Document:

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                                                                     EXHIBIT 4.3

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                          REGISTRATION RIGHTS AGREEMENT

                            Dated as of June 24, 2002

                                  By and Among

                                  VERTIS, INC.,

                            the SUBSIDIARY GUARANTORS
                                  named herein

                                       and

                          DEUTSCHE BANK SECURITIES INC.
                           J.P. MORGAN SECURITIES INC.
                         BANC OF AMERICA SECURITIES LLC
                             FLEET SECURITIES, INC.

                         10 7/8 % Senior Notes due 2009

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                                TABLE OF CONTENTS

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<Caption>
                                                                                                   Page
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<S>                                                                                                  <C>
1.  Definitions.......................................................................................1

2.  Exchange Offer....................................................................................5

3.  Shelf Registration................................................................................8

4.  Additional Interest..............................................................................10

5.  Registration Procedures..........................................................................12

6.  Registration Expenses............................................................................20

7.  Indemnification..................................................................................21

8.  Rules 144 and 144A...............................................................................25

9.  Underwritten Registrations.......................................................................26

10. Miscellaneous....................................................................................26

    (a)   No Inconsistent Agreements.................................................................26
    (b)   Adjustments Affecting Registrable Notes....................................................26
    (c)   Amendments and Waivers.....................................................................27
    (d)   Notices....................................................................................27
    (e)   Successors and Assigns.....................................................................28
    (f)   Counterparts...............................................................................29
    (g)   Headings...................................................................................29
    (h)   Governing Law..............................................................................29
    (i)   Severability...............................................................................29
    (j)   Notes Held by the Company or its Affiliates................................................29
    (k)   Third Party Beneficiaries..................................................................29
</Table>

                                        i
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                          REGISTRATION RIGHTS AGREEMENT

          This Registration Rights Agreement (the "AGREEMENT") is dated as of
June 24, 2002, by and among VERTIS, INC. a Delaware corporation (the "COMPANY"),
the subsidiaries of the Company that are listed on the signature pages hereto
(collectively, and together with any subsidiary that in the future executes a
supplemental indenture pursuant to which such subsidiary agrees to guarantee the
Notes (as hereinafter defined), the "GUARANTORS" and, together with the Company,
the "ISSUERS"), and Deutsche Bank Securities Inc., J.P. Morgan Securities Inc.,
Banc of America Securities LLC and Fleet Securities, Inc. (collectively, the
"INITIAL PURCHASERS").

          This Agreement is entered into in connection with the Purchase
Agreement, dated as of June 17, 2002 by and among the Issuers and the Initial
Purchasers (the "PURCHASE AGREEMENT"), which provides for the sale by the
Company to the Initial Purchasers of $250,000,000 principal amount of its 10 7/8
% Senior Notes due 2009 (the "NOTES"), guaranteed by the Guarantors (the
"GUARANTEES"). The Notes and the Guarantees are collectively referred to herein
as the "SECURITIES." In order to induce the Initial Purchasers to enter into the
Purchase Agreement, the Issuers have agreed, among other things, to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchasers and any subsequent holder or holders of the Notes. The execution and
delivery of this Agreement is a condition to the Initial Purchasers' obligation
to purchase the Notes under the Purchase Agreement.

          The parties hereby agree as follows:

1. DEFINITIONS

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

          ADDITIONAL INTEREST: See Section 4(a) hereof.

          ADVICE: See the last paragraph of Section 5 hereof.

          AGREEMENT: See the introductory paragraphs hereto.

          APPLICABLE PERIOD: See Section 2(b) hereof.

          COMPANY: See the introductory paragraphs hereto.

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          EFFECTIVENESS DATE: With respect to (i) the Exchange Offer
Registration Statement, the 180th day after the Issue Date and (ii) any Shelf
Registration Statement, the 60th day after the Filing Date with respect thereto.

          EFFECTIVENESS PERIOD: See Section 3(a) hereof.

          EVENT DATE: See Section 4(b) hereof.

          EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.

          EXCHANGE NOTES: See Section 2(a) hereof.

          EXCHANGE OFFER: See Section 2(a) hereof.

          EXCHANGE OFFER REGISTRATION STATEMENT: See Section 2(a) hereof.

          FILING DATE: (A) If no Registration Statement has been filed by the
Company pursuant to this Agreement, the 120th day after the Issue Date; and (B)
in any other case (which may be applicable notwithstanding the consummation of
the Exchange Offer), the 30th day after the delivery of a Shelf Notice.

          GUARANTEES: See the introductory paragraphs hereto.

          GUARANTORS: See the introductory paragraphs hereto.

          HOLDER: Any holder of a Registrable Note or Registrable Notes.

          INDEMNIFIED PERSON: See Section 7(c) hereof.

          INDEMNIFYING PERSON: See Section 7(c) hereof.

          INDENTURE: The Indenture, dated as of June 24, 2002, between the
Issuers and The Bank of New York, as Trustee thereunder, pursuant to which the
Notes are issued, as amended or supplemented from time to time in accordance
with the terms thereof.

          INITIAL PURCHASERS: See the introductory paragraphs hereto.

          INITIAL SHELF REGISTRATION: See Section 3(a) hereof.

          INSPECTORS: See Section 5(n) hereof.

          ISSUE DATE: June 24, 2002, the date of original issuance of the Notes.

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                                        3

          ISSUERS: See the introductory paragraphs hereto.

          NASD: See Section 5(s) hereof.

          NOTES: See the introductory paragraphs hereto.

          PARTICIPANT: See Section 7(a) hereof.

          PARTICIPATING BROKER-DEALER: See Section 2(b) hereof.

          PERSON: An individual, trustee, corporation, partnership, joint stock
company, trust, unincorporated association, union, business association, firm or
other legal entity.

          PRIVATE EXCHANGE: See Section 2(b) hereof.

          PRIVATE EXCHANGE NOTES: See Section 2(b) hereof.

          PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
under the Securities Act and any term sheet filed pursuant to Rule 434 under the
Securities Act), as amended or supplemented by any prospectus supplement, and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.

          PURCHASE AGREEMENT: See the introductory paragraphs hereto.

          RECORDS: See Section 5(n) hereof.

          REGISTRABLE NOTES: Each Security upon its original issuance and at all
times subsequent thereto, each Exchange Note (and the related Guarantees) as to
which Section 2(c)(iv) hereof is applicable upon original issuance and at all
times subsequent thereto and each Private Exchange Note (and the related
Guarantees) upon original issuance thereof and at all times subsequent thereto,
until (i) a Registration Statement (other than, with respect to any Exchange
Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer
Registration Statement) covering such Security, Exchange Note or Private
Exchange Note has been declared effective by the SEC and such Security, Exchange
Note or such Private Exchange Note, as the case may be, has been disposed of in
accordance with such effective Registration Statement, (ii) such Security has
been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange
Notes that may be resold without restriction under federal securities laws,
(iii) such Security, Exchange Note or Private Exchange Note, as the case may

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be, ceases to be outstanding for purposes of the Indenture or (iv) such
Security, Exchange Note or Private Exchange Note, as the case may be, may be
resold without restriction pursuant to Rule 144 under the Securities Act.

