or in the aggregate, have a Company Material Adverse
Effect:

 

(a)           The
Company and its Subsidiaries are in compliance with all applicable
Environmental Laws, which compliance includes the possession and maintenance
of, and compliance with, all Permits required under applicable Environmental
Laws for the operation of the business of the Company and its Subsidiaries.

 

(b)           Neither
the Company nor any of its Subsidiaries has produced, processed, manufactured,
generated, treated, handled, stored or disposed of any Hazardous Substances,
except in compliance with applicable Environmental Laws, at any property that
the Company or any of its Subsidiaries has at any time owned, operated,
occupied or leased.

 

(c)           Neither
Company nor any of its Subsidiaries has transported, stored, used,
manufactured, disposed of, released or exposed any employee or any third party
to Hazardous Substances in violation of any Environmental Law.

 

(d)           Neither
the Company nor any of its Subsidiaries has received written notice of, is a
party to or is the subject of any Legal Proceeding alleging any Liability or
responsibility under or noncompliance with any Environmental Law or seeking to
impose any financial responsibility for any investigation, cleanup, removal,
containment or any other remediation or compliance under any Environmental Law.  To the knowledge of the Company, there is no
reasonable basis for, or circumstances that are reasonably likely to give rise
to, any such Legal Proceeding by any Governmental Entity or any third party
that would give rise to any liability or obligation on the part of the Company
or any of its Subsidiaries.  Neither the
Company nor any of its Subsidiaries is subject to any Order or agreement by or
with any Governmental Entity or third party imposing any material liability or
obligation with respect to any of the foregoing.

 

Section 3.17           Employee
Benefit Plans.

 

(a)           Sections
3.17(a)(i) and (a)(ii) of the Company Disclosure Schedule,
respectively, set forth a complete and accurate list of (i) all “employee
benefit plans” (as defined in Section 3(3) of ERISA), whether or not
subject to ERISA, and (ii) all other employment, bonus, stock option,
stock purchase or other equity-based, benefit, incentive compensation, profit
sharing, savings, retirement (including early retirement and supplemental
retirement), disability, insurance, vacation, incentive, deferred compensation,
supplemental retirement (including

 

29

 

termination indemnities and seniority payments),
severance (including, for the avoidance of doubt, details of any redundancy
benefits which have been provided to former employees by the Company or any of
its Subsidiaries since August 1, 2003 which exceeded the minimum benefits
required by any applicable Law), termination, retention, change of control and
other similar fringe, welfare or other employee benefit plans, programs,
agreement, contracts, policies or arrangements (whether or not in writing)
maintained or contributed to for the benefit of or relating to any current or
former employee or director of the Company, any of its Subsidiaries or any
other trade or business (whether or not incorporated) which would be treated as
a single employer with the Company or any of its Subsidiaries under Section 414
of the Code (an “ERISA Affiliate”), or with respect
to which the Company or any of its Subsidiaries has any material Liability
(together the “Employee Plans”).  With respect to each Employee Plan, the
Company has made available to Parent complete and accurate copies of (i) the
most recent annual report on Form 5500 required to have been filed with
the Internal Revenue Service for each Employee Plan, including all schedules
thereto; (ii) the most recent determination letter, if any, from the
Internal Revenue Service for any Employee Plan that is intended to qualify
under Section 401(a) of the Code; (iii) the plan documents and
summary plan descriptions, if any (other than those referred to in Section 4(b)(4) of
ERISA), or a written description of the terms of any Employee Plan that is not
in writing; (iv) any related trust agreements, insurance contracts,
insurance policies or other documents of any funding arrangements; (v) any
notices to or from the Internal Revenue Service or any office or representative
of the Department of Labor or any similar Governmental Entity relating to any
compliance issues in respect of any such Employee Plan; (vi) with respect
to each Employee Plan that is maintained in any non-U.S. jurisdiction (the “International Employee Plans”), to the
extent applicable, (A) the most recent annual report or similar compliance
documents required to be filed with any Governmental Entity with respect to
such plan and (B) any document comparable to the determination letter
reference under clause (ii) above issued by a Governmental Entity relating
to the satisfaction of the requirements of Law necessary to obtain the most
favorable tax treatment; and (vii) all amendments, modifications or
supplements to any such document.  No
Employee Plan is (i) a “defined benefit plan” (as defined in Section 414
of the Code), (ii) a “multiemployer plan” (as defined in Section 3(37)
of ERISA), (iii) a “multiple employer plan” (as defined in Section 4063
or 4064 of ERISA) (in each case under clause (i), (ii) or (iii) whether
or not subject to ERISA) or (iv) subject to Section 302 of ERISA, Section 412
of the Code or Title IV of ERISA.

 

(b)           Each
Employee Plan has been maintained, operated and administered in compliance in
all material respects with its terms and with all applicable Laws and
Collective Bargaining Agreements, including the applicable provisions of ERISA,
the Code and the codes of practice issued by any Governmental Entity.  To the extent applicable, each International
Employee Plan has been approved by the relevant taxation and other Governmental
Entities so as to enable: (i) the Company or any of its Subsidiaries and
the participants and beneficiaries under the relevant International Employee
Plan; and (ii) in the case of any International Employee Plan under which
resources are set aside in advance of the benefits being paid (a “Funded International Employee Plan”), the
assets held for the purposes of the Funded International Employee Plans, to
enjoy the most favorable taxation status possible and the Company is not aware
of any ground on which such approval may cease to apply.

 

(c)           No
Employee Plan that is a non-qualified deferred compensation plan or arrangement
subject to Section 409A of the Code has been materially modified (as
defined under

 

30

 

Section 409A of the Code) since October 3,
2004 and all such non-qualified deferred compensation plans or arrangements
have been operated and administered in good faith compliance with Section 409A
of the Code from the period beginning January 1, 2005 through the date
hereof.  All contributions, premiums and
other payments required to be made with respect to any Employee Plan have been
timely made under applicable Law, any applicable Collective Bargaining
Agreement and the terms of such Plan.  To
the knowledge of the Company, no event has occurred and there currently exists
no condition or set of circumstances in connection with which the Company or
any of its Subsidiaries could be subject to any material liability under the
terms of any Employee Plan, ERISA, the Code or codes of practice issued by any
Governmental Entity, Collective Bargaining Agreement or any other applicable
Law.  Except as required by Law, neither
the Company nor any of its Subsidiaries has any plan or commitment to amend or
establish any new Employee Plan or to continue or increase any benefits under
any Employee Plan, or to maintain any such benefits or the level of any such
benefits generally for any period.

 

(d)           There
are no Legal Proceedings pending or, to the knowledge of the Company,
threatened on behalf of or against any Employee Plan, the assets of any trust
under any Employee Plan, or the plan sponsor, plan administrator or any
fiduciary or any Employee Plan with respect to the administration or operation
of such plans which would have a Company Material Adverse Effect.

 

(e)           None
of the Company, any of its Subsidiaries, or, to the knowledge of the Company,
any of their respective directors, officers, employees or agents has, with
respect to any Employee Plan, engaged in or been a party to any non-exempt “prohibited
transaction,” as such term is defined in Section 4975 of the Code or Section 406
of ERISA, which could reasonably be expected to result in the imposition of a
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed
by Section 4975 of the Code, in each case applicable to the Company, any
of its Subsidiaries or any Employee Plan or for which the Company or any of its
Subsidiaries has any indemnification obligation.

 

(f)            No
Employee Plan that is a “welfare benefit plan” within the meaning of Section 3(1) of
ERISA provides benefits to former employees of the Company or its ERISA
Affiliates, other than pursuant to Section 4980B of the Code or any
similar state, local or foreign Law.

 

(g)           Each
Employee Plan that is intended to be “qualified” under Section 401 and/or
409 of the Code has received a favorable determination letter from the Internal
Revenue Service to such effect and, to the knowledge of the Company, no fact,
circumstance or event has occurred or exists since the date of such determination
letter that would reasonably be expected to materially and adversely affect the
qualified status of any such Employee Plan.

 

(h)           All
contributions, premiums and other payments required to be made with respect to
any Employee Plan have been timely made, accrued or reserved for in all
material respects.

 

(i)            Neither
the execution or delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will, either alone or in
conjunction with any

 

31

 

other event, (i) result in any payment or benefit
becoming due or payable, or required to be provided, to any director, employee
or independent contractor of the Company or any of its Subsidiaries, (ii) increase
the amount or value of any benefit or compensation otherwise payable or
required to be provided to any such director, employee or independent
contractor, (iii) result in the acceleration of the time of payment,
vesting or funding of any such benefit or compensation or (iv) result in
any amount to fail to be deductible by reason of Section 280G of the Code.

 

(j)            Since
August 1, 2003, no deduction for federal income tax purposes has been nor
is any such deduction expected by the Company to be disallowed for remuneration
paid by the Company or any of its Subsidiaries by reason of Section 162(m)
of the Code including by reason of the transactions contemplated hereby.

 

(k)           All
contracts of employment with any employee of the Company or any of it
Subsidiaries who provide services outside the United States (“Foreign Employees”), director or consultant
can be terminated by three months’ notice or less given at any time without
giving rise to any claim for damages, severance pay, or compensation (other
than a statutory redundancy payment applicable by virtue of Law or compensation
for unfair dismissal applicable by virtue of Law).

 

(l)            No
promise has been made to any Foreign Employee that his defined contribution
benefits under any Funded International Employee Plan will at any point in the
future equate to or not be less than any particular amount.  Furthermore, no International Employee Plan
has unfunded liabilities, that as of the Closing Date, will not be offset in
full by insurance or otherwise be fully accounted for on a basis which complies
with International Accounting Standard 19 (IAS
19) (whether or not IAS 19
applies to the Company or, if relevant, any of its Subsidiaries).

 

(m)          Except
as required by Law, no condition or term under any relevant Employee Plan
Document exists which would prevent Parent or the Surviving Corporation or any
of its Subsidiaries from terminating or amending any International Employee
Plan at any time for any reason without liability to Parent or the Surviving
Corporation or any of its Subsidiaries (other than ordinary administration
expenses or routine claims for benefits).

 

Section 3.18           Labor
Matters.

 

(a)           Neither
the Company nor any of its Subsidiaries is a party to any labor or Collective
Bargaining Agreement with respect to their respective employees with any labor
organization, union, group, association, works council or other employee
representative body.  To the knowledge of
the Company, there are no activities or proceedings by any labor organization,
union, group or association or representative thereof to organize any such
employees.  There are no lockouts,
strikes, slowdowns, work stoppages or, to the knowledge of the Company,
threats thereof by or with respect to any employees of the Company or any of
its Subsidiaries which would have a Company Material Adverse Effect nor have
there been any such lockouts, strikes, slowdowns or work stoppages since August 7,
2003.

 

32

 

(b)           The
Company and its Subsidiaries (i) have complied in all material respects
with applicable Laws and Orders relating to the employment of labor (including,
without limitation, wage and hour Laws, Laws prohibiting discrimination in
employment and Laws relating to employee notification and consultation, terms
and conditions of employment practices and health and safety at work of
employees) and Collective Bargaining Agreements; and (ii) are not liable
for any arrears of wages or any taxes or any penalty for a failure to comply
with the foregoing.  The Company and its
Subsidiaries are not liable to any Governmental Entity or fund governed or
maintained by or on behalf of any Governmental Entity for any material payment
with respect to any social security or other benefits or obligations for
employees (save for routine payments to be made in the normal course of
business and consistent with past practice).

 

Section 3.19           Real
Property.

 

(a)           Owned
Real Property.  Neither the Company
nor any of its Subsidiaries owns any real property.

 

(b)           Leased
Real Property.  Section 3.19(b)(i) of
the Company Disclosure Schedule sets forth a complete list of all of the
existing material leases, subleases or other agreements (collectively, the “Leases”) under which the Company or any of
its Subsidiaries uses or occupies or has the right to use or occupy, now or in
the future, any real property (such property, the “Leased Real Property”) including, with respect to each Lease,
the name of the lessor and the date of the Lease and each amendment
thereto.  The Company has heretofore made
available to Parent true, correct and complete copies of all Leases (including
all modifications, amendments, supplements, waivers and side letters
thereto).  The Company and/or its
Subsidiaries have and own valid leasehold estates in the Leased Real Property,
free and clear of all Liens other than Permitted Encumbrances.  Section 3.19(b)(ii) of the Company
Disclosure Schedule sets forth a list of all of the existing Leases
granting to any Person, other than the Company or any of its Subsidiaries, any
right to use or occupy, now or in the future, any of the Leased Real
Property.  The Leases are each in full
force and effect and neither the Company nor any of its Subsidiaries is in
material breach of or default under, or has received written notice of any
material breach of or default under, any material Lease, and, to the knowledge
of the Company, no event has occurred that with notice or lapse of time or both
would constitute a material breach or default thereunder by the Company or any
of its Subsidiaries or any other party thereto.

 

Section 3.20           Assets;
Personal Property.  The machinery,
equipment, furniture, fixtures and other tangible personal property and assets
owned, leased or used by the Company or any of its Subsidiaries (the “Assets”) are, in the aggregate, sufficient and
adequate to carry on their respective businesses in all material respects as
presently conducted, and the Company and its Subsidiaries are in possession of
and have good title to, or valid leasehold interests in or valid rights under
contract to use, such Assets that are material to the Company and its
Subsidiaries, taken as a whole, free and clear of all Liens, except for
Permitted Encumbrances and defects in title that would not, individually or in
the aggregate, have a Material Adverse Effect on the Company.