          REGISTRATION STATEMENT: Any registration statement of the Issuers that
covers any of the Notes, the Exchange Notes or the Private Exchange Notes filed
with the SEC under the Securities Act, including the Prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.

          RULE 144: Rule 144 promulgated under the Securities Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of the Issuers of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.

          RULE 144A: Rule 144A promulgated under the Securities Act, as such
rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.

          RULE 415: Rule 415 promulgated under the Securities Act, as such rule
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.

          SECURITIES ACT: The Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.

          SEC: The Securities and Exchange Commission.

          SHELF NOTICE: See Section 2(c) hereof.

          SHELF REGISTRATION: See Section 3(b) hereof.

          SHELF REGISTRATION STATEMENT: Any Registration Statement relating to a
Shelf Registration.

          SUBSEQUENT SHELF REGISTRATION: See Section 3(b) hereof.

          TIA: The Trust Indenture Act of 1939, as amended.

          TRUSTEE: The trustee under the Indenture.

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          UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which Notes of one or more of the Issuers are sold to an underwriter for
reoffering to the public.

2. EXCHANGE OFFER

          (a) To the extent not prohibited by applicable laws, rules,
regulations or applicable interpretations of the staff of the SEC, the Issuers
shall file with the SEC, no later than the Filing Date, a Registration Statement
(the "EXCHANGE OFFER REGISTRATION STATEMENT") on an appropriate registration
form with respect to a registered offer (the "EXCHANGE OFFER") to exchange any
and all of the Registrable Notes for the same aggregate principal amount of
notes (the "EXCHANGE NOTES") of the Company, guaranteed by the Guarantors, that
are identical in all material respects to the Notes except that the Exchange
Notes shall contain no restrictive legend thereon. The Exchange Offer shall
comply with all applicable tender offer rules and regulations under the Exchange
Act and other applicable laws. The Issuers shall use their reasonable best
efforts to (x) cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or before the Effectiveness Date; (y) keep
the Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed to
Holders; and (z) consummate the Exchange Offer on or prior to the 45th day
following the date on which the Exchange Offer Registration Statement is
declared effective by the SEC. If, after the Exchange Offer Registration
Statement is initially declared effective by the SEC, the Exchange Offer or the
issuance of the Exchange Notes thereunder is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, the Exchange Offer Registration Statement shall be deemed not
to have become effective for purposes of this Agreement.

          Each Holder that participates in the Exchange Offer will be required
to represent that any Exchange Notes to be received by it will be acquired in
the ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
Person to participate in the distribution of the Exchange Notes in violation of
the provisions of the Securities Act, and that such Holder is not an affiliate
of any of the Issuers within the meaning of the Securities Act.

          Upon consummation of the Exchange Offer in accordance with this
Section 2, the provisions of this Agreement shall continue to apply, solely with
respect to Registrable Notes that are Private Exchange Notes, Exchange Notes as
to which Section 2(c)(iv) is applicable and Exchange Notes held by Participating
Broker-Dealers, and the Issuers shall have no further obligation to register
Registrable Notes (other than Private Exchange Notes and other than in respect
of any Exchange Notes as to which clause 2(c)(iv) hereof applies) pursuant to
this Agreement. No Notes other than the Exchange Notes shall be included in the
Exchange Offer Registration Statement.

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          (b) The Issuers shall include within the Prospectus contained in the
Exchange Offer Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Holders, which shall contain such information as
the Initial Purchasers shall reasonably request.

          The Issuers shall use their reasonable best efforts to keep the
Exchange Offer Registration Statement effective and to amend and supplement the
Prospectus contained therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as is necessary to comply with applicable
law in connection with any resale of the Exchange Notes covered thereby;
PROVIDED, HOWEVER, that such period shall not exceed 180 days after such
Exchange Offer Registration Statement is declared effective (or such longer
period if extended pursuant to the last paragraph of Section 5 hereof) (the
"APPLICABLE PERIOD").

          If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them that have, or that are
reasonably likely to be determined to have, the status of an unsold allotment in
an initial distribution, or any Holder is not entitled to participate in the
Exchange Offer, the Issuers upon the request of any such Holder shall
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to any such Holder, in exchange (the "PRIVATE EXCHANGE") for
such Securities held by any such Holder, the same principal amount of notes (the
"PRIVATE EXCHANGE NOTES") of the Company, guaranteed by the Guarantors, that are
identical in all material respects to the Exchange Notes (except that they may
bear a customary legend with respect to restrictions on transfer). The Private
Exchange Notes shall be issued pursuant to the same indenture as the Exchange
Notes. The Issuers shall use their reasonable best efforts to cause the Private
Exchange Notes, subsequent to the sale thereof pursuant to an effective Shelf
Registration (as defined in Section 3(b) hereof) and removal of any legends
restricting the transfer of such Private Exchange Notes, to bear the same CUSIP
number as the Exchange Notes.

          Interest on the Exchange Notes and the Private Exchange Notes will
accrue from (A) the later of (i) the last interest payment date on which
interest was paid on the Notes surrendered in exchange therefor or (ii) if the
Notes are surrendered for exchange on a date in a period which includes the
record date for an interest payment date to occur on or after the date of such
exchange and as to which interest will be paid, the date of such interest
payment or (B) if no interest has been paid on the Notes, from the Issue Date.

          In connection with the Exchange Offer, the Issuers shall:

          (1) mail, or cause to be mailed, to each Holder entitled to
     participate in the Exchange Offer a copy of the Prospectus forming part of
     the Exchange Offer Registration

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                                        7

     Statement, together with an appropriate letter of transmittal and
     related documents;

          (2) keep the Exchange Offer open for not less than 30 days after the
     date that notice of the Exchange Offer is mailed to Holders (or longer if
     required by applicable law);

          (3) utilize the services of a depositary for the Exchange Offer with
     an address in the Borough of Manhattan, The City of New York;

          (4) permit Holders to withdraw tendered Notes at any time prior to the
     close of business, New York time, on the last business day on which the
     Exchange Offer shall remain open; and

          (5) otherwise comply in all material respects with all applicable
     laws, rules and regulations.

          As soon as practicable after the close of the Exchange Offer and the
Private Exchange, if any, the Issuers shall:

     (1)      accept for exchange all Registrable Notes validly tendered and not
     validly withdrawn pursuant to the Exchange Offer and the Private Exchange,
     if any;

     (2)      deliver to the Trustee for cancellation all Registrable Notes so
     accepted for exchange; and

     (3)      cause the Trustee to authenticate and deliver to each Holder of
     Securities, Exchange Notes or Private Exchange Notes, as the case may be,
     equal in principal amount to the Notes of such Holder so accepted for
     exchange.

          The Exchange Offer and the Private Exchange shall not be subject to
any conditions, other than that (i) the Exchange Offer or Private Exchange, as
the case may be, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) no action or proceeding shall have
been instituted or threatened in any court or by any governmental agency which
would be reasonably likely to materially impair the ability of the Issuers to
proceed with the Exchange Offer or the Private Exchange, and no material adverse
development shall have occurred in any existing action or proceeding with
respect to the Issuers and (iii) all governmental approvals shall have been
obtained, which approvals the Issuers deem necessary for the consummation of the
Exchange Offer or Private Exchange.

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          The Exchange Notes and the Private Exchange Notes shall be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture and which, in either case, has been qualified under the TIA or
is exempt from such qualification and shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that none of the Exchange Notes, the Private Exchange
Notes or the Notes will have the right to vote or consent as a separate class on
any matter.

          (c) If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the SEC, the Issuers are not permitted to effect
the Exchange Offer, (ii) the Exchange Offer is not consummated within 225 days
of the Issue Date, (iii) the Initial Purchasers or any holder of Private
Exchange Notes so requests in writing to the Company at any time after the
consummation of the Exchange Offer, or (iv) in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive Exchange Notes
on the date of the exchange that may be sold without restriction under state and
federal securities laws (other than due solely to the status of such Holder as
an affiliate of the Issuers within the meaning of the Securities Act) and so
notifies the Company within 30 days after such Holder first becomes aware of
such restrictions, in the case of each of clauses (i) to and including (iv) of
this sentence, then the Issuers shall promptly deliver to the Holders and the
Trustee written notice thereof (the "SHELF NOTICE") and as promptly as possible
shall file a Shelf Registration pursuant to Section 3 hereof.

3. SHELF REGISTRATION

          If at any time a Shelf Notice is delivered as contemplated by Section
2(c) hereof, then:

          (a) SHELF REGISTRATION. The Issuers shall as promptly as possible file
     with the SEC a Registration Statement for an offering to be made on a
     continuous basis pursuant to Rule 415 covering all of the Registrable Notes
     not permitted to be exchanged in the Exchange Offer in accordance with the
     terms of this Agreement, Private Exchange Notes and Exchange Notes as to
     which Section 2(c)(iv) is applicable (the "INITIAL SHELF REGISTRATION").
     The Issuers shall use their reasonable best efforts to file with the SEC
     the Initial Shelf Registration on or before the applicable Filing Date. The
     Initial Shelf Registration shall be on Form S1 or another appropriate form
     permitting registration of such Registrable Notes for resale by Holders in
     the manner or manners designated by them (including, without limitation,
     one or more underwritten offerings). The Issuers shall not permit any Notes
     other than the Registrable Notes to be included in the Initial Shelf
     Registration or any Subsequent Shelf Registration (as defined below).

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          The Issuers shall use their reasonable best efforts to cause the
     Initial Shelf Registration to be declared effective under the Securities
     Act on or prior to the Effectiveness Date and to keep the Initial Shelf
     Registration continuously effective under the Securities Act until the date
     which is the earlier of two years after the Issue Date (the "EFFECTIVENESS
     PERIOD"), or such shorter period ending when all Registrable Notes covered
     by the Shelf Registration have been sold in the manner set forth and as
     contemplated in the Initial Shelf Registration or, if applicable, a
     Subsequent Shelf Registration; PROVIDED, HOWEVER, that the Effectiveness
     Period in respect of the Initial Shelf Registration shall be extended to
     the extent required to permit dealers to comply with the applicable
     prospectus delivery requirements of Rule 174 under the Securities Act and
     as otherwise provided herein and shall be subject to reduction to the
     extent that the applicable provisions of Rule 144(k) are amended or revised
     to reduce the two year holding period set forth therein.

          No holder of Registrable Notes may include any of its Registrable
     Notes in any Shelf Registration Statement pursuant to this Agreement unless
     and until such holder furnishes to the Company in writing, within 15
     business days after receipt of a request therefor, such information as the
     Company may reasonably request for use in connection with any Shelf
     Registration Statement or Prospectus or preliminary prospectus included
     therein. No holder of Registrable Notes shall be entitled to Additional
     Interest pursuant to Section 4 hereof unless and until such holder shall
     have provided all such reasonably requested information. Each holder of
     Registrable Notes as to which any Shelf Registration Statement is being
     effected agrees to furnish promptly to the Company all information required
     to be disclosed in order to make information previously furnished to the
     Company by such Holder not materially misleading.

          (b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf Registration
     or any Subsequent Shelf Registration ceases to be effective for any reason
     at any time during the Effectiveness Period (other than because of the sale
     of all of the Notes registered thereunder), the Issuers shall use their
     reasonable best efforts to obtain the prompt withdrawal of any order
     suspending the effectiveness thereof, and in any event shall within 30 days
     of such cessation of effectiveness amend the Initial Shelf Registration in
     a manner to obtain the withdrawal of the order suspending the effectiveness
     thereof, or file an additional Shelf Registration Statement pursuant to
     Rule 415 covering all of the Registrable Notes covered by and not sold
     under the Initial Shelf Registration or an earlier Subsequent Shelf
     Registration (each, a "SUBSEQUENT SHELF REGISTRATION"). If a Subsequent
     Shelf Registration is filed, the Issuers shall use their reasonable best
     efforts to cause the Subsequent Shelf Registration to be declared effective
     under the Securities Act as soon as practicable after such filing and to
     keep such subsequent Shelf

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                                       10

     Registration continuously effective for a period equal to the number of
     days in the Effectiveness Period less the aggregate number of days during
     which the Initial Shelf Registration or any Subsequent Shelf Registration
     was previously continuously effective. As used herein the term "SHELF
     REGISTRATION" means the Initial Shelf Registration and any Subsequent Shelf
     Registration.

          (c) SUPPLEMENTS AND AMENDMENTS. The Issuers shall promptly supplement
     and amend any Shelf Registration if required by the rules, regulations or
     instructions applicable to the registration form used for such Shelf
     Registration, if required by the Securities Act, or if reasonably requested
     by the Holders of a majority in aggregate principal amount of the
     Registrable Notes covered by such Registration Statement or by any
     underwriter of such Registrable Notes.

          (d) WITHDRAWAL OF STOP ORDERS. If the Shelf Registration ceases to be
     effective for any reason at any time during the Effectiveness Period (other
     than because of the sale of all of the Notes registered thereunder), the
     Issuers shall use their reasonable best efforts to obtain the prompt
     withdrawal of any order suspending the effectiveness thereof.