 

33

 

Section 3.21           Intellectual
Property.

 

(a)           Sections
3.21(a)(i) and (a)(ii) of the Company Disclosure Schedule sets
forth, respectively, (i) all products marketed by the Company or its
Subsidiaries since August 7, 2003 and (ii) all products that are in
development as of the date hereof (other than updates or upgrades to existing
products) and that the Company expects or intends to make available
commercially prior to twelve months after the date hereof (such products
described in clauses (i) and (ii), the “Company
Products”); provided that the Company makes no representation or
warranty that all such Company Products will in fact be made commercially
available within twelve months or ever or that there are no other products that
may become available in that time.

 

(b)           Section 3.21(b) of
the Company Disclosure Schedule sets forth a complete and correct list of
the following Owned Company IP: (i) all registered Trademarks and material
unregistered Trademarks; (ii) domain names registrations; (iii) all
Patents; and (iv) all registered Copyrights, in each case listing, as
applicable, (A) the name of the applicant/registrant and current owner, (B) the
jurisdiction where the application/registration is located, and (C) the
application or registration number.  Section 3.21(b) of
the Company Disclosure Schedule identifies, with respect to domain names,
the named owner, and the registrar or equivalent Person with whom that domain
name is registered.  To the knowledge of
the Company, none of the Owned Company IP is invalid or unenforceable, except
to the extent that such invalidity or unenforceability would not, individually
or in the aggregate, give rise to a Company Material Adverse Effect.

 

(c)           In
each case in which the Company or any of its Subsidiaries has acquired
ownership of any registered Trademarks, registered Copyrights, Patents, or
domain name registrations currently included in the Owned Company IP from
another Person as set forth in Section 3.21(c) of the Company
Disclosure Schedule (i) with respect to Patents, registered
Trademarks, or registered Copyrights, the Company or one of its Subsidiaries
has recorded or had recorded each such acquisition with the U.S. Patent and
Trademark Office, the U.S. Copyright Office, or their respective equivalents in
the applicable jurisdiction, in each case in accordance with applicable Laws;
and (ii) with respect to material domain names, the Company or any of its
Subsidiaries has made or procured a transfer of the domain name in accordance
with the procedure of the registrar, except in the case of either clause (i) or
(ii) where the failure to do so will not give rise to a Company Material
Adverse Effect.  For the avoidance of
doubt, the foregoing representation relates only to Trademarks, Copyrights and
domain names that were registered and to Patents that had issued at the time
that the Company or any of its Subsidiaries acquired them.  Thus, for example, the foregoing does not
apply to inventions that the Company or any of its Subsidiaries acquires for
which it later applies for patents in its own name, or to copyrights or
trademarks that the Company or any of its Subsidiaries initially registers in
its own name.

 

(d)           Section 3.21(d) of
the Company Disclosure Schedule sets forth all material agreements (other
than any agreements that were terminated by the Company or its Subsidiaries
more than six months before the date hereof, or that expired or were terminated
by any party other than the Company or any of its Subsidiaries before the date
hereof, or that were rejected by the Company in connection with the Company’s
bankruptcy filing on September 22, 2002) (i) under which the Company
or any of its Subsidiaries uses or has the right to use any Licensed Company
IP, other than licenses and related services agreements for commercially
available software that is used by the Company but not incorporated into any
Company Products

 

34

 

and that has not been
substantially customized solely for use by Company, or (ii) under which
the Company or any of its Subsidiaries has, after August 7, 2003, licensed
to others the right to use or agreed to transfer to others any of the Company
IP, other than customer licenses and other agreements entered into in the
ordinary course of business, in each case specifying the parties to the
agreement (such agreements, the “Company IP
Agreements”).  Except as set
forth in any of the Company IP Agreements, neither the Company nor any of its
Subsidiaries has granted since August 7, 2003 nor, to the knowledge of the
Company, before that date, any exclusive license under any Owned Company IP or
any licenses to use any material Company Source Code (other than source code
licenses granted in connection with source code escrows).  To the knowledge of the Company, no third
parties to the Company IP Agreements are in material breach thereof, except
where such breach would not, individually or in the aggregate, have a Company
Material Adverse Effect.  To the knowledge
of the Company, there are no pending disputes regarding the scope of such
Company IP Agreements, performance under the Company IP Agreements, or with
respect to payments made or received under such Company IP Agreements, except
for disputes that will not, individually or in the aggregate, give rise to a
Company Material Adverse Effect.  To the
knowledge of the Company, all Company IP Agreements are binding and are in full
force and effect, except where the failure of a Company IP Agreement to be
binding and in full force and effect would not, individually or in the
aggregate, have a Company Material Adverse Effect.

 

(e)           To
the knowledge of the Company, the Owned Company IP, together with the
Intellectual Property held or used under license by the Company and its
Subsidiaries, is sufficient for the conduct of the business of the Company and
its Subsidiaries as currently conducted. 
Without limiting the foregoing, to the knowledge of the Company, the
Company or its Subsidiaries have the right to use all software development
tools, library functions, or compilers that the Company or its Subsidiaries (i) use
to create, modify, compile, or support any material Company Product, or (ii) use
to provide any material services provided by the Company and its Subsidiaries.

 

(f)            The
Company and its Subsidiaries own all right, title and interest in the Owned
Company IP, free and clear of all Liens other than (i) Permitted
Encumbrances, (ii) encumbrances, restrictions or other obligations arising
under any of the Company IP Agreements, and (iii) Liens that do not,
individually or in the aggregate, have a Company Material Adverse Effect.

 

(g)           The
Company and each of its Subsidiaries has taken reasonable and appropriate steps
to protect and preserve the confidentiality of the Trade Secrets that comprise
any part of the Company IP, and to the knowledge of the Company, there are no
unauthorized uses, disclosures or infringements of any such Trade Secrets by
any Person.  To the Company’s knowledge,
all use and disclosure by the Company or any of its Subsidiaries of Trade
Secrets owned by another Person have been pursuant to the terms of a written
agreement with such Person or was otherwise lawful, except to the extent that
any use or disclosure of any Trade Secret owned by another Person that was not
done in accordance with a written agreement does not and will not give rise to
a Company Material Adverse Effect. 
Without limiting the foregoing, the Company and its Subsidiaries have a
policy requiring employees and certain consultants and contractors to execute a
confidentiality and assignment agreement substantially in the Company’s
standard form previously provided to Parent. 
The Company and its

 

35

 

Subsidiaries have
enforced such policy, except where any failure to enforce will not give rise to
a Company Material Adverse Effect.

 

(h)           To
the knowledge of the Company, none of the Company or any of its Subsidiaries or
any of its or their current products or services has infringed upon or
otherwise violated, or is infringing upon or otherwise violating, in any
respect the Intellectual Property rights of any third party, except where such
infringement did not and will not give rise to a Company Material Adverse
Effect.  To the knowledge of the Company,
no person or any of its products or services is infringing upon or otherwise
violating in any material respect any Owned Company IP.

 

(i)            There
is no suit, claim, action, investigation or proceeding made, conducted or
brought by a third party that has been served upon or, to the knowledge of the
Company, filed or threatened with respect to, and the Company has not been
notified in writing of, any infringement or other violation in any material
respect by the Company or any of its Subsidiaries or any of its or their
current products or services of the Intellectual Property rights of such third
party.  To the knowledge of the Company,
there is no pending or threatened claim challenging the validity or enforceability
of, or contesting the Company’s or any of its Subsidiaries’ rights with respect
to, any of the Company IP, nor to the knowledge of the Company has any such
claim been asserted since January 1, 2004. 
The Company and its Subsidiaries are not subject to any Order of any
Governmental Entity that restricts or impairs the use of any of their
Intellectual Property, other than restrictions or impairments that would not,
individually or in the aggregate, give rise to a Company Material Adverse
Effect.

 

(j)            The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in (i) the Company or its
Subsidiaries granting to any third party any rights or licenses to any
Intellectual Property, (ii) any right of termination or cancellation under
any Company IP Agreement, (iii) the imposition of any Lien on any Owned
Company IP, except where any of the foregoing (in clauses (i) through
(iii)) would not have a Company Material Adverse Effect or (iv) after the
Merger, Parent or any of its Subsidiaries being required, under the terms of
any agreement to which the Company or any of its Subsidiaries is a party, to
grant any third party any rights or licenses to any of Parent’s or any of its
Subsidiaries’ Intellectual Property, except where the foregoing (in clause
(iv)) would not have a material adverse effect on Parent’s Software Global
Business Unit.

 

(k)           To
the knowledge of the Company, there are no design or other errors in the
Company Products that permit unauthorized access to computers or systems of
users through those Company Products and that will give rise to a Company
Material Adverse Effect whether or not Company uses all commercially reasonable
efforts to correct such errors.  Company
and its Subsidiaries have taken reasonable steps and implemented reasonable
procedures to try to prevent viruses and other disabling codes from entering
Company Products as described in Section 3.21(k) of the Company Disclosure
Schedule.  For the avoidance of doubt,
any unauthorized access caused in whole or in part, by the operating systems,
hardware or software of third parties, shall not be deemed to be caused by the
Company Products.

 

(l)            To
the Company’s knowledge, Section 3.21(l) of the Company Disclosure Schedule lists
all software that is distributed as “open source software” or under a similar

 

36

 

licensing or distribution
model (including but not limited to the GNU General Public License) that is
incorporated into a Company Product.

 

(m)          To
the knowledge of the Company, neither the Company nor any Subsidiary has
experienced any defects in the software and hardware used in their business as
it is currently conducted that have not been fully resolved, including any
error or omission in the processing of any data, and that will give rise to a
Company Material Adverse Effect.  The
Company and its Subsidiaries have in place the disaster recovery plans and
procedures described on Section 3.21(m) of the Company Disclosure
Schedule.

 

(n)           To
the knowledge of the Company, none of the material Company Source Code for the
Company Products has been published or disclosed by the Company or any of its
Subsidiaries, except to its employees or advisers or pursuant to non-disclosure
agreements, or, to the knowledge of the Company, by any other person except as
authorized by the Company under a non-disclosure agreement.  To the knowledge of the Company, no condition
has occurred that would be sufficient to entitle the beneficiary under any
source code escrow arrangement under which the Company has deposited any
material Company Source Code for any Company Product to require release of such
Company Source Code, other than conditions that relate to the solvency or
financial condition of the Company or any of its Subsidiaries or that relate to
the involvement of the Company or its Subsidiaries in any bankruptcy,
assignment for the benefit of creditors, or other activity or proceeding under
state or federal law relating to insolvency or the protection of creditors.  The consummation of the Merger will not
constitute a condition sufficient to entitle the beneficiary under any source
code escrow arrangement under which the Company has deposited any material
Company Source Code for any Company Product to require release of such Company Source
Code.  “Company
Source Code” means source code in which the copyrights and other
Intellectual Property are part of the Owned Company IP.

 

(o)           The
Company’s and its Subsidiaries’ collection and dissemination of personal
customer information in connection with their business has been conducted in
accordance with applicable privacy policies published or otherwise adopted by
the Company and its Subsidiary and any applicable Law, except where the failure
to abide by any such policy or Law will not, individually or in the aggregate,
give rise to a Company Material Adverse Effect.

 

Section 3.22           Insurance.  The Company and its Subsidiaries have all
material policies of insurance covering the Company, its Subsidiaries or any of
their employees, properties or assets, including, without limitation, policies
of life, property, fire, workers’ compensation, products liability, and other
casualty and liability insurance, that the Company believes is adequate for the
operation of its business.  All such
insurance policies are in full force and effect, no notice of cancellation has
been received, and there is no existing default or event which, with the giving
of notice or lapse of time or both, would constitute a default, by any insured
thereunder, except for such defaults that would not, individually or in the
aggregate, have a Company Material Adverse Effect.

 

Section 3.23           Related
Party Transactions.  Except as set
forth in the SEC Reports or compensation or other employment arrangements in
the ordinary course, there are no transactions, agreements, arrangements or
understandings between the Company or any of its

 

37

 

Subsidiaries, on the one
hand, and any Affiliate (including any officer or director) thereof, but not
including any wholly owned Subsidiary of the Company, on the other hand.

 

Section 3.24           Vote
Required.  Assuming that the
representations of Parent and Merger Sub contained in Section 4.6
are correct, the affirmative vote of the holders of a majority of the outstanding
Shares, voting together as a class (the “Stockholder
Approval”), is the only vote of the holders of any class or series
of the Company’s capital stock necessary (under applicable Law or otherwise) to
adopt this Agreement and approve the Merger. 
Assuming that the representations of Parent and Merger Sub contained in Section 4.6
are correct, the board of directors of the Company has taken all necessary
actions so that the restrictions on business combinations set forth in Section 203
of the DGCL and any other similar applicable Law are not applicable to this
Agreement and the transactions contemplated hereby, including the Merger.

 

Section 3.25           Brokers.  Except for Credit Suisse First Boston LLC and
Goldman, Sachs & Co. (true and correct copies of whose engagement
letters have been furnished to Parent), there is no investment banker, broker,
finder, agent or other Person that has been retained by or is authorized to act
on behalf of the Company or any of its Subsidiaries who is entitled to any
financial advisor’s, brokerage, finder’s or other fee or commission in
connection with the transactions contemplated hereby.

 

Section 3.26           Opinion
of Financial Advisors.  The Company
has received the opinion of Goldman, Sachs & Co., to the effect that,
as of the date of this Agreement, the Per Common Share Amount is fair to the
holders of Company Common Stock (other than Parent and Merger Sub) from a
financial point of view, and, as of the date of this Agreement, such opinion
has not been withdrawn, revoked or modified.

 

Section 3.27           Consent
Agreement Compliance.  The Company
has not received any written notice, and does not otherwise have knowledge,
that any Governmental Entity intends to seek any sanctions or penalty with
respect to the Company’s compliance with the Supplemental Consent and
Undertaking of the Company (Case No. 03cv1276) entered in July 2003
by the United States District Court for the Southern District of California.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

OF PARENT AND MERGER SUB

 

Parent and Merger Sub hereby represent and warrant to
the Company as follows:

 

Section 4.1             Organization.  Each of Parent and Merger Sub is duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its respective organization and has the requisite corporate
power and authority to conduct its business as it is presently being conducted
and to own, lease or operate its respective properties and assets.  Each of Parent and Merger Sub is duly
qualified to do business and is in good standing in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
make such qualification necessary, except where the failure to be so qualified
or in good standing

 

38

 

would not, individually
or in the aggregate, have a Parent Material Adverse Effect.  Parent has delivered or made available to the
Company complete and correct copies of the certificates of incorporation and
bylaws or other constituent documents, as amended to date, of Parent and Merger
Sub.

 

Section 4.2             Authorization.  Each of Parent and Merger Sub has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby and to perform its
obligations hereunder.  The execution and
delivery of this Agreement by Parent and Merger Sub and the consummation by
Parent and Merger Sub of the transactions contemplated hereby have been duly
authorized by all necessary corporate or other action on the part of Parent and
Merger Sub, and no other corporate or other proceeding on the part of Parent or
Merger Sub is necessary to authorize, adopt or approve this Agreement and the
transactions contemplated hereby.  This
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against each in accordance with its terms, except that such
enforceability (a) may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar Laws affecting or relating to
creditors’ rights generally and (b) is subject to general principles of
equity.

 

Section 4.3             Non-contravention;
Required Consents.

 

(a)           The
execution, delivery or performance by Parent and Merger Sub of this Agreement,
the consummation by Parent and Merger Sub of the transactions contemplated
hereby and the compliance by Parent and Merger Sub with any of the provisions
hereof do not and will not (i) violate or conflict with any provision of
the certificates of incorporation or bylaws or other constituent documents of
Parent or Merger Sub, (ii) violate, conflict with, or result in the breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or Merger Sub is a party or by which
Parent, Merger Sub or any of their properties or assets may be bound or (iii) assuming
compliance with the matters referred to in Section 4.3(b), violate
or conflict with any Order or Law applicable to Parent or Merger Sub or by
which any of their properties or assets are bound or (iv) result in the
creation of any Lien upon any of the properties or assets of Parent or Merger
Sub, except in the case of each of clauses (ii), (iii) and (iv) above,
for such violations, conflicts, defaults, terminations, accelerations or Liens
which would not, individually or in the aggregate, have a Parent Material
Adverse Effect.

 

(b)           No
Consent of any Governmental Entity is required on the part of Parent, Merger
Sub or any of their Affiliates in connection with the execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation by
Parent and Merger Sub of the transactions contemplated hereby, except (i) the
filing and recordation of the Certificate of Merger with the Secretary of State
of the State of Delaware and such filings with Governmental Entities to satisfy
the applicable Laws of states in which the Company and its Subsidiaries are
qualified to do business, (ii) such filings and approvals as may be
required by any federal or state

 

39

 

securities Laws, including compliance with any
applicable requirements of the Exchange Act, (iii) compliance with any
applicable requirements of the HSR Act and any applicable foreign antitrust,
competition or merger control Laws and (iv) such other Consents, the failure
of which to obtain would not, individually or in the aggregate, have a Parent
Material Adverse Effect.

 

Section 4.4             Information
Supplied.  None of the information
supplied by Parent, Merger Sub or their officers, directors, representatives,
agents or employees expressly for inclusion in the Proxy Statement will, on the
date the Proxy Statement is first sent to the Company’s stockholders or at the
time of the Company Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.

 

Section 4.5             Litigation.  There are no Legal Proceedings pending or, to
the knowledge of Parent, threatened against or affecting Parent or Merger Sub
or any of their respective properties except for Legal Proceedings that would
not, individually or in the aggregate, have a Parent Material Adverse Effect.  Neither Parent nor Merger Sub is subject to
any outstanding Order, except for Orders that would not, individually or in the
aggregate, have a Parent Material Adverse Effect.

 

Section 4.6             Ownership
of Company Capital Stock.  Neither
Parent nor Merger Sub is, nor at any time during the last three years has it
been, an “interested stockholder” of the Company as defined in Section 203
of the DGCL (other than as contemplated by this Agreement).

 

ARTICLE V

 

COVENANTS

 

Section 5.1             Conduct
of Business by the Company.  Except
as expressly contemplated by this Agreement or as described in Section 5.1
of the Company Disclosure Schedule, during the period from the date hereof to
the Effective Time, the Company shall conduct its and its Subsidiaries’
business in the ordinary course consistent with past practice and, to the
extent consistent therewith, shall use commercially reasonable efforts to
preserve intact its and its Subsidiaries’ current business organizations, keep
available the service of its and its Subsidiaries’ current officers and employees,
preserve its and its Subsidiaries’ relationships with customers, suppliers,
licensors, licensees and others having significant business dealings with it
and its Subsidiaries and maintain in full force and effect all material Company
IP.  Without limiting the generality of
the foregoing, except as expressly contemplated by this Agreement or as
described in Section 5.1 of the Company Disclosure Schedule, during the
period from the date hereof to the Effective Time, the Company shall not, and
shall not permit its Subsidiaries to, without the prior written consent of
Parent (which consent, with respect to Sections 5.1(g), 5.1(j),
5.1(k), 5.1(m), 5.1(n), 5.1(o), 5.1(p), 5.1(q)
and, to the extent relating to the
execution of this Agreement or the transactions contemplated hereby,  5.1(r),
shall not be unreasonably delayed or withheld):

 

40

 

(a)           propose
to adopt any amendments to or amend its certificate of incorporation or bylaws
or comparable organizational documents; provided, however, that
nothing in this paragraph (a) shall prohibit the Company from dissolving
and/or merging into other Subsidiaries certain Subsidiaries that are not
material to the Company or its Subsidiaries, taken as a whole;

 

(b)           authorize
for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any Company Securities or
Subsidiary Securities, except for (i) the issuance and sale of Shares
pursuant to options outstanding prior to the date hereof and (ii) grants
to newly hired employees of Stock Options issued in the ordinary course of
business consistent with past practice, with a per Share exercise price no less
than the then-current market price of a Share and not subject to any
accelerated vesting or other provision that would be triggered as a result of
the consummation of the transactions contemplated by this Agreement, so long as
(A) the aggregate number of Shares subject to such additional Stock
Options does not exceed the sum of (x) 75,000 plus (y) the number of
Shares subject to any Stock Option (or portion thereof) outstanding as of the
date hereof that is subsequently canceled, terminated or forfeited as the
result of the voluntary or involuntary termination of employment of any
employee and (B) the aggregate number of Shares subject to Stock Options
granted to any individual newly hired employee does not exceed 2,000;

 

(c)           acquire
or redeem, directly or indirectly, or amend any Company Securities or
Subsidiary Securities; provided, however, that nothing in this
paragraph (c) shall prohibit the Company from dissolving and/or merging
into other Subsidiaries certain Subsidiaries that are not material to the
Company or its Subsidiaries, taken as a whole;

 

(d)           other
than cash dividends made by any direct or indirect wholly-owned Subsidiary of
the Company to the Company or one of its Subsidiaries, split, combine or
reclassify any shares of capital stock, declare, set aside or pay any dividend
or other distribution (whether in cash, shares or property or any combination
thereof) in respect of any shares of capital stock, or make any other actual,
constructive or deemed distribution in respect of the shares of capital stock; provided,
however, that nothing in this paragraph (d) shall prohibit the
Company from dissolving and/or merging into other Subsidiaries certain
Subsidiaries that are not material to the Company or its Subsidiaries, taken as
a whole;

 

(e)           propose
or adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries (other than the Merger); provided, however,
that nothing in this paragraph (e) shall prohibit the Company from
dissolving and/or merging into other Subsidiaries certain Subsidiaries that are
not material to the Company or its Subsidiaries, taken as a whole;

 

(f)            (i) incur
or assume any long-term or short-term debt or issue any debt securities except
for (A) short-term debt incurred to fund operations of the business in the
ordinary course of business consistent with past practice and (B) loans or
advances to direct or indirect wholly-owned Subsidiaries, (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other Person except with
respect to obligations of direct or indirect wholly-owned Subsidiaries of the

 

41

 

Company, (iii) make
any loans, advances or capital contributions to or investments in any other
Person except for travel advances in the ordinary course of business consistent
with past practice to employees of the Company or any of its Subsidiaries or (iv) mortgage
or pledge any of its or its Subsidiaries’ assets, tangible or intangible, or
create or suffer to exist any Lien thereupon (other than Permitted
Encumbrances);

 

(g)           except
as may be required by Law or permitted under the Retention Bonus Plan or Section 5.1(b),
enter into, adopt or amend or terminate any bonus, profit sharing,
compensation, severance, termination, option, appreciation right, performance
unit, stock equivalent, share purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit agreement, trust,
plan, fund or other arrangement for the benefit or welfare of any director,
officer or employee in any manner or increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any plan or arrangement as in effect as of the date hereof; provided,
however, that this paragraph (g) shall not prevent the Company or
any of its Subsidiaries from (i) amending or settling certain employment
arrangements that result in payments in amounts no more than $50,000 per
arrangement or $250,000 in the aggregate, (ii) entering into employment
agreements with non-executive officer international employees consistent with
past practice, (iii) increasing annual compensation and/or providing for
or amending bonus arrangements for non-officer employees in the ordinary course
of compensation reviews (to the extent that such compensation increases and new
or amended bonus arrangements do not result in a material increase in benefits
or compensation expense to the Company or any of its Subsidiaries), (iv) amending
and/or increasing the welfare benefits provided to the Company’s officers and
employees employed in Canada (to the extent that such increases do not result
in more than a two percent (2%) increase in the benefits expense to the Company
with respect to such officers and employees) and/or (v) executing
documentation with regard to awards of (x) restricted stock granted prior to
the date hereof, in accordance with the 2003 Equity Compensation Plan and (y)
restricted stock units and Performance Units granted prior to the date hereof,
in accordance with the terms described in Section 5.1(g) of the
Company Disclosure Schedule;

 

(h)           forgive
any loans to employees, officers or directors or any of their respective
Affiliates or Associates;

 

(i)            make
any deposits or contributions of cash or other property to or take any other
action to fund or in any other way secure the payment of compensation or
benefits under the Employee Plans or agreements subject to the Employee Plans
or any other plan, agreement, contract or arrangement of the Company other than
deposits and contributions that are required pursuant to the terms of the
Employee Plans or any agreements subject to the Employee Plans;

 

(j)            enter
into, amend, or extend any Collective Bargaining Agreement;

 

(k)           acquire,
sell, lease, license or dispose of any property or assets in any single
transaction or series of related transactions except either (i) pursuant
to existing contracts or commitments, (ii) if such transaction or
transactions individually have a fair market value of less than $200,000 or in
the aggregate have a fair market value of less than $1,000,000 for property and
assets acquired and $2,500,000 for property and assets disposed of (in each
case excluding any amounts prepaid as of the date of this Agreement) or (iii) the
sale of goods or

 

42

 

grants of
non-exclusive licenses with respect to Company IP in the ordinary course of
business consistent with past practice;

 

(l)            except
as may be required as a result of a change in Law or in GAAP, make any change
in any of the accounting principles or practices used by it;

 

(m)          (i) make
or change any material Tax election (unless required by applicable Law), (ii) settle
or compromise any material federal, state, local or foreign income Tax
liability, other than with respect to any proceeding relating to a Tax
liability that (A) is in progress as of the date hereof, (B) is in an
amount less than or equal to the liability or reserve that has been recorded
with respect thereto on the Balance Sheet or (C) is in an amount less than
$250,000 in the aggregate with all other such liabilities, or (iii) consent
to any extension or waiver of any limitation period with respect to any claim
or assessment for Taxes;

 

(n)           enter
into a Company IP Agreement or amend any Company IP Agreement or grant any
release or relinquishment of any rights under any Company IP Agreement;

 

(o)           (i) enter
into any lease or sublease of real property (whether as a lessor, sublessor,
lessee or sublessee) or (ii) modify, amend or exercise any right to renew
any lease or sublease of real property;

 

(p)           grant
any exclusive rights with respect to any Company IP, divest any Company IP,
except if such divestiture or divestures individually, or in the aggregate,
have a fair market value of less than $1,000,000, or materially modify the
Company’s standard warranty terms for Company Products or services or amend or
modify any product or service warranty in any manner that is likely to be
materially adverse to the Company or any of its Subsidiaries;

 

(q)           (i) acquire
(by merger, consolidation or acquisition of stock or assets) any other Person
or any equity interest therein, (ii) enter into any contract or agreement
other than in the ordinary course of business which would be reasonably likely
to result in a Company Material Adverse Effect or (iii) authorize, incur
or commit to incur any new capital expenditure(s) which individually is in
excess of $200,000 or in the aggregate are in excess of $1,000,000; provided,
that none of the foregoing shall limit any capital expenditure required
pursuant to existing contracts or commitments; and provided, further
that none of the foregoing shall prohibit the Company from dissolving and/or
merging into other Subsidiaries certain Subsidiaries that are not material to
the Company or its Subsidiaries, taken as a whole;

 

(r)            settle
or compromise any pending or threatened Legal Proceeding or pay, discharge or
satisfy or agree to pay, discharge or satisfy any claim, liability or
obligation (absolute or accrued, asserted or unasserted, contingent or
otherwise), other than the settlement, compromise, payment, discharge or
satisfaction of Legal Proceedings, claims, liabilities or obligations (i) reflected
or reserved against in full in the financial statements as at March 31,
2005 or incurred since March 31, 2005 in the ordinary course of business consistent
with past practice or (ii) the settlement, compromise, discharge or
satisfaction of which does not include any obligation (other than the payment
of money) to be performed by the Company or its

 

43

 

Subsidiaries
following the Effective Time and is in an amount of less than $200,000
individually or $1,000,000 in the aggregate;

 

(s)           except
as required by applicable Law or GAAP, revalue in any material respect any of
its properties or assets including without limitation writing-off notes or
accounts receivable other than in the ordinary course of business consistent
with past practice;

 

(t)            except
as required by applicable Law, convene any regular or special meeting (or any
adjournment thereof) of the stockholders of the Company other than the Company
Stockholders Meeting; or

 

(u)           enter
into a Contract to do any of the foregoing or knowingly take any action which
results or is reasonably likely to result in any of the conditions to the
Merger set forth in Article VI not being satisfied, or would make
any of the representations or warranties of the Company contained in this
Agreement untrue or incorrect in any material respect, or that would materially
impair the ability of the Company to consummate the Merger in accordance with
the terms hereof or materially delay such consummation.