4. ADDITIONAL INTEREST

          (a) The Issuers and the Initial Purchasers agree that the Holders will
suffer damages if the Issuers fail to fulfill their respective obligations under
Section 2 or Section 3 hereof and that it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, the Issuers agree, to pay,
jointly and severally, as liquidated damages, additional interest on the Notes
("ADDITIONAL INTEREST") under the circumstances and to the extent set forth
below (each of which shall be given independent effect):

          (i) if (A) neither the Exchange Offer Registration Statement nor the
     Initial Shelf Registration has been filed on or prior to the Filing Date
     applicable thereto or (B) notwithstanding that the Issuers have consummated
     or will consummate the Exchange Offer, the Issuers are required to file a
     Shelf Registration and such Shelf Registration is not filed on or prior to
     the Filing Date applicable thereto, then, commencing on the day after any
     such Filing Date, Additional Interest shall accrue on the principal amount
     of the Notes at a rate of 0.50% per annum for the first 90 days immediately
     following such applicable Filing Date, and such Additional Interest rate
     shall increase by an additional 0.50% per annum at the beginning of each
     subsequent 90 day period; or

          (ii) if (A) neither the Exchange Offer Registration Statement nor the
     Initial Shelf Registration is declared effective by the SEC on or prior to
     the Effectiveness

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                                       11

     Date applicable thereto or (B) notwithstanding that the Issuers have
     consummated or will consummate the Exchange Offer, the Issuers are required
     to file a Shelf Registration and such Shelf Registration is not declared
     effective by the SEC on or prior to the Effectiveness Date applicable to
     such Shelf Registration, then, commencing on the day after such
     Effectiveness Date, Additional Interest shall accrue on the principal
     amount of the Notes at a rate of 0.50% per annum for the first 90 days
     immediately following the day after such Effectiveness Date, and such
     Additional Interest rate shall increase by an additional 0.50% per annum at
     the beginning of each subsequent 90 day period; or

          (iii) if (A) the Issuers have not exchanged Exchange Notes for all
     Notes validly tendered in accordance with the terms of the Exchange Offer
     on or prior to the 45th day after the date on which the Exchange Offer
     Registration Statement relating thereto was declared effective or (B) if
     applicable, a Shelf Registration has been declared effective and such Shelf
     Registration ceases to be effective at any time during the Effectiveness
     Period, then Additional Interest shall accrue on the principal amount of
     the Notes at a rate of 0.50% per annum for the first 90 days commencing on
     the (x) 46th day after such effective date, in the case of (A) above, or
     (y) the day such Shelf Registration ceases to be effective in the case of
     (B) above, and such Additional Interest rate shall increase by an
     additional 0.50% per annum at the beginning of each such subsequent 90 day
     period;

PROVIDED, HOWEVER, that the Additional Interest rate on the Notes may not accrue
under more than one of the foregoing clauses (i)-(iii) at any one time and at no
time shall the aggregate amount of additional interest accruing exceed in the
aggregate 1.0% per annum; PROVIDED, FURTHER, HOWEVER, that (1) upon the filing
of the applicable Exchange Offer Registration Statement or the applicable Shelf
Registration as required hereunder (in the case of clause (i) above of this
Section 4), (2) upon the effectiveness of the Exchange Offer Registration
Statement or the applicable Shelf Registration Statement as required hereunder
(in the case of clause (ii) of this Section 4), or (3) upon the exchange of the
Exchange Notes for all Notes tendered (in the case of clause (iii)(A) of this
Section 4), or upon the effectiveness of the applicable Shelf Registration
Statement which had ceased to remain effective (in the case of (iii)(B) of this
Section 4), Additional Interest on the Notes in respect of which such events
relate as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.

          (b) The Issuers shall notify the Trustee within one business day after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "EVENT DATE"). Any amounts of Additional
Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash semiannually on each June 15 and December

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                                       12

15 (to the holders of record on the June 1 and December 1 immediately preceding
such dates), commencing with the first such date occurring after any such
Additional Interest commences to accrue. The amount of Additional Interest will
be determined by multiplying the applicable Additional Interest rate by the
principal amount of the Registrable Notes, multiplied by a fraction, the
numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360 day year
comprised of twelve 30 day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.

5. REGISTRATION PROCEDURES

          In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Issuers shall effect such registrations to permit
the sale of the Notes covered thereby in accordance with the intended method or
methods of disposition thereof, and pursuant thereto and in connection with any
Registration Statement filed by the Issuers hereunder each of the Issuers shall:

          (a) Prepare and file with the SEC prior to the applicable Filing Date,
     a Registration Statement or Registration Statements as prescribed by
     Sections 2 or 3 hereof, and use its reasonable best efforts to cause each
     such Registration Statement to become effective and remain effective as
     provided herein; PROVIDED, HOWEVER, that, if (1) such filing is pursuant to
     Section 3 hereof or (2) a Prospectus contained in the Exchange Offer
     Registration Statement filed pursuant to Section 2 hereof is required to be
     delivered under the Securities Act by any Participating Broker-Dealer who
     seeks to sell Exchange Notes during the Applicable Period relating thereto,
     before filing any Registration Statement or Prospectus or any amendments or
     supplements thereto, the Issuers shall furnish to and afford the Holders of
     the Registrable Notes covered by such Registration Statement or each such
     Participating Broker-Dealer, as the case may be, their counsel and the
     managing underwriters, if any, a reasonable opportunity to review copies of
     all such documents (including copies of any documents to be incorporated by
     reference therein and all exhibits thereto) proposed to be filed (in each
     case at least five business days prior to such filing, or such later date
     as is reasonable under the circumstances). The Issuers shall not file any
     Registration Statement or Prospectus or any amendments or supplements
     thereto if the Holders of a majority in aggregate principal amount of the
     Registrable Notes covered by such Registration Statement, their counsel, or
     the managing underwriters, if any, shall reasonably object.

          (b) Prepare and file with the SEC such amendments and post-effective
     amendments to each Shelf Registration Statement or Exchange Offer
     Registration Statement, as the case may be, as may be necessary to keep
     such Registration Statement continuously effective for the Effectiveness
     Period or the Applicable Period

<Page>

                                       13

     or until consummation of the Exchange Offer, as the case may be; cause the
     related Prospectus to be supplemented by any Prospectus supplement required
     by applicable law, and as so supplemented to be filed pursuant to Rule 424
     (or any similar provisions then in force) promulgated under the Securities
     Act; and comply with the provisions of the Securities Act and the Exchange
     Act applicable to it with respect to the disposition of all Notes covered
     by such Registration Statement as so amended or in such Prospectus as so
     supplemented and with respect to the subsequent resale of any Notes being
     sold by a Participating Broker-Dealer covered by any such Prospectus.