 

Section 5.2             Company
Stockholders Meeting; Proxy Statement.

 

(a)           The
Company shall call a meeting of its stockholders (the “Company Stockholders Meeting”) to be held
as soon as reasonably practicable for the purpose of obtaining the Stockholder
Approval, and shall use its commercially reasonable efforts to cause such
meeting to occur as soon as reasonably practicable.  Subject to Section 5.3, the board
of directors of the Company shall use commercially reasonable efforts to obtain
the Stockholder Approval.  In connection
with such Company Stockholders Meeting, the Company shall promptly prepare and
file with the SEC and mail to its stockholders as promptly as practicable the
Proxy Statement and any amendments or supplements thereto.

 

(b)           Parent
and Merger Sub shall cooperate with the Company in connection with the
preparation of the Proxy Statement including, but not limited to, furnishing to
the Company all information regarding Parent and its Affiliates as may be
required to be disclosed therein.  Each
of the Company, Parent and Merger Sub shall promptly correct any information
provided by it for use in the Proxy Statement, if and to the extent that it
shall have become false or misleading in any material respect prior to the
Company Stockholders Meeting.  If any
event with respect to Parent or Merger Sub, or with respect to information
supplied by Parent or Merger Sub expressly for inclusion or incorporation by
reference in the Proxy Statement, shall occur which is required to be described
in an amendment or supplement to the Proxy Statement, Parent and Merger Sub
shall promptly advise the Company and cooperate with the Company in connection
with the preparation of any materials required to be filed with the SEC in
connection therewith.  The Company shall
cause the Proxy Statement, as so corrected, to be filed with the SEC and to be
disseminated to the holders of Shares, in each case, as and to the extent
required by applicable federal securities Laws. 
Parent, Merger Sub and their counsel shall be given a reasonable
opportunity to review and comment on the Proxy Statement before it is filed
with the SEC.  In addition, the Company
shall provide Parent, Merger Sub and their counsel with any comments the
Company or its counsel may receive from the SEC or its staff with respect to
the Proxy Statement promptly after receipt of such comments and shall consult
with Parent, Merger

 

44

 

Sub and their
counsel prior to responding to such comments. 
Subject to the terms of this Agreement, the Proxy Statement shall
contain the recommendation of the Company’s board of directors that the Company’s
stockholders approve this Agreement and the Merger.

 

Section 5.3             No
Solicitation.

 

(a)           From
and after the date of this Agreement until the termination of this Agreement
pursuant to Article VII, the Company shall not, and it shall cause
its Subsidiaries and the officers, directors, employees, investment bankers,
attorneys, agents and representatives of the Company or any of its Subsidiaries
not to, directly or indirectly, (i) solicit, initiate or knowingly take
any action knowingly to facilitate or encourage the making, submission or
announcement of any Acquisition Proposal or (ii) engage in any discussions
or negotiations with, or furnish any nonpublic information relating to the
Company or any of its Subsidiaries or afford any access to the properties,
books or records of the Company or any of its Subsidiaries to, otherwise
cooperate in any way with, or knowingly assist, participate in, facilitate or
encourage any effort by, any Third Party that has made or, to the knowledge of
the Company, is seeking to make, an Acquisition Proposal.  Without limiting the generality of the
foregoing, it is understood that any violation of any of the restrictions set
forth in this Section 5.3(a) by any officer, director,
employee, investment banker, attorney, agent or representative of the Company
or any of its Subsidiaries shall be deemed to be a breach of this Section 5.3(a) by
the Company.  Notwithstanding the
foregoing, the Company or its board of directors, directly or indirectly
through advisors, agents or other intermediaries, may furnish information
concerning the businesses, properties or assets of the Company or any of its
Subsidiaries to any Person or group, including furnishing nonpublic information
pursuant to an executed confidentiality agreement, the terms of which are as
least as restrictive as the terms contained in the Confidentiality Agreement,
and may engage in discussions and negotiations with such Person or group
concerning an acquisition only if:  (A) such
Person or group has submitted an unsolicited bona fide Acquisition Proposal
which the board of directors of the Company determines in good faith is, or is
reasonably likely to result in, a Superior Proposal and (B) the board of
directors of the Company determines in good faith, after consultation with
outside counsel, that the failure to take such action would result in a breach
of its fiduciary duties.

 

(b)           The
Company shall promptly (and in any event within 24 hours) notify Parent of any
Acquisition Proposal, any material modifications thereto or any request for
non-public information relating to the Company or its Subsidiaries or for
access to the properties, books or records of the Company or any of its
Subsidiaries by any Third Party that, to the knowledge of the Company, is
considering making, or has made, an Acquisition Proposal or request.  The Company shall provide such notice orally
and in writing and shall identify the Third Party making, and the material
terms and conditions of, any such Acquisition Proposal or request.  The Company shall keep Parent informed on a
reasonably current basis of the status and details of any such Acquisition
Proposal or request, and shall promptly (and in any event within 24 hours)
provide to Parent a copy of all written materials subsequently provided to or
by the Company in connection with such Acquisition Proposal or request.

 

(c)           The
Company shall, and shall cause its Subsidiaries and the officers, directors,
employees, investment bankers, attorneys, agents and representatives of the
Company and any of its Subsidiaries to, immediately cease and cause to be
terminated all existing

 

45

 

discussions or
negotiations, if any, with any Third Party conducted prior to the date hereof
with respect to any Acquisition Proposal, shall terminate any access of any
such Third Party to any nonpublic information and shall request the return or
destruction of any nonpublic information provided to any such Third Party in
connection with any such activities, discussions or negotiations.

 

(d)           Except
as set forth in this Section 5.3(d), the board of directors of the
Company shall not (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent or Merger Sub, the approval or
recommendation by the board of directors of the Company of this Agreement or
the transactions contemplated hereby, including the Merger, or take any action
or make any statement in connection with the Company Stockholders Meeting
inconsistent with such approval or recommendation, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal, or (iii) enter
into any letter of intent, agreement in principle, acquisition agreement or
other agreement with respect to any Acquisition Proposal.  Notwithstanding the foregoing, the board of
directors of the Company shall be permitted to take the actions described in
clause (i) of this Section 5.3(d) if (A) the Company
has complied with this Section 5.3, (B) the board of directors
of the Company determines in good faith, after consultation with outside
counsel, that the failure to take such action would be reasonably likely to
result in a breach of its fiduciary duties to the Company’s stockholders under
applicable Law, and (C) the Company has provided Parent prior written
notice of its intent to take any such action at least three Business Days prior
to taking such action.  No withdrawal or
modification by the Company of the approval or recommendation of this Agreement
or the transactions contemplated hereby or termination of this Agreement shall
have any effect on the approvals of, and other actions referred to herein
(collectively, the “Section 203
Approvals”) for the purpose causing Section 203 of the DGCL and
similar restrictions under other applicable Laws and the Confidentiality
Agreement to be inapplicable to, this Agreement and the transactions
contemplated hereby and thereby, which Section 203 Approvals are
irrevocable.

 

(e)           Nothing
contained in this Section 5.3 shall prohibit the Company or its
board of directors, directly or indirectly through advisors, agents or other
intermediaries, from taking and disclosing to the Company’s stockholders a
position with respect to a tender or exchange offer by a Third Party pursuant
to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
making any disclosure or recommendation to the Company’s stockholders if, after
consultation with outside counsel, the board of directors determines in good
faith that failure to take such action would result in a breach of its
fiduciary duties to the Company’s stockholders.

 

Section 5.4             Access
to Information.

 

(a)           From
the date hereof to the Effective Time and subject to applicable Law, upon
reasonable notice, the Company shall, and shall cause its officers, directors
and employees to, (i) provide Parent and its authorized representatives
with reasonable access during normal business hours to the facilities,
properties, employees (including all accounting and finance personnel
responsible for the preparation of the Company’s financial statements, internal
controls, disclosure controls and procedures and financial reporting
processes), books and records of the Company and its Subsidiaries and use
commercially reasonable efforts to cause the Company’s and its Subsidiaries’
consultants and independent public accountants, to provide

 

46

 

access to their work
papers and such other information as Parent may reasonably request, (ii) furnish
to Parent and its authorized representatives such financial and operating data
and other information with respect to the business and properties of the
Company and its Subsidiaries as Parent may from time to time reasonably
request; and (iii) furnish promptly to Parent a copy of each report, schedule or
other document filed or received by the Company during such period pursuant to
the requirements of the federal or state securities Laws.

 

(b)           Notwithstanding
anything to the contrary in this Agreement, nothing in this Section 5.4
shall require the Company or its Affiliates to disclose any information to
Parent if such disclosure (i) is of Company Source Code or detailed design
documents or (ii) would be in
violation of applicable Laws or agreements.

 

(c)           Parent
shall, and shall cause its Affiliates and each of their respective officers,
directors, employees, financial advisors, counsel and agents to hold all
documents and information furnished to it in connection with the transactions
contemplated by this Agreement pursuant to the terms of that certain Amended
Confidentiality Agreement entered into between the Company and Parent or an
Affiliate of Parent, dated February 6, 2005 (the “Confidentiality
Agreement”).

 

Section 5.5             Governmental
Filings.  Each of Parent and the
Company agrees to use its commercially reasonable efforts to (a) make any
filings required or in Parent’s reasonable opinion advisable pursuant to the
HSR Act and any applicable foreign antitrust, competition or merger control
Laws with respect to the transactions contemplated hereby as promptly as
practicable, (b) supply as promptly as practicable any additional information
and documentary material that may be requested pursuant to the HSR Act and/or
any such applicable foreign Law and (c) take all other actions necessary
to cause the expiration or termination of the applicable waiting periods or to
obtain any Consents under the HSR Act and/or such foreign Law, as soon as
practicable.

 

Section 5.6             Approvals
and Consents.  The parties shall
cooperate with each other and use their commercially reasonable efforts to
obtain all necessary Consents, including, without limitation, (a) all
necessary Consents of any Governmental Entity including those described in Section 5.5
and (b) all Consents described in Section 3.5(b), in
connection with the consummation of the transactions contemplated by this
Agreement.  Subject to the terms and
conditions of this Agreement, in taking such actions or making any such
filings, the parties hereto shall furnish information required in connection
therewith and seek timely to obtain any such Consents.

 

Section 5.7             Employee
Benefits.

 

(a)           Parent
shall cause employees of the Company or its Subsidiaries who become employees
of Parent and its Subsidiaries to be provided with compensation and employee
benefits that are the same as the standard compensation and employee benefits
provided to similarly situated employees of Parent and its Subsidiaries; provided,
however, that nothing contained herein shall be construed as requiring
Parent or the Surviving Corporation to continue the employment of any specific
person.  Each employee of the Company and
its Subsidiaries that becomes eligible to participate in the United States
employee compensation and

 

47

 

benefit plans and employment policies of Parent (the “Parent Plans”) shall receive credit for
prior service with the Company or any of its Subsidiaries under the Parent
Plans only for the purposes of determining vacation accrual rate pursuant to
Parent’s standard procedures, for purposes of eligibility to participate in,
and vesting of benefits accrued under, Parent’s 401(k) Plan, and, to the extent
required by applicable Law, for purposes of eligibility to participate in, and
vesting of benefits accrued under, any employee compensation and benefit plans
and employment policies of Parent.  Each
such employee’s service for all other purposes shall be calculated based on the
date of hire by Parent or one of its Subsidiaries; provided, however,
that in the event that the employment of any such United States employee with
Parent or one of its Subsidiaries is terminated prior to the first anniversary
of the Closing Date, Parent shall cause such terminated employee to receive
severance compensation and benefits that are no less favorable than those the
terminated employee would have been entitled to under the Company’s severance
benefits policy under the terms of such policy as in existence on the date
hereof.  Parent and its Subsidiaries shall have the
option to fulfill this obligation by providing a cash supplement to Parent’s or
the Subsidiary’s standard severance programs.  Parent shall cause the Surviving Corporation
to honor, to the extent
administratively practicable, all unused paid time off days accrued by
the United States employees of the Company and its Subsidiaries under the
policies and practices of the Company and its Subsidiaries in accordance with
the terms and conditions thereof and to pay each such employee in cash for any
accrued and unused paid time off days that Parent determines are not
administratively practicable to continue to honor.  In addition, with respect to United States
employees of the Company and its Subsidiaries that become eligible to
participate in the Parent Plans, Parent shall (i) waive all limitations as
to preexisting and at-work conditions, exclusions and waiting periods, if any,
with respect to participation and coverage requirements applicable to each such
employee, except to the extent that such conditions, exclusions or waiting
periods would apply under the Employee Plans absent any change in plan coverage
and (ii) provide credit to each such employee for any co-payments and
deductibles paid prior to any change in coverage in satisfying any applicable
deductible or out-of-pocket requirements under the Parent Plans for the plan
year in which the Closing Date occurs.

 

(b)           Prior
to the Effective Time and subject to Parent’s review (but not its consent), the
Company shall be entitled to amend (effective as of the Effective Time) the
option agreements for each employee whose Current Options will be converted
into Adjusted Stock Options in accordance with Section 2.11(a)(i) to
provide that, if such employee’s employment is terminated by the Surviving
Corporation, Parent or any other Subsidiary thereof without Cause (as defined
in the Company’s 2003 Equity Incentive Plan) prior to the first anniversary of
the Effective Time, each such Adjusted Stock Option held by such terminated
employee immediately prior to such termination will fully vest and such
employee will have the right to exercise each such Adjusted Stock Option after
his or her termination date in accordance with the applicable provision for
termination of employment under the Company’s 2003 Equity Incentive Plan.  Notwithstanding anything herein to the
contrary, (x) any vesting acceleration provided pursuant to this Section 5.7(b) shall
be in addition to (and not in lieu of) any severance or termination pay or
benefits that would otherwise be provided to such terminated employee in
respect of such termination of employment, (y) a employee’s employment shall
not be considered to have been terminated by the Surviving Corporation if such
employee becomes employed by Parent or another subsidiary of Parent and (z) no
such amendment shall be made in

 

48

 

respect of any employee with an employment agreement
with the Company if the effect of such amendment would adversely affect such
employee.

 

(c)           Nothing
contained in this Section 5.7 shall create any beneficiary rights
in any employee or former employee (including any dependent thereof) of the
Company or the Surviving Corporation or any of their Subsidiaries in respect of
continued employment for any specified period of any nature or kind whatsoever.

 

(d)           Effective
as of no later than the day immediately preceding the Closing Date, but conditioned
upon the subsequent occurrence of the Closing, the Company shall terminate or
cause to be terminated any Employee Plan intended to include a Code Section 401(k)
arrangement (each, a “Terminating Plan”),
unless Parent provides written notice to the Company that any such Terminating
Plan shall not be terminated.  Unless
Parent provides such written notice to the Company, no later than three
Business Days prior to the Closing Date, the Company shall provide Parent with
evidence that such Terminating Plan(s) have been terminated (effective no later
than the day immediately preceding the Closing Date, but contingent upon the
subsequent occurrence of the Closing) pursuant to resolutions of the board of
directors of the Company or one of its ERISA Affiliates, as the case may
be.  The form and substance of such
resolutions shall be subject to the prior review and approval of Parent.  The Company also shall take such other
actions in furtherance of terminating such Terminating Plan(s) as Parent may
reasonably require.

 

(e)           With
respect to matters described in this Section 5.7, the Company will
use its commercially reasonable efforts to consult with Parent (and consider in
good faith the advice of Parent) prior to sending any notices or other
communication materials to any employees of the Company or its Subsidiaries and
the Company will not send any written notices or other written communication
materials to any such employees without using commercially reasonable efforts
to obtain the prior written consent of Parent.

 

Section 5.8             Public
Announcements.  The Company, Merger
Sub and Parent shall consult with each other before issuing any press releases
or otherwise making any public statements with respect to this Agreement or the
transactions contemplated hereby, and none of the parties shall issue any press
release or make any public statement prior to obtaining the other parties’
written consent, which consent shall not be unreasonably withheld or delayed,
except that no such consent shall be necessary to the extent disclosure may be
required by Law, Order or applicable stock exchange or Nasdaq rule or any
listing agreement of any party hereto.

 

Section 5.9             Indemnification;
Insurance.

 

(a)           For
a period of six years following the Effective Time, Parent shall cause the
Surviving Corporation to comply with all obligations of the Company that were
in existence or in effect as of the date hereof under Law, its certificate of
incorporation, bylaws or any contract listed on Section 5.9 of the Company
Disclosure Schedules, relating to the indemnification of any Person who is now
or was at any time after August 18, 2003 or who becomes prior to the
Effective Time an officer or director of the Company or any of its
Subsidiaries, or the beneficiary of any such contractual obligations (the “Indemnified Persons”). 
Parent hereby unconditionally guarantees the payment and performance of
the

 

49

 

Surviving
Corporation’s obligations in this Section 5.9.  This Section 5.9 shall not limit or
otherwise adversely affect any rights any Person may have under any agreement
with the Company or any of its Subsidiaries, under the Company’s or any such
Subsidiary’s certificate of incorporation, bylaws or other organization
documents or otherwise under applicable Law.

 

(b)           For
a period of six years following the Effective Time, Parent shall cause the
Surviving Corporation to maintain policies of directors’ and officers’
liability insurance covering each Person who is now or was at any time after August 18,
2003 a director or officer of the Company or any of its Subsidiaries with
respect to claims arising from facts or events that occurred on or prior to the
Effective Time and providing at least the same coverage and amounts and
containing terms that in aggregate are not less advantageous to the insured
parties than those contained in the policies of directors’ and officers’
liability insurance in effect as of the date hereof (the “Current Policy Coverage”); provided,
however, that in no event shall the Surviving Corporation be required to
expend, per annum, in excess of 300% of the annual premium currently paid by
the Company for such coverage (or such coverage as is available for 300% of
such annual premium); provided, further, that if the annual
premium required to provide the foregoing insurance exceeds 300% of the annual
premium currently paid by the Company, the Surviving Corporation shall provide
as much of such insurance as can be purchased for such premium, and, any
present or former officer or director, upon reasonable written notice thereof
from the Surviving Corporation, who desires to be covered by the Current Policy
Coverage may so elect and shall be covered by the Current Policy Coverage so
long as such former officer or director pays the portion of the premium for
such policies in excess of the amount which the Surviving Corporation is
obligated to pay pursuant to this Section 5.9.

 

(c)           If
the Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other Person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any Person, then and
in each such case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation assume the obligations set forth in this Section 5.9.

 

Section 5.10           Tax
Election.  At the request of Parent
and with the consent of the Company (such consent not to be unreasonably
withheld), the Company shall deliver at the Closing such validly executed
elections as Parent shall request it to make under Treasury regulation Section 301.7701-3(c) with
respect to such Subsidiaries as Parent shall designate and effective as of the
date immediately preceding the Closing Date; provided, however,
that no such election shall form the basis, directly or indirectly, of any
claim by Parent against the Company, including any claim relating to the breach
of any representation, warranty or covenant in this Agreement.

 

Section 5.11           Obligations
of Merger Sub; Voting of Company Common Stock.  Parent shall take all action necessary to
cause Merger Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this
Agreement.  Parent shall vote any Shares
of Company Common Stock beneficially owned by it or any of its Subsidiaries in
favor of adoption of this Agreement at the Company Stockholders Meeting.

 

50

 

Section 5.12           Reasonable
Efforts.  Subject to the terms and
conditions herein provided, each of the parties hereto shall use commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement, including, without limitation, (i) contesting any Legal
Proceeding or Order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby and (ii) executing any
additional instruments necessary to consummate the transactions contemplated
hereby.  Subject to the terms and
conditions of this Agreement, each of the parties hereto agrees to use commercially
reasonable efforts to cause the Effective Time to occur as soon as
practicable.  If at any time after the
Effective Time any further action is necessary to carry out the purposes of
this Agreement, the proper officers and directors of each party hereto shall
take all such necessary action.

 

Section 5.13           Internal
Control Over Financial Reporting. 
The Company will use commercially reasonable efforts to determine the
reasons for, and to correct material weaknesses in the Company’s internal
controls over financial reporting identified in its internal testing described
in Section 5.13 of the Company Disclosure Schedule.  The Company will advise Parent of the status
of such internal testing upon Parent’s reasonable request therefor but no more
frequently than once every month.  The
Company shall not be deemed to be in breach of this Section 5.13 to
the extent that such breach results from the failure of Parent to approve a
capital expenditure requested by the Company pursuant to Section 5.1(q).

 

Section 5.14           Notification
of Certain Matters.  Parent shall
give prompt notice to the Company, and the Company shall give prompt notice to
Parent, of the occurrence, or failure to occur, of any event, which occurrence
or failure to occur would cause (a) (i) any representation or
warranty of such party contained in this Agreement that is qualified as to
materiality to be untrue or inaccurate in any respect or (ii) any other
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect, in each case at any time from and
after the date of this Agreement until the Effective Time, or (b) any
material failure by such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement.

 

ARTICLE VI

 

CONDITIONS TO THE MERGER

 

Section 6.1             Conditions
to Each Party’s Obligations to Effect the Merger.  The respective obligations of each party
hereto to effect the Merger are subject to the satisfaction at or prior to the
Effective Time or waiver (to the extent permitted by applicable Law) of the
following conditions:

 

(a)           Stockholder
Approval.  The Stockholder Approval
shall have been obtained.

 

(b)           No
Injunctions or Restraints; Illegality. 
No provision of any applicable Law or Order shall have been enacted,
entered, promulgated or enforced by any

 

51

 

Governmental
Entity that prohibits, restrains, enjoins or restricts the consummation of the
Merger.

 

(c)           Regulatory
Approvals.  Any waiting period
applicable to the Merger under the HSR Act or under applicable foreign
antitrust, competition or merger control Laws with respect to such transaction
shall have terminated or expired, and all consents of any Governmental Entity
required to have been obtained prior to the Effective Time with respect to the
transactions contemplated hereby shall have been obtained, provided that if at
any time after December 31, 2005 any such consent shall not have been
obtained, this condition shall be deemed satisfied unless the failure to obtain
such consent would result in a Company Material Adverse Effect or a Parent
Material Adverse Effect.

 

Section 6.2             Conditions
to the Obligation of the Company. 
The obligation of the Company to effect the Merger is subject to the
satisfaction at or prior to the Effective Time or waiver of the following
further conditions:

 

(a)           Representations
and Warranties.  The representations
and warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all respects as of the date of this Agreement and at and as
of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations and warranties
specifically related to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date) (disregarding for
purposes of this Section 6.2(a), all qualifications relating to
materiality or Parent Material Adverse Effect) except to the extent that any
breaches thereof, whether individually or in the aggregate, would not have a
Parent Material Adverse Effect; and the Company shall have received a
certificate signed on behalf of Parent by an authorized executive officer of
Parent to the foregoing effect and a certificate signed on behalf of Merger Sub
by an authorized executive officer of Merger Sub to the foregoing effect.

 

(b)           Performance
of Obligations of Parent and Merger Sub. 
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior
to the Effective Time; and the Company shall have received a certificate signed
on behalf of Parent by an authorized executive officer of Parent to the
foregoing effect and a certificate signed on behalf of Merger Sub by an
authorized executive officer of Merger Sub to the foregoing effect.

 

Section 6.3             Conditions
to the Obligations of Parent and Merger Sub.  The respective obligations of Parent and
Merger Sub to effect the Merger are subject to the satisfaction at or prior to
the Effective Time or waiver of the following further conditions:

 

(a)           Representations
and Warranties.  (i) The
representations and warranties of the Company contained in Section 3.10(a) shall
be true and correct in all respects, (ii) the representations and
warranties of the Company contained in Sections 3.3 and 3.4
shall be true and correct in all but de
minimis respects, and (iii) the
other representations and warranties of the Company contained in this Agreement
(disregarding for purposes of this Section 6.3(a)(iii), all
qualifications relating to materiality or Company Material Adverse Effect
contained in any such representation and warranty or in any defined term used
therein) shall be

 

52

 

true and correct in all
respects, in each case as of the date of this Agreement and at and as of the
Effective Time with the same effect as if made at and as of the Effective Time
(except to the extent that such representations and warranties specifically
related to an earlier date, in which case such representations and warranties
shall be true and correct as of such earlier date), provided, however, that the
condition set forth in Section 6.3(a)(iii) shall be deemed to
have been satisfied even if any representations and warranties of the Company
are not so true and correct if the failure of such representations and
warranties of the Company to be true and correct would not, individually or in
the aggregate with all other such failures, have a Company Material Adverse
Effect; and Parent and Merger Sub shall have received a certificate signed on
behalf of the Company by an authorized executive officer of the Company to the
foregoing effect.