          (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable Period relating thereto from whom any
     Issuer has received written notice that it will be a Participating
     Broker-Dealer in the Exchange Offer, notify the selling Holders of
     Registrable Notes, or each such Participating Broker-Dealer, as the case
     may be, their counsel and the managing underwriters, if any, promptly (but
     in any event within two business days), and confirm such notice in writing,
     (i) when a Prospectus or any Prospectus supplement or post-effective
     amendment has been filed, and, with respect to a Registration Statement or
     any post-effective amendment, when the same has become effective under the
     Securities Act (including in such notice a written statement that any
     Holder may, upon request, obtain, at the sole expense of the Issuers, one
     conformed copy of such Registration Statement or post-effective amendment
     including financial statements and schedules, documents incorporated or
     deemed to be incorporated by reference therein and exhibits), (ii) of the
     issuance by the SEC of any stop order suspending the effectiveness of a
     Registration Statement or of any order preventing or suspending the use of
     any preliminary prospectus or the initiation of any proceedings for that
     purpose, (iii) if at any time when a prospectus is required by the
     Securities Act to be delivered in connection with sales of the Registrable
     Notes or resales of Exchange Notes by Participating Broker-Dealers the
     representations and warranties of the Issuers contained in any agreement
     (including any underwriting agreement) contemplated by Section 5(m) hereof
     cease to be true and correct in all material respects, (iv) of the receipt
     by any Issuer of any notification with respect to the suspension of the
     qualification or exemption from qualification of a Registration Statement
     or any of the Registrable Notes or the Exchange Notes to be sold by any
     Participating Broker-Dealer for offer or sale in any jurisdiction, or the
     initiation or threatening of any proceeding for such purpose, (v) of the
     happening of any event, the existence of any condition or any information
     becoming known that makes any statement made in such Registration Statement
     or related Prospectus or any document incorporated or deemed to be
     incorporated therein by reference untrue in any material

<Page>

                                       14

     respect or that requires the making of any changes in or amendments or
     supplements to such Registration Statement, Prospectus or documents so
     that, in the case of the Registration Statement, it will not contain any
     untrue statement of a material fact or omit to state any material fact
     required to be stated therein or necessary to make the statements therein
     not misleading, and that in the case of the Prospectus, it will not contain
     any untrue statement of a material fact or omit to state any material fact
     required to be stated therein or necessary to make the statements therein,
     in light of the circumstances under which they were made, not misleading,
     and (vi) of the Issuers' determination that a post-effective amendment to a
     Registration Statement would be appropriate.

          (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable Period, use its reasonable best
     efforts to prevent the issuance of any order suspending the effectiveness
     of a Registration Statement or of any order preventing or suspending the
     use of a Prospectus or suspending the qualification (or exemption from
     qualification) of any of the Registrable Notes or the Exchange Notes to be
     sold by any Participating Broker-Dealer, for sale in any jurisdiction, and,
     if any such order is issued, to use its best efforts to obtain the
     withdrawal of any such order at the earliest possible date.

          (e) If a Shelf Registration is filed pursuant to Section 3 and if
     requested by the managing underwriter or underwriters (if any), the Holders
     of a majority in aggregate principal amount of the Registrable Notes being
     sold in connection with an underwritten offering or any Participating
     Broker-Dealer, (i) promptly as commercially practicable incorporate in a
     prospectus supplement or post-effective amendment such information as the
     managing underwriter or underwriters (if any), such Holders, any
     Participating Broker-Dealer or counsel for any of them reasonably request
     to be included therein, (ii) make all required filings of such prospectus
     supplement or such post-effective amendment as soon as commercially
     practicable after any Issuer has received notification of the matters to be
     incorporated in such prospectus supplement or post-effective amendment, and
     (iii) supplement or make amendments to such Registration Statement.

          (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable

<Page>

                                       15

     Period, furnish to each selling Holder of Registrable Notes and to each
     such Participating Broker-Dealer who so requests and to counsel and each
     managing underwriter, if any, at the sole expense of the Issuers, one
     conformed copy of the Registration Statement or Registration Statements and
     each post-effective amendment thereto, including financial statements and
     schedules, and, if requested, all documents incorporated or deemed to be
     incorporated therein by reference and all exhibits.

          (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable Period, deliver to each selling Holder
     of Registrable Notes, or each such Participating Broker-Dealer, as the case
     may be, their respective counsel, and the underwriters, if any, at the sole
     expense of the Issuers, as many copies of the Prospectus or Prospectuses
     (including each form of preliminary prospectus) and each amendment or
     supplement thereto and any documents incorporated by reference therein as
     such Persons may reasonably request; and, subject to the last paragraph of
     this Section 5, the Issuers hereby consent to the use of such Prospectus
     and each amendment or supplement thereto by each of the selling Holders of
     Registrable Notes or each such Participating Broker-Dealer, as the case may
     be, and the underwriters or agents, if any, and dealers (if any), in
     connection with the offering and sale of the Registrable Notes covered by,
     or the sale by Participating Broker-Dealers of the Exchange Notes pursuant
     to, such Prospectus and any amendment or supplement thereto.

          (h) Prior to any public offering of Registrable Notes or any delivery
     of a Prospectus contained in the Exchange Offer Registration Statement by
     any Participating Broker-Dealer who seeks to sell Exchange Notes during the
     Applicable Period, to use its reasonable best efforts to register or
     qualify, and to cooperate with the selling Holders of Registrable Notes or
     each such Participating Broker-Dealer, as the case may be, the managing
     underwriter or underwriters, if any, and their respective counsel in
     connection with the registration or qualification (or exemption from such
     registration or qualification) of such Registrable Notes for offer and sale
     under the securities or Blue Sky laws of such jurisdictions within the
     United States as any selling Holder, Participating Broker-Dealer, or the
     managing underwriter or underwriters reasonably request in writing;
     PROVIDED, HOWEVER, that where Exchange Notes held by Participating
     Broker-Dealers or Registrable Notes are offered other than through an
     underwritten offering, the Issuers agree to cause their counsel to perform
     Blue Sky investigations and file registrations and qualifications required
     to be filed pursuant to this Section 5(h); keep each such registration or
     qualification (or exemption therefrom) effective during the period such
     Registration Statement is required to be kept effective

<Page>

                                       16

     and do any and all other acts or things reasonably necessary to enable the
     disposition in such jurisdictions of the Exchange Notes held by
     Participating Broker-Dealers or the Registrable Notes covered by the
     applicable Registration Statement; PROVIDED, HOWEVER, that no Issuer shall
     be required to (A) qualify generally to do business in any jurisdiction
     where it is not then so qualified, (B) take any action that would subject
     it to general service of process in any such jurisdiction where it is not
     then so subject or (C) subject itself to taxation in excess of the dollar
     amount in any such jurisdiction where it is not then so subject.

          (i) If a Shelf Registration is filed pursuant to Section 3 hereof,
     cooperate with the selling Holders of Registrable Notes and the managing
     underwriter or underwriters, if any, to facilitate the timely preparation
     and delivery of certificates representing Registrable Notes to be sold,
     which certificates shall not bear any restrictive legends and shall be in a
     form eligible for deposit with The Depository Trust Company; and enable
     such Registrable Notes to be in such denominations and registered in such
     names as the managing underwriter or underwriters, if any, or Holders may
     request.

          (j) Use its reasonable best efforts to cause the Registrable Notes
     covered by the Registration Statement to be registered with or approved by
     such other governmental agencies or authorities as may be reasonably
     necessary to enable the seller or sellers thereof or the underwriter or
     underwriters, if any, to consummate the disposition of such Registrable
     Notes, except as may be required solely as a consequence of the nature of
     such selling Holder's business, in which case the Issuers will cooperate in
     all reasonable respects with the filing of such Registration Statement and
     the granting of such approvals.

          (k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable Period, upon the occurrence of any
     event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as
     commercially practicable prepare and (subject to Section 5(a) hereof) file
     with the SEC, at the sole expense of the Issuers, a supplement or
     post-effective amendment to the Registration Statement or a supplement to
     the related Prospectus or any document incorporated or deemed to be
     incorporated therein by reference, or file any other required document so
     that, as thereafter delivered to the purchasers of the Registrable Notes
     being sold thereunder or to the purchasers of the Exchange Notes to whom
     such Prospectus will be delivered by a Participating Broker-Dealer, any
     such Prospectus will not contain an untrue statement of a material fact or
     omit to state a material fact required to be stated therein or necessary to
     make the

<Page>

                                       17

     statements therein, in the light of the circumstances under which they were
     made, not misleading.

          (l) Prior to the effective date of the first Registration Statement
     relating to the Registrable Notes, (i) provide the Trustee with
     certificates for the Registrable Notes or Exchange Notes, as the case may
     be, in a form eligible for deposit with The Depository Trust Company and
     (ii) provide a CUSIP number for the Registrable Notes or Exchange Notes, as
     the case may be.

          (m) In connection with any underwritten offering of Registrable Notes
     pursuant to a Shelf Registration, enter into an underwriting agreement as
     is customary in underwritten offerings of debt securities similar to the
     Notes in form and substance reasonably satisfactory to the Company and take
     all such other actions as are reasonably requested by the managing
     underwriter or underwriters in order to expedite or facilitate the
     registration or the disposition of such Registrable Notes and, in such
     connection, (i) make such representations and warranties to, and covenants
     with, the underwriters with respect to the business of the Company and its
     subsidiaries and the Registration Statement, Prospectus and documents, if
     any, incorporated or deemed to be incorporated by reference therein, in
     each case, as are customarily made by issuers to underwriters in
     underwritten offerings of debt securities similar to the Notes, and confirm
     the same in writing if and when requested in form and substance reasonably
     satisfactory to the Issuers; (ii) obtain the written opinion of counsel to
     the Issuers and written updates thereof in form, scope and substance
     reasonably satisfactory to the managing underwriter or underwriters,
     addressed to the underwriters covering the matters customarily covered in
     opinions reasonably requested in underwritten offerings of debt securities
     similar to the Notes and such other matters as may be reasonably requested
     by the managing underwriter or underwriters; (iii) use its reasonable best
     efforts to obtain "cold comfort" letters and updates thereof in form, scope
     and substance reasonably satisfactory to the managing underwriter or
     underwriters from the independent certified public accountants of the
     Company (and, if necessary, any other independent certified public
     accountants of any subsidiary of the Company or of any business acquired by
     the Company for which financial statements and financial data are, or are
     required to be, included or incorporated by reference in the Registration
     Statement), addressed to the underwriter, such letters to be in customary
     form and covering matters of the type customarily covered in "cold comfort"
     letters in connection with underwritten offerings of debt securities
     similar to the Notes and such other matters as reasonably requested by the
     managing underwriter or underwriters as permitted by the Statement on
     Auditing Standards No. 72; and (iv) if an underwriting agreement is entered
     into, the same shall contain indemnification provisions and procedures no
     less favorable to the sellers and underwriters, if any, than those set
     forth

<Page>

                                       18

     in Section 7 hereof (or such other provisions and procedures acceptable to
     Holders of a majority in aggregate principal amount of Registrable Notes
     covered by such Registration Statement and the managing underwriter or
     underwriters or agents, if any). The above shall be done at each closing
     under such underwriting agreement, or as and to the extent required
     thereunder.

          (n) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
     or (2) a Prospectus contained in the Exchange Offer Registration Statement
     filed pursuant to Section 2 hereof is required to be delivered under the
     Securities Act by any Participating Broker-Dealer who seeks to sell
     Exchange Notes during the Applicable Period, make available for inspection
     by any selling Holder of such Registrable Notes being sold, or each such
     Participating Broker-Dealer, as the case may be, any underwriter
     participating in any such disposition of Registrable Notes, if any, and any
     attorney, accountant or other agent retained by any such selling Holder or
     each such Participating Broker-Dealer, as the case may be, or underwriter
     (collectively, the "INSPECTORS"), at the offices where normally kept,
     during reasonable business hours, all financial and other records,
     pertinent corporate documents and instruments of the Company and its
     subsidiaries (collectively, the "RECORDS") as shall be reasonably necessary
     to enable them to exercise any applicable due diligence responsibilities,
     and cause the officers, directors and employees of the Company and its
     subsidiaries to supply all information reasonably requested by any such
     Inspector in connection with such Registration Statement and Prospectus.
     Each Inspector shall agree in writing that it will keep the Records
     confidential and that it will not disclose any of the Records unless (i)
     the disclosure of such Records is necessary to avoid or correct a
     misstatement or omission in such Registration Statement or Prospectus, (ii)
     the release of such Records is ordered pursuant to a subpoena or other
     order from a court of competent jurisdiction, (iii) disclosure of such
     information is necessary or advisable, in the opinion of counsel for any
     Inspector, in connection with any action, claim, suit or proceeding,
     directly or indirectly, involving or potentially involving such Inspector
     and arising out of, based upon, relating to, or involving this Agreement or
     the Purchase Agreement, or any transactions contemplated hereby or thereby
     or arising hereunder or thereunder, or (iv) the information in such Records
     has been made generally available to the public. Each selling Holder of
     such Registrable Notes and each such Participating Broker-Dealer will be
     required to agree that information obtained by it as a result of such
     inspections shall be deemed confidential and shall not be used by it as the
     basis for any market transactions in the securities of any Issuer unless
     and until such is made generally available to the public. Each selling
     Holder of such Registrable Notes and each such Participating Broker-Dealer
     will be required to further agree that it will, upon learning that
     disclosure of such Records is sought in a court of competent jurisdiction,
     give notice to the Company and allow the Company to undertake

<Page>

                                       19

     appropriate action to prevent disclosure of the Records deemed confidential
     at the Issuers' expense.