 

(b)           Performance
of Obligations of the Company.  The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Effective Time;
and Parent shall have received a certificate signed on behalf of the Company by
the Chief Executive Officer or the Chief Financial Officer of the Company to
the foregoing effect.

 

ARTICLE VII

 

TERMINATION

 

Section 7.1             Termination.  This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time whether before
or after obtaining the Stockholder Approval:

 

(a)           by mutual
written consent of Parent and the Company;

 

(b)           by either
Parent or the Company if:

 

(i)            the
Merger shall not have been consummated by March 31, 2006 (the “Outside Date”); provided, that no party may
terminate this Agreement pursuant to this Section 7.1(b)(i) if
such party’s material breach of this Agreement shall have been a principal
cause of or resulted in the failure of the Merger to be consummated on or
before such date; or

 

(ii)           (A) there
shall be any applicable United States Law that makes the transactions
contemplated by this Agreement illegal or otherwise prohibited or (B) any
Governmental Entity having competent jurisdiction shall have issued a final
Order or taken any other final action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such Order or
other action is or shall have become non-appealable; provided, that the party
seeking to terminate pursuant to this Section 7.1(b)(ii)(B) shall
have used its commercially reasonable efforts to challenge such Order or other
action; or

 

(c)           by either
the Company (provided that it shall not be in material breach of any of its
obligations under Section 5.3) or Parent, if the Stockholder
Approval shall not have been obtained at the Company Stockholders Meeting or at
any adjournment or postponement thereof at which a vote on such approval was
taken;

 

53

 

(d)           by the
Company if:

 

(i)            prior
to obtaining the Stockholder Approval, (A) the board of directors of the
Company shall have determined to accept a Superior Proposal and the Company
shall have complied with Section 5.3(d)(C) and (B) the
board of directors of the Company, after taking into account any modifications
to the terms of the Merger proposed by Parent and Merger Sub after receipt of
the notice contemplated by Section 5.3(d)(C), continues to believe
such other proposal constitutes a Superior Proposal and, after consultation
with outside legal counsel to the Company, determines in good faith that
failure to accept such other proposal would result in a breach of the fiduciary
duty of the board of directors of the Company to the stockholders of the
Company under applicable law; or

 

(ii)           Parent
or Merger Sub shall have materially breached or failed to perform any of its
representations, warranties, covenants or agreements set forth in this
Agreement, such that the conditions set forth in Sections 6.2(a) or
(b) are not capable of being satisfied on or before the Outside
Date;

 

(e)           by Parent
if:

 

(i)            the
Company shall have breached any of its obligations under Section 5.3;

 

(ii)           the
board of directors of the Company shall have (A) withdrawn, modified or
changed, in a manner adverse to Parent or Merger Sub, the approval or
recommendation by the board of directors of the Company of this Agreement or
the transactions contemplated hereby, including the Merger, or taken any action
or made any statement, in connection with the Company Stockholders Meeting,
materially inconsistent with such approval or recommendation, (B) approved
or recommended any Acquisition Proposal by a Third Party, or (C) entered
into any letter of intent, agreement in principle, acquisition agreement or
other agreement with respect to any Acquisition Proposal by a Third Party; or

 

(iii)          The
Company shall have materially breached or failed to perform any of its
representations, warranties, covenants or agreements set forth in this
Agreement, such that the conditions set forth in Sections 6.3(a) or
(b) are not capable of being satisfied on or before the Outside
Date.

 

The
party desiring to terminate this Agreement pursuant to this Section 7.1
(other than pursuant to Section 7.1(a)) shall give notice of such
termination to the other party in accordance with Section 8.2,
specifying the provision or provisions hereof pursuant to which such
termination is effected.

 

Section 7.2             Effect
of Termination.

 

(a)           In the
event of the termination of this Agreement and abandonment of the Merger
pursuant to Section 7.1, this Agreement shall forthwith become void
and have no effect without any liability on the part of any party (or its
Affiliates, directors, officers or stockholders) to the other parties hereto;
provided that, if such termination shall result from the willful failure

 

54

 

of the Company, on the one hand, or Parent or Merger Sub, on the other
hand, to perform in all material respects any of its covenants contained in
this Agreement, such party shall be fully liable for any and all Liabilities
incurred or suffered by the other party as a result of such failure.  The provisions of this Section 7.2,
Section 5.4(c) and Article VIII shall survive any
termination hereof pursuant to Section 7.1.

 

(b)           The
Company shall pay, or cause to be paid, to Parent an amount equal to
$11,687,500 (the “Termination Fee”):

 

(i)            if
this Agreement is terminated by either party pursuant to Section 7.1(b)(i) without
the Company Stockholders Meeting having been convened and (A) following
the date hereof but prior to the Outside Date, an Acquisition Proposal by a
Third Party shall have been publicly announced or disclosed to the Company, and
(B) within 12 months of such termination, the Company shall have consummated
an Alternative Transaction or entered into an agreement for an Alternative
Transaction that is subsequently consummated, concurrently with the
consummation of such Alternative Transaction;

 

(ii)           if
this Agreement is terminated by either party pursuant to Section 7.1(c) and
(A) following the date hereof but prior to the Company Stockholders
Meeting an Acquisition Proposal has been publicly announced, and (B) within
12 months of such termination, the Company shall have consummated an
Alternative Transaction or entered into an agreement for an Alternative
Transaction that is subsequently consummated, concurrently with the
consummation of such Alternative Transaction;

 

(iii)          if
this Agreement is terminated by the Company pursuant to Section 7.1(d)(i),
concurrently with such termination;

 

(iv)          if
this Agreement is terminated by Parent pursuant to Sections 7.1(e)(i) or
(ii), within two Business Days after a demand for payment following such
termination; or

 

(v)           if
this Agreement is terminated by Parent pursuant to Section 7.1(e)(iii) based
on a willful breach or failure by the Company and (A) following the date
hereof an Acquisition Proposal by a Third Party has been publicly announced or
disclosed to the Company and, (B) within 12 months of such termination,
the Company shall have consummated an Alternative Transaction or entered into
an agreement for an Alternative Transaction that is subsequently consummated,
concurrently with the consummation of such Alternative Transaction.

 

For purposes of this Section 7.2(b), an “Alternative Transaction” means any
transaction of the type referred to in the definition of Acquisition Proposal,
provided the reference to 25% shall be deemed to be a reference to 50%.

 

(c)           The
Company acknowledges that Section 7.2(b) is an integral part
of the transactions contemplated by this Agreement, and that Parent would not
have entered into this Agreement without Section 7.2(b);
accordingly, if the Company fails to promptly pay any

 

55

 

amounts due pursuant to Section 7.2(b) and,
in order to obtain such payment, Parent commences a suit which results in a
final, non-appealable judgment or ruling against the Company for the fee set
forth in Section 7.2(b), the Company shall pay to Parent Parent’s
reasonable costs and expenses (including reasonable attorneys’ fees and
expenses of enforcement) in connection with such suit, together with interest
on the amounts owed at the prime lending rate prevailing at such time, as
published in the Wall Street Journal, plus two percent per annum from the date
such amounts were required to be paid until the date actually received by
Parent; provided, however, that in the event that such suit
results in a final, non-appealable judgment or ruling against Parent, Parent
shall pay to Company Company’s reasonable costs and expenses (including
reasonable attorneys’ fees and expenses of enforcement) in connection with such
suit.  The Company acknowledges that it
is obligated to pay to Parent any amounts due pursuant to Section 7.2(b) whether
or not the stockholders of the Company have approved this Agreement.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1             Nonsurvival
of Representations and Warranties. 
The representations and warranties made herein and in any document delivered
pursuant hereto shall not survive beyond the Effective Time or a termination of
this Agreement.  This Section 8.1
shall not limit any covenant or agreement of the parties hereto which by its
terms requires performance after the Effective Time.

 

Section 8.2             Notices.  All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed duly
given or made (a) when delivered personally, (b) upon transmission
and confirmation of receipt by a facsimile operator if sent by facsimile, (c) on
the third Business Day after being mailed by certified mail (postage prepaid,
return receipt requested) or (d) on the next Business Day after deposit
with a recognized overnight courier guaranteeing next Business Day delivery, in
each case to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice, except that notices of
changes of address shall be effective upon receipt):

 

	
  if to Parent or
  Merger Sub:

  	
   

  	
  Hewlett-Packard
  Company

  
	
   

  	
   

  	
  3000 Hanover Street

  
	
   

  	
   

  	
  Palo Alto, California 94304

  
	
   

  	
   

  	
  Attention:

  	
  Ann Livermore

  
	
   

  	
   

  	
  Executive 

  	
  Vice President

  
	
   

  	
   

  	
   

  	
  Technology
  Solutions Group

  
	
   

  	
   

  	
  Facsimile:

  	
  (650) 852-8322

  
	
   

  	
   

  	
   

  
	
  with a copy (which
  shall not constitute notice) to:

  

 

56

 

	
   

  	
   

  	
  Hewlett-Packard
  Company

  
	
   

  	
   

  	
  3000 Hanover Street

  
	
   

  	
   

  	
  Palo Alto, California 94304

  
	
   

  	
   

  	
  Attention:

  	
  General Counsel

  
	
   

  	
   

  	
  Facsimile:

  	
  (650) 857-2012

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cleary Gottlieb
  Steen & Hamilton LLP

  
	
   

  	
   

  	
  One Liberty
  Plaza

  
	
   

  	
   

  	
  New York, New
  York 10006

  
	
   

  	
   

  	
  Attention:

  	
  Christopher E.
  Austin, Esq.

  
	
   

  	
   

  	
  Facsimile:

  	
  (212) 225-3999

  
	
   

  	
   

  	
   

  
	
  if to the
  Company to:

  	
   

  	
  Peregrine
  Systems, Inc.

  
	
   

  	
   

  	
  3611 Valley Centre Drive

  
	
   

  	
   

  	
  San Diego, California 92130

  
	
   

  	
   

  	
  Attention:

  	
  General Counsel

  
	
   

  	
   

  	
  Facsimile:

  	
  (858) 794-5057

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Gibson
  Dunn & Crutcher LLP

  
	
   

  	
   

  	
  333 South Grand
  Avenue

  
	
   

  	
   

  	
  Los Angeles, CA
  90071

  
	
   

  	
   

  	
  Attention:

  	
  Karen E. Bertero, Esq.

  
	
   

  	
   

  	
  Facsimile:

  	
  (213) 229-7520

  

 

Section 8.3             Expenses.  Except as otherwise provided herein, each of
the parties hereto will bear all legal, accounting, investment banking and
other fees, expenses and costs incurred by it or on its behalf in connection
with the transactions contemplated by this Agreement, whether or not such
transactions are consummated.

 

Section 8.4             Disclosure
Generally.  Notwithstanding anything
to the contrary in this Agreement, a matter set forth in one item of the
Company Disclosure Schedule need not be set forth in any other item of the
Company Disclosure Schedule so long as its relevance to the other sections
or subsections of the Company Disclosure Schedule or section of this
Agreement is reasonably apparent on the face of the information disclosed in
the Company Disclosure Schedule.  The
fact that any item of information is disclosed in the Company Disclosure Schedule shall
not be construed to mean that such information is required to be disclosed by
this Agreement.  Such information and the
dollar thresholds set forth herein shall not be used as a basis for
interpreting the terms “material,” “Parent Material Adverse Effect” or “Company
Material Adverse Effect” or other similar terms in this Agreement.

 

Section 8.5             Personal
Liability.  This Agreement shall not
create or be deemed to create or permit any personal Liability or obligation on
the part of any direct or indirect stockholder of the Company or Buyer or any
officer, director, employee, agent, representative or investor of any party
hereto.

 

57

 

Section 8.6             Amendment.  This Agreement may be amended by action taken
by Parent and by action taken by or on behalf of the respective boards of
directors of Merger Sub and the Company at any time before the Effective Time; provided,
however, that after the adoption of this Agreement and the approval of
the Merger at the Company Stockholders Meeting, no amendment shall be made
which would reduce the amount or change the kind of consideration to be
received in exchange for the Shares upon consummation of the Merger or effect
any other change not permitted by Section 251(d) of the DGCL.  This Agreement may be amended only by an
instrument in writing signed by the parties hereto.

 

Section 8.7             Extension;
Waiver.  At any time prior to the
Effective Time, any party hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties
of the other parties contained herein or in any document, certificate or
writing delivered pursuant hereto or (c) subject to the proviso of Section 8.6,
waive compliance by the other parties with any of the agreements or conditions
contained herein.  Any agreement on the
part of any party hereto to any such extension or waiver shall be valid only
against such party and only if set forth in an instrument, in writing, signed
by such party.  The failure or delay by
any party hereto to assert any of its rights hereunder shall not constitute a
waiver of such rights nor shall any single or partial assertion of a right
preclude any other or further assertion thereof or the exercise of any other
right.  The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by Law.

 

Section 8.8             Binding
Effect; Assignment.  This Agreement
shall be binding upon and inure solely to the benefit of each party hereto and
its successors and permitted assigns and, except as provided in Article II
and Section 5.9, nothing in this Agreement express or implied is
intended to or shall confer upon any other Person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.  This Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of the other
parties hereto and any attempted assignment in violation of this Section 8.8
shall be null and void and of no effect, provided, that Parent or Merger Sub
may assign any of their respective rights and obligations to any direct or
indirect Subsidiary of Parent, but no such assignment shall relieve Parent or
Merger Sub, as the case may be, of its obligations hereunder.