          (o) Provide the Trustee for the Registrable Notes or the Exchange
     Notes, as the case may be, and cause the Indenture or the trust indenture
     provided for in Section 2(a) hereof, as the case may be, to be qualified
     under the TIA not later than the effective date of the first Registration
     Statement relating to the Registrable Notes; and in connection therewith,
     cooperate with the trustee under any such indenture and the Holders of the
     Registrable Notes, to effect such changes to such indenture as may be
     required for such indenture to be so qualified in accordance with the terms
     of the TIA; and execute, and use its reasonable best efforts to cause such
     trustee to execute, all documents as may be required to effect such
     changes, and all other forms and documents required to be filed with the
     SEC to enable such indenture to be so qualified in a timely manner.

          (p) Comply with all applicable rules and regulations of the SEC and
     make generally available to their respective securityholders earnings
     statements satisfying the provisions of Section 11(a) of the Securities Act
     and Rule 158 thereunder (or any similar rule promulgated under the
     Securities Act) no later than 45 days after the end of any 12 month period
     (or 90 days after the end of any 12 month period if such period is a fiscal
     year) (i) commencing at the end of any fiscal quarter in which Registrable
     Notes are sold to underwriters in a firm commitment or best efforts
     underwritten offering and (ii) if not sold to underwriters in such an
     offering, commencing on the first day of the first fiscal quarter of the
     Company after the effective date of a Registration Statement, which
     statements shall cover said 12 month periods.

          (q) If the Exchange Offer or a Private Exchange is to be consummated,
     upon delivery of the Registrable Notes by Holders to the Company (or to
     such other Person as directed by the Company) in exchange for the Exchange
     Notes or the Private Exchange Notes, as the case may be, the Issuers shall
     mark, or cause to be marked, on such Registrable Notes that such
     Registrable Notes are being cancelled in exchange for the Exchange Notes or
     the Private Exchange Notes, as the case may be; in no event shall such
     Registrable Notes be marked as paid or otherwise satisfied.

          (r) Use its best efforts to cause the Registrable Notes covered by a
     Registration Statement or the Exchange Notes, as the case may be, to be
     rated with the appropriate rating agencies, if so requested by the Holders
     of a majority in aggregate principal amount of Registrable Notes covered by
     such Registration Statement or the Exchange Notes, as the case may be, or
     the managing underwriter or underwriters, if any.

<Page>

                                       20

          (s) Cooperate with each seller of Registrable Notes covered by any
     Registration Statement and each underwriter, if any, participating in the
     disposition of such Registrable Notes and their respective counsel in
     connection with any filings required to be made with the National
     Association of Securities Dealers, Inc. (the "NASD").

          (t) Use its reasonable best efforts to take all other steps reasonably
     necessary to effect the registration of the Exchange Notes and/or
     Registrable Notes covered by a Registration Statement contemplated hereby.

          The Issuers may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Issuers may exclude from
such registration the Registrable Notes of any seller so long as such seller
fails to furnish such information within a reasonable time after receiving such
request. Each seller as to which any Shelf Registration is being effected agrees
to furnish promptly to the Company all information required to be disclosed in
order to make the information previously furnished to the Company by such seller
not materially misleading.

          Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by its acquisition of such Registrable Notes or Exchange Notes to be sold
by such Participating Broker-Dealer, as the case may be, that, upon actual
receipt of any notice from the Issuers of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes covered
by such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing (the "ADVICE") by the Issuers that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event that the Issuers shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Notes covered by such Registration Statement or Exchange Notes to be
sold by such Participating Broker-Dealer, as the case may be, shall have
received (x) the copies of the supplemented or amended Prospectus contemplated
by Section 5(k) hereof or (y) the Advice.

6. REGISTRATION EXPENSES

          All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange

<Page>

                                       21

Offer Registration Statement or any Shelf Registration Statement is filed or
becomes effective or the Exchange Offer is consummated, including, without
limitation, (i) all registration and filing fees (including, without limitation,
(A) fees with respect to filings required to be made with the NASD in connection
with an underwritten offering and (B) fees and expenses of compliance with state
securities or Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of the
Registrable Notes or Exchange Notes for investment under the laws of such
jurisdictions (x) where the holders of Registrable Notes are located, in the
case of the Exchange Notes, or (y) as provided in Section 5(h) hereof, in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), (ii) reasonable printing expenses,
including, without limitation, reasonable expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is reasonably requested by the managing underwriter or
underwriters, if any, by the Holders of a majority in aggregate principal amount
of the Registrable Notes included in any Registration Statement or in respect of
Exchange Notes to be sold by any Participating Broker-Dealer during the
Applicable Period, as the case may be, (iii) reasonable messenger, telephone and
delivery expenses, (iv) reasonable fees and disbursements of counsel for the
Issuers and, in the case of a Shelf Registration, reasonable fees and
disbursements of one special counsel for all of the sellers of Registrable Notes
(exclusive of any counsel retained pursuant to Section 7 hereof), (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(m)(iii) hereof (including, without limitation, the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), (vi) Securities Act liability insurance, if the Issuers desire
such insurance, (vii) fees and expenses of all other Persons retained by any of
the Issuers, (viii) internal expenses of the Issuers (including, without
limitation, all salaries and expenses of officers and employees of the Issuers
performing legal or accounting duties), (ix) the expense of any annual audit,
(x) the fees and expenses incurred in connection with the listing of the Notes
to be registered on any securities exchange, and the obtaining of a rating of
the Notes, in each case, if applicable, and (xi) the reasonable expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, indentures and any other documents
necessary in order to comply with this Agreement.

7. INDEMNIFICATION

          (a) Each of the Issuers, jointly and severally, agrees to indemnify
and hold harmless each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period, the officers,
directors, employees and agents of each such Person, and each Person, if any,
who controls any such Person within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act (each, a "PARTICI-PANT"),

<Page>

                                       22

from and against any and all losses, claims, damages, judgments, liabilities and
expenses (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if any Issuer shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by, arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the case of the
Prospectus in the light of the circumstances under which they were made, not
misleading, EXCEPT insofar as such losses, claims, damages or liabilities are
caused by, arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided, however, that no Issuer
will be liable if such untrue statement or omission or alleged untrue statement
or omission was contained or made in any preliminary prospectus and corrected in
the final Prospectus or any amendment or supplement thereto and any such loss,
liability, claim, or damage or expense suffered or incurred by the Participants
resulted from any action, claim or suit by any Person who purchased Registrable
Notes or Exchange Notes which are the subject thereof from such Participant and
it is established in the related proceeding that such Participant failed to
deliver or provide a copy of the final Prospectus (as amended or supplemented)
to such Person with or prior to the confirmation of the sale of such Registrable
Notes or Exchange Notes sold to such Person if required by applicable law,
unless such failure to deliver or provide a copy of the Prospectus (as amended
or supplemented) was a result of noncompliance by any Issuer with Section 5 of
this Agreement.