 

Section 8.9             Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to the principles of conflicts of law thereof.

 

Section 8.10           Jurisdiction.  The parties hereto agree that any Legal
Proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be exclusively brought in (a) the courts of the Court of
Chancery of Delaware or (b) the Federal courts of the United States of
America located in the State of Delaware, and each of the parties consents to
the jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such Legal Proceeding and irrevocably waives, to the fullest
extent permitted by Law, any objection that it may now or hereafter have to the
laying of venue of any such Legal Proceeding in any such court or that any Legal
Proceeding brought in any such court has been brought in an inconvenient
forum.  Process in any such Legal
Proceeding may be served on any party anywhere in the world, whether within

 

58

 

or without the jurisdiction
of any such court.  Without limiting the
foregoing, each party agrees that service or process on such party as provided
in Section 8.2 shall be deemed effective service of process on such
party.  Each
party waives any right to trial by jury with respect to any Legal Proceeding
based on any matter arising out of or in connection with this Agreement or the
transactions contemplated hereby.

 

Section 8.11           Specific
Performance.  The parties hereby
acknowledge and agree that money damages may not be a sufficient remedy for any
breach of this Agreement and that each party shall be entitled to equitable
relief, including injunction or specific performance, as a remedy for any such
breach.

 

Section 8.12           Severability.  If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party.  Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the maximum extent possible.

 

Section 8.13           Descriptive
Headings.  The descriptive headings
herein are inserted for convenience of reference only and are not intended to
be part of or to affect the meaning or interpretation of this Agreement.

 

Section 8.14           Counterparts.  This Agreement may be executed by facsimile
in one or more counterparts, each of which shall be deemed to be an original
but all of which shall constitute one and the same agreement.  This Agreement shall become effective when
each party hereto shall have received a counterpart hereof signed by all of the
other parties hereto.

 

Section 8.15           Entire
Agreement.  This Agreement (including
the Company Disclosure Schedule) and the Confidentiality Agreement constitute
the entire agreement between the parties hereto with respect to the subject
matter hereof and thereof and supersedes all other prior agreements and
understandings both written and oral between the parties with respect to the
subject matter hereof and thereof.

 

59

 

IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.

 

	
   

  	
  HEWLETT-PACKARD COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Shane V. Robison

  	
   

  
	
   

  	
   

  	
  Name:

  	
   Shane V.
  Robison

  
	
   

  	
   

  	
  Title:

  	
   Executive
  Vice President and

  
	
   

  	
   

  	
   

  	
   Chief
  Strategy and Technology

  
	
   

  	
   

  	
   

  	
   Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LAKE MERGER CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles N. Charnas

  	
   

  
	
   

  	
   

  	
  Name:

  	
   Charles N.
  Charnas

  
	
   

  	
   

  	
  Title:

  	
   Treasurer and
  Assistant Secretary

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PEREGRINE SYSTEMS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Mutch

  	
   

  
	
   

  	
   

  	
  Name:

  	
   John Mutch

  
	
   

  	
   

  	
  Title:

  	
   President and
  Chief Executive
 OfficerExhibit 10.1

 

FIFTH
AMENDMENT TO REVOLVING CREDIT AGREEMENT

 

THIS FIFTH AMENDMENT TO REVOLVING CREDIT
AGREEMENT (this “Amendment”) made as of the 14th day
of September, 2005 by and among AMERIVEST
PROPERTIES INC., a Maryland corporation (the “Borrower”), AMERIVEST CHATEAU INC., a Texas corporation
(“Chateau”) and AMERIVEST GREENHILL INC., a
Texas corporation (“Greenhill”; Chateau and Greenhill are sometimes hereinafter
referred to individually as “Guarantor” and collectively as “Guarantors”), KEYBANK NATIONAL ASSOCIATION, a national
banking association (“KeyBank”), U.S. BANK NATIONAL ASSOCIATION (“US Bank”;  KeyBank, US Bank and the other lenders which
may hereafter become a party to the Loan Agreement (as hereinafter defined) are
hereinafter referred to collectively as the “Lenders”) and KEYBANK NATIONAL ASSOCIATION, a national
banking association, as agent (the “Agent”).

 

W I T N E S
S E T H:

 

WHEREAS, the
Borrower, Fleet National Bank (“Fleet”) and Fleet, as Agent (“Original Agent”)
entered into that certain Revolving Credit Agreement dated November 12,
2002, as amended by that certain First Amendment to Revolving Credit Agreement
dated February 6, 2003, that certain Second Amendment to Revolving Credit
Agreement dated March 16, 2004, that certain Third Amendment to Revolving
Credit Agreement dated March 15, 2005, and that certain Fourth Amendment
to Revolving Credit Agreement dated as of June 6, 2005 as effected by a
letter agreement dated August 31, 2005 (as amended, the “Loan Agreement”);
and

 

WHEREAS, KeyBank has
acquired the interests of Fleet under the Loan Agreement pursuant to an
Assignment and Acceptance dated October 4, 2004;

 

WHEREAS, Original
Agent has resigned as “Agent” under the Loan Agreement and the Agent has been
appointed as successor Agent under the Loan Agreement; and

 

WHEREAS, Chateau
executed and delivered to the Agent a Guaranty dated as of November 25,
2002 (the “Chateau Guaranty”); and

 

WHEREAS, Greenhill
executed and delivered to the Agent a Guaranty dated December 3, 2003 (the
“Greenhill Guaranty”; the Chateau Guaranty and the Greenhill Guaranty are
hereinafter referred to collectively as the “Guaranties”); and

 

WHEREAS, the
Borrower, the Lenders and the Agent have agreed to modify certain provisions of
the Loan Agreement; and

 

WHEREAS, as a
condition to such modification, the Agent and the Lenders have required that
the Borrower and the Guarantors execute this Amendment; and

 

NOW, THEREFORE, for
and in consideration of the sum of TEN and NO/100 DOLLARS ($10.00), and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:

 

1.             Definitions.  All the terms used herein which are not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.

 

 

2.             Modification
of the Loan Agreement.  The Borrower,
the Agent and the Lenders do hereby modify and amend the Loan Agreement as
follows:

 

(a)           By
deleting the definitions of “Borrowing Base Value”, “Collateral Account Agreement”,
“Fixed Charges” and “Maturity Date” in §1.1 of the Loan Agreement in their
entirety, and replacing them with the following new definitions of “Borrowing
Base Value”, “Collateral Account Agreement”, “Fixed Charges” and “Maturity Date”:

 

“Borrowing Base Value.  For each
Mortgaged Property, Borrowing Base Value shall equal seventy percent (70%) of
the lesser of (a) the Appraised Value of such Mortgaged Property or (b) an
amount equal to the sum of the purchase price of such Mortgaged Property plus
all capital expenditures or improvements to the Mortgaged Property approved by
the Agent and made by the Mortgagor since the date of purchase; provided,
however, that upon the release of the Mortgaged Property commonly known as
Chateau Plaza or Greenhill Park pursuant to this Agreement, the foregoing
reference to seventy percent (70%) shall instead be sixty-five percent (65%).

 

Collateral Account Agreement. 
The First Amended and Restated Collateral Account Agreement between
AmeriVest Chateau Inc., AmeriVest Greenhill Inc., Agent and KeyBank as
depository with respect to the Chateau Plaza Reserve Account.

 

Fixed Charges.  With respect to
any fiscal period of the Borrower, an amount equal to the sum of (i) Interest
Expense (but excluding any amortization of one-time upfront loan fees included
in Interest Expense for such period), (ii) regularly scheduled
installments of principal payable with respect to all Indebtedness of Borrower
and the Related Companies, excluding any balloon payments due at the maturity
of such Indebtedness, plus (iii) all dividend payments due to the holders
of any preferred stock of the Borrower.

 

Maturity Date.  April 1,
2006, or such earlier date on which the Loans shall become due and payable
pursuant to the terms hereof.”

 

(b)           By
inserting the following new definitions in §1.1 of the Loan Agreement:

 

“Employment
Contract.  An employment agreement
between Borrower and Charles Knight, pursuant to which Charles Knight agrees to
perform services for the Borrower as Chief Executive Officer and President,
such agreement to have a term ending not sooner than the repayment of the Loans
and otherwise being in form and substance satisfactory to Agent.

 

Named
Executive. 
Charles Knight.

 

Net Sales
Proceeds.  With
respect to the sale of any Mortgaged Property, the gross sales price payable by
the purchaser thereof less all actual costs of sale that are charged to
the Mortgagor of such Mortgaged Property and payable to third parties unrelated
to or unaffiliated with Borrower and Guarantors, including without limitation,
title insurance charges, escrow fees, legal fees, real estate taxes,

 

2

 

transfer
taxes, and real estate brokers’ commissions. 
In the event that any such costs are payable to a Person related to or
affiliated with Borrower or Guarantors, such payments shall be subject to the
approval of Agent.

 

KeyBank.  KeyBank National Association.

 

Termination
For Cause. 
Termination by Borrower of Named Executive’s employment by reason of (a) Named
Executive’s (i) failure to adhere to written policies of Borrower, which
failure has a material adverse effect on Borrower, (ii) appropriation (or
attempted appropriation) of a material business opportunity of Borrower,
including attempting to secure or securing any personal profit or benefit in
connection with any transaction entered into on behalf of Borrower, or (iii) misappropriation
(or attempted misappropriation) of any of Borrower’s funds or property, or (b) the
conviction of, the indictment (or its procedural equivalent) for or the entry
of a guilty plea or plea of no contest by Named Executive with respect to, a
felony, the equivalent thereof, or any other crime with respect to which
imprisonment is a possible punishment.”

 

(c)           By
deleting §3.2(b) of the Loan Agreement in its entirety and inserting in
lieu thereof the following new §3.2(b):

 

“(b)         The Borrower shall make
principal payments to the Agent for the respective accounts of the Lenders for
application to the Loans in the aggregate principal amount of at least
$15,000,000.00 between the period March 16, 2005 and January 17,
2006.”

 

(d)           By
inserting the following as §3.2(c) of the Loan Agreement:

 

“(c)         Fifty percent (50%) of
the proceeds distributed to or received by or on behalf of the Borrower or any
Related Company or, in the case of any Unconsolidated Entity, the proceeds
actually distributed to or received by or on behalf of the Borrower or any
Related Company by such Unconsolidated Entity, (i) from each and every
sale or refinancing of or other capital event with respect to any asset [(other
than office equipment and furnishings in the ordinary course of business)] of
the Borrower, any Related Company or any Unconsolidated Entity (including a
casualty or condemnation, return of capital or repayment of debt held by the
Borrower or any Related Company with respect to such assets or any of such
Person’s direct or indirect interest therein), less all reasonable and
customary closing costs, expenses and commissions paid to unrelated parties and
less any Indebtedness secured by such asset to be satisfied as a part of such
sale or refinance and (ii) from each and every sale, financing, or
refinancing of, or transaction which results in the dilution of, the Borrower’s,
direct or indirect ownership interest in any of the Related Companies or any
Unconsolidated Entity, shall be promptly paid to the Agent for the account of
the Lenders after receipt thereof by the Borrower, such Related Company or such
Unconsolidated Entity as a prepayment of the Loans to the extent of the
outstanding balance of the Loans.  All
payments made under this §3.2(c) will be credited against the payment due
under §3.2(b) hereof.  The Borrower
agrees that the Borrower shall, promptly, upon the Borrower’s belief that such
event may occur, provide notice to Agent of

 

3

 

any proposed
or contemplated event described in this §3.2(c).  The provisions of this §3.2(c) shall not
apply to any such event occurring with respect to the Mortgaged Properties.”

 

(e)           By
deleting §5.6 of the Loan Agreement in its entirety and inserting in lieu
thereof the following new §5.6:

 

“§5.6       Chateau Plaza Reserve
Account.

 

The Borrower has caused AmeriVest Chateau Inc. and AmeriVest Greenhill
Inc. to establish the Chateau Plaza Reserve Account at KeyBank pursuant to the
Collateral Account Agreement.  Borrower
acknowledges that for so long as KeyBank is the Agent hereunder, the Agent
shall be deemed to be in control of the Chateau Plaza Reserve Account as
required for perfection of said security interest under Article 9 of the
Uniform Commercial Code.  In the event
that the Agent is no longer KeyBank, Borrower, AmeriVest Greenhill Inc.,
AmeriVest Chateau Inc., KeyBank and the successor Agent shall enter into a
control agreement for purposes of maintaining such perfection.  As of August 30, 2005, the balance of
the Chateau Plaza Reserve Account is $2,899,325.36.  For so long as Chateau Plaza shall be a
Mortgaged Property, Borrower shall cause AmeriVest Chateau Inc. to make monthly
deposits on or before the 20th day of each month into the Chateau Plaza Reserve
Account equal to the excess of the Net Operating Income from Chateau Plaza for
the preceding calendar month over the sum of (i) interest for one month on
a principal amount of $15,400,000 at the actual average interest rate on the
Loans during such preceding month and (ii) $45,125.00 which is an assumed
contribution from Chateau Plaza toward the regular quarterly dividend on
Borrower’s common stock, provided that in the event that the current quarterly
dividend rate of 13.0 cents per share is increased or decreased, the monthly
sum stated in this clause (ii) shall be proportionately increased or
decreased. On or before the 20th day of each month Borrower shall give to the
Agent a written Deposit Certificate in the form of Exhibit F hereto
certifying the information used to compute the amount of each monthly
deposit.  Any termination fees or other
consideration paid in connection with the termination of the current lease of
the Dean Foods Premises shall be immediately deposited in the Chateau Plaza
Reserve Account.  If the existing Lease
of the Dean Foods Premises terminates, then so long as Chateau Plaza is a
Mortgaged Property and to the extent that the Mortgagor of Chateau Plaza
executes Leases of portions of the Dean Foods Premises, Borrower may request
periodic disbursements from the Chateau Plaza Reserve Account in amounts needed
to pay leasing commissions and costs of tenant finish improvements constructed
pursuant to the terms of such Leases, and Agent shall make such disbursements
subject to receipt of lien waivers and other documents reasonably requested by
the Agent.  In addition, for so long as
Greenhill Park shall be a Mortgaged Property, then to the extent that the
Mortgagor of Greenhill Park executes Leases of portions of such Mortgaged
Property, Borrower may request periodic disbursements from the Chateau Plaza
Reserve Account in amounts needed to pay leasing commissions and costs of
tenant improvements constructed pursuant to the terms of such Leases, and Agent
shall make such disbursements subject to

 

4

 

receipt of
lien waivers and other documents reasonably requested by the Agent.  If an Event of Default has occurred and is
continuing, the Agent may, in its sole discretion, apply any or all funds in
the Chateau Plaza Reserve Account in the same manner as Collateral proceeds
under §12.4.”

 

(f)            By
inserting the following as §8.9 of the Loan Agreement:

 

“§8.9 Employment
Contract.  Borrower shall not modify
or amend in any material respect the Employment Contract, and shall cause the
Employment Contract at all times to remain in full force and effect.”

 

(g)           By
deleting in its entirety §9.5 of the Loan Agreement and inserting in lieu
thereof the following:

 

“§9.5       EBITDA to Fixed
Charges.  The Borrower will not permit
the ratio of its EBITDA to Fixed Charges to be less than 1.25 to 1.0 for any
period of two fiscal quarters annualized, calculated as of the end of each fiscal
quarter.  Notwithstanding the foregoing,
extraordinary gains and losses shall not be annualized for purposes of the
foregoing calculations if, and to the extent, approved by Agent in its
reasonable discretion.”

 

(h)           By
deleting §12.1(o) of the Loan Agreement in its entirety, and inserting in lieu
thereof the following:

 

“(o)         The Named Executive shall
cease to hold the positions of Chief Executive Officer and President of
Borrower; provided, however, that an Event of Default shall not be deemed to
have occurred if the Named Executive is terminated as a result of a Termination
for Cause or is terminated as a result of death or disability and Borrower (A) presents
a plan for the replacement of the Named Executive reasonably acceptable to the
Majority Lenders within twenty (20) Business Days of such event, and (B) a
competent and experienced successor for the Named Executive is approved by the
Majority Lenders within ninety (90) days of such event causing the termination
of such employment, which approval may be granted or withheld by the Majority
Lenders in their sole and absolute discretion;”

 

(i)            Notwithstanding
anything in §5.5 of the Loan Agreement to the contrary, provided that no
Default or Event of Default under the Loan Agreement exists or will be created
as a result of a release, Borrower may obtain a release of a Mortgaged Property
upon a sale of a Mortgaged Property to a Person that is not an affiliate of or
related to Borrower or Mortgagors upon:  (i) the
delivery to Agent of a pro-forma Compliance Certificate reasonably satisfactory
to the Agent demonstrating that the requested release, once consummated, will
not result in a violation of any of the covenants in §9.1 through §9.6 of the
Loan Agreement (as in effect following such release), and (ii) the payment
to Agent for the account of the Lenders of a release price in an amount equal
to the greater of (A) the Net Sales Proceeds from the sale of such
Mortgaged Property and (B) $23,000,000.00 (with respect to the Mortgaged
Property commonly known as Chateau Plaza) and $24,000,000.00 (with respect to
the Mortgaged Property commonly known as Greenhill Park), which payment shall
be applied to reduce the principal balance of the Loans and will be credited,
if applicable, against the payments due under §3.2(b)

 

5

 

of the Loan Agreement.  As a
condition to such release, the Agent and the Lenders shall have the right to
require the delivery of an Appraisal of the remaining Mortgaged Property to
determine the Appraised Value thereof and require such additional principal
payments such that the Outstanding Obligations does not exceed the aggregate
Borrowing Base Value of the Mortgaged Properties (as the same will be
determined following such release).  Upon
the release of either of the Mortgaged Property commonly known as Chateau Plaza
and Greenhill Park pursuant to this paragraph, the funds in the Chateau Plaza
Reserve Account in excess of $1,250,000.00 shall be applied as a prepayment of
the principal amount of the Outstanding Obligations.  Upon the requested release of the other
Mortgaged Property commonly known as Chateau Plaza and Greenhill Park, the
remaining balance in the Chateau Plaza Reserve Account shall be first applied
against the Outstanding Obligations.

 

(j)            For
the purposes of §8.2 of the Loan Agreement, the Lenders consent to the granting
by AmeriVest Chateau Inc. and AmeriVest Greenhill Inc. of a subordinate deed of
trust and assignment of leases and rents on their respective Mortgaged
Properties and a subordinate lien on the Chateau Plaza Reserve Account to
secure the obligations of Borrower under that certain First Amended and
Restated Unsecured Revolving Credit Agreement dated October 24, 2004 among
Borrower and KeyBank, individually and as Agent, as amended.

 

(k)           For
the purposes of §8.4(c) of the Loan Agreement, the Lenders approve of the
plan of transfers set forth in the separate plan delivered to Agent
contemporaneously herewith, provided that such approval shall not affect
Borrower’s obligation pursuant to §8.4(c) of the Loan Agreement to provide
a Compliance Certificate with updated calculations prior to any such transfer.

 

3.             References
to Loan Agreement.  All references in
the Loan Documents to the Loan Agreement shall be deemed a reference to the
Loan Agreement as modified and amended herein.

 

4.             Consent
of Guarantors.  By execution of this
Amendment, each Guarantor hereby expressly consents to the modification and
amendment to the Loan Agreement and any other amendments to the Loan Documents
executed and delivered in connection herewith as set forth herein and therein,
and the Borrower and the Guarantors hereby acknowledge, represent and agree
that the Loan Documents (including without limitation the Guaranties) remain in
full force and effect and constitute the valid and legally binding obligations
of the Borrower and the Guarantors enforceable against such Persons in
accordance with their respective terms, and that the execution and delivery of
this Amendment and any other modification documents do not constitute, and
shall not be deemed to constitute, a release, waiver or satisfaction of
Borrower’s or the Guarantors’ obligations under the Loan Documents (including,
without limitation, the Guaranties).

 

5.             Representations.  Borrower and each Guarantor represents and
warrants to Agent and the Lenders as follows:

 

(a)           Authorization.  The execution, delivery and performance of
this Amendment and any other amendments to the Loan Documents executed and
delivered in connection herewith and the transactions contemplated hereby and
thereby (i) are within the authority of the Borrower and the Guarantors, (ii) have
been duly authorized by all necessary proceedings on the part of such Persons, (iii) do
not and will not conflict with or result in any

 

6

 

breach or contravention of any provision of law, statute, rule or
regulation to which any of such Persons is subject or any judgment, order,
writ, injunction, license or permit applicable to such Persons, (iv) do
not and will not conflict with or constitute a default (whether with the
passage of time or the giving of notice, or both) under any provision of the
partnership agreement or certificate, certificate of formation, operating
agreement, articles of incorporation or other charter documents or bylaws of,
or any mortgage, indenture, agreement, contract or other instrument binding
upon, any of such Persons or any of its properties or to which any of such
Persons is subject (v) do not and will not result in or require the
imposition of any lien or other encumbrance on any of the properties, assets or
rights of such Persons, other than the liens and encumbrances created by the
Loan Documents.

 

(b)           Enforceability.  The execution and delivery of this Amendment
and any other amendments to the Loan Documents executed and delivered in
connection herewith are valid and legally binding obligations of the Borrower
and the Guarantors enforceable in accordance with the respective terms and
provisions hereof, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors’ rights and the effect of general
principles of equity.

 

(c)           Approvals.  The execution, delivery and performance of
this Amendment and any other amendments to the Loan Documents executed and
delivered in connection herewith and the transactions contemplated hereby or
thereby do not require the approval or consent of any Person or the
authorization, consent, approval of or any license or permit issued by, or any
filing or registration with, or the giving of any notice to, any court,
department, board, commission or other governmental agency or authority other
than those already obtained.

 

(d)           Principal
Reductions.  As of the date hereof,
Borrower has made no payments to be credited against the amounts due pursuant
to §3.2(b) of the Loan Agreement.

 

6.             No
Default.  By execution hereof, the
Borrower and each of the Guarantors certifies that each such Person is and will
be in compliance with all covenants under the Loan Documents after the
execution and delivery of this Amendment, and that no Default or Event of
Default has occurred and is continuing under the Loan Documents, as amended by
this Amendment.

 

7.             Waiver
of Claims. The Borrower and each Guarantor acknowledges, represents and
agrees that none of such Persons has any defenses, setoffs, claims,
counterclaims or causes of action of any kind or nature whatsoever with respect
to the Loan Documents, the administration or funding of the Loans or with
respect to any acts or omissions of Agent or the Lenders, or any past or
present officers, agents or employees of the Agent or the Lenders, and each of
such Persons does hereby expressly waive, release and relinquish any and all
such defenses, setoffs, claims, counterclaims and causes of action, if any.

 

8.             Ratification.  Except as hereinabove set forth, all terms,
covenants and provisions of the Loan Documents, including, without limitation,
the Loan Agreement, remain unaltered and in full force and effect, and the
parties hereto do hereby expressly ratify and confirm, the Loan Documents and
the Loan Agreement as modified and amended herein.  Nothing in this Amendment or in any other
modification documents executed in connection herewith shall be deemed or
construed to constitute, and there has not otherwise occurred, a novation,
cancellation,

 

7

 

satisfaction,
release, extinguishment or substitution of the indebtedness evidenced by the
Notes or the other obligations of the Borrower and the Guarantors under the
Loan Documents.

 

9.             Effective
Date.  This Amendment shall be deemed
effective and in full force and effect upon (a) the execution and delivery
of this Amendment by the Borrower, the Guarantors, the Agent and the Lenders, (b) the
execution and delivery of the Second Amendment to Amended and Restated
Unsecured Revolving Credit Agreement by the Borrower, the Agent and the lenders
a party thereto, (c) the delivery to Agent of the Employment Contract,
which shall be in full force and effect, and (d) the delivery to Agent of
such other documents as Agent may reasonably require.

 

10.           Amendment
as Loan Document.  This Amendment
shall constitute a Loan Document.

 

11.           Counterparts.  This Amendment may be executed in any number
of counterparts which shall together constitute but one and the same agreement.

 

12.           Miscellaneous.  This Amendment shall be construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts.  This Amendment shall be binding upon and
shall inure to the benefit of the parties hereto and their respective permitted
successors, successors-in-title and assigns as provided in the Loan Agreement
and the Guaranties.

 

13.           Expenses.  Borrower shall pay the reasonable fees and
expenses of Agent and Lenders in connection with the negotiation, execution and
delivery of this Amendment.

 

[Remainder of Page Intentionally Left
Blank; Signatures on Following Page]

 

8

 

IN WITNESS WHEREOF,
the parties hereto have hereto set their hands and affixed their seals as of
the day and year first above written.

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  AMERIVEST PROPERTIES INC., a Maryland

  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles K.
  Knight

  
	
   

  	
  Name:

  	
  Charles K.
  Knight

  
	
   

  	
  Title:

  	
  President
  and CEO

  
	
   

  	
   

  
	
   

  	
  [CORPORATE SEAL]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  AMERIVEST CHATEAU INC., a Texas

  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles K.
  Knight

  
	
   

  	
  Name:

  	
  Charles K.
  Knight

  
	
   

  	
  Title:

  	
  President
  and CEO

  
	
   

  	
   

  
	
   

  	
  [CORPORATE SEAL]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERIVEST GREENHILL INC., a Texas

  corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Charles K.
  Knight

  
	
   

  	
  Name:

  	
  Charles K.
  Knight

  
	
   

  	
  Title:

  	
  President
  and CEO

  
	
   

  	
   

  
	
   

  	
  [CORPORATE SEAL]

  
				

 

 

[SIGNATURES CONTINUED ON NEXT PAGE

 

9

 

	
   

  	
  LENDERS:

  
	
   

  	
   

  
	
   

  	
  KEYBANK NATIONAL ASSOCIATION, a

  national banking association

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter
  F.C. Armstrong, Jr.

  
	
   

  	
  Name:

  	
  Peter F.C.
  Armstrong, Jr.

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel
  P. Stegemoeller

  
	
   

  	
  Name:

  	
  Daniel P.
  Stegemoeller

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AGENT:

  
	
   

  	
   

  
	
   

  	
  KEYBANK NATIONAL ASSOCIATION,
  a

  national banking association, as Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter
  F.C. Armstrong, Jr.

  
	
   

  	
  Name:

  	
  Peter F.C.
  Armstrong, Jr.

  
	
   

  	
  Title:

  	
  Vice
  President

  
				

 

10

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