          (b) Each Holder of Registrable Notes and each Participating
Broker-Dealer selling Exchange Notes during the Applicable Period agrees,
severally and not jointly, to indemnify and hold harmless each of the Issuers,
their directors, their officers who sign the Registration Statement and their
employees and agents and each Person, if any, who controls each Issuer within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Issuers to each
Participant, but only with reference to information relating to such Holder of
Registrable Notes or Participating Broker-Dealer selling Exchange Notes during
the Applicable Period furnished to the Company in writing by such Holder of
Registrable Notes or each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary prospectus.
The liability of any Holder of Registrable Notes and each Participating
Broker-Dealer that sells Exchange Notes during the Applicable Period under this
paragraph shall in no event exceed the proceeds received by such Holder of
Registrable Notes

<Page>

                                       23

and each Participating Broker-Dealer that sells Exchange Notes during the
Applicable Period from sales of Registrable Notes or Exchange Notes giving rise
to such obligations.

          (c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "INDEMNIFIED PERSON") shall promptly
notify the Persons against whom such indemnity may be sought (the "INDEMNIFYING
PERSONS") in writing, and the Indemnifying Persons, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; PROVIDED, HOWEVER, that the failure to so notify the
Indemnifying Persons shall not relieve any of them of any obligation or
liability which any of them may have hereunder unless and to the extent such
failure results in the forfeiture by the Indemnifying Persons of substantial
rights and defenses and will not, in any even, relieve the Indemnifying Persons
from any obligations to any Indemnified Persons other than the indemnification
obligations provided hereunder. In any such proceeding, any Indemnified Person
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Persons and the Indemnified Person shall have mutually agreed to
the contrary, (ii) the Indemnifying Persons shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in any such proceeding (including
any impleaded parties) include both any Indemnifying Person and the Indemnified
Person or any affiliate thereof and representation of both parties by the same
counsel would be inappropriate due to actual or potential conflicting interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Persons shall not, in connection with such
proceeding or separate but substantially similar related proceeding in the same
jurisdiction arising out of the same general allegations, be liable for the fees
and expenses of more than one separate firm (in addition to any local counsel)
for all Indemnified Persons, and that all such fees and expenses shall be
reimbursed as they are incurred. Any such separate firm for the Participants and
such control Persons of Participants shall be designated in writing by
Participants who sold a majority in interest of Registrable Notes and Exchange
Notes sold by all such Participants and any such separate firm for the Issuers,
their directors, their officers and such control Persons of the Issuers shall be
designated in writing by the Company and shall be reasonably acceptable to the
Holders. The Indemnifying Persons shall not be liable for any settlement of any
proceeding effected without its prior written consent (which consent shall not
be unreasonably withheld or delayed), but if settled with such consent or if
there be a final nonappealable judgment for the plaintiff for which the
Indemnified Person is entitled to indemnification pursuant to this Agreement,
each of the Indemnifying Persons agrees to indemnify and hold

<Page>

                                       24

harmless each Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for reasonable fees and expenses actually
incurred by counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement; PROVIDED, HOWEVER, that the Indemnifying Person shall not be liable
for any settlement effected without its consent pursuant to this sentence if the
Indemnifying Person is contesting, in good faith, the request for reimbursement.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Persons (which consent shall not be unreasonably withheld or
delayed), effect any settlement or compromise of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, or indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of such Indemnified Person.

          (d) If the indemnification provided for in clauses (a) and (b) of this
Section 7 is for any reason unavailable to, or insufficient to hold harmless, an
Indemnified Person in respect of any losses, claims, damages or liabilities
referred to therein, then each Indemnifying Person under such paragraphs, in
lieu of indemnifying such Indemnified Person thereunder and in order to provide
for just and equitable contribution, shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims, damages
or liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Person or Persons on the one hand and the Indemnified
Person or Persons on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof) as well as any other relevant
equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by any Issuer on the one hand or
such Participant or such other Indemnified Person, as the case may be, on the
other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.

<Page>

                                       25

          (e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA allocation
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages, judgments, liabilities and expenses referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall, a
Holder of Registrable Notes or any Participating Broker-Dealer that Exchange
Notes during the Applicable Period, be required to contribute any amount in
excess of the amount by which proceeds received by such Holder of Registrable
Notes or any Participating Broker-Dealer that Exchange Notes during the
Applicable Period from sales of Registrable Notes or Exchange Notes, as the case
may be, exceeds the amount of any damages that such Holder of Registrable Notes
or any Participating Broker-Dealer that Exchange Notes during the Applicable
Period has otherwise been required to pay or has paid by reason of such untrue
or alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.

          (f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the Indemnifying Party to the Indemnified Party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Issuers set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Holder or any person who controls a
Holder, any Issuer and its directors, officers, employees or agents or any
person controlling such Issuer, and (ii) any termination of this Agreement.

          (g) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.

8. RULES 144 AND 144A

          Each of the Issuers covenants and agrees that, so long as Registrable
Notes remain outstanding, it will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder in a timely manner in accordance with the
requirements of the Securities Act and the Exchange Act and,

<Page>

                                       26

if at any time such Issuer is not permitted to file such reports, such Issuer
will, upon the request of any Holder or beneficial owner of Registrable Notes,
make publicly available annual reports and such information, documents and other
reports of the type specified in Sections 13 and 15(d) of the Exchange Act. Each
Issuer further covenants for so long as any Registrable Notes remain
outstanding, to make available to any Holder or beneficial owner of Registrable
Notes in connection with any sale thereof and any prospective purchaser of such
Registrable Notes from such Holder or beneficial owner the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Registrable Notes pursuant to Rule 144A.

9. UNDERWRITTEN REGISTRATIONS

          If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and shall be reasonably acceptable to the
Company.

          No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.

10. MISCELLANEOUS

          (a) NO INCONSISTENT AGREEMENTS. As of the date hereof, no Issuer has
entered into any agreement with respect to any of its Notes that is inconsistent
with the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of any of the Issuers' other issued and
outstanding Notes. As of the date hereof, no Issuer has entered into any
agreement with respect to any of its Notes which will grant to any Person
piggyback registration rights with respect to any Registration Statement
required to be filed by the Issuers pursuant to this Agreement.

          (b) ADJUSTMENTS AFFECTING REGISTRABLE NOTES. No Issuer shall
knowingly, directly or indirectly, take any action with respect to the
Registrable Notes as a class that would adversely affect the ability of the
Holders of Registrable Notes to include such Registrable Notes in a registration
undertaken pursuant to this Agreement.

<Page>

                                       27

          (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (I) the Issuers and (II)(A) the Holders of not less than a majority
in aggregate principal amount of the then outstanding Registrable Notes and (B)
in circumstances that would adversely affect the Participating Broker-Dealers,
the Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating Broker-Dealers;
PROVIDED, HOWEVER, that Section 7 and this Section 10(c) may not be amended,
modified or supplemented without the prior written consent of each Holder and
each Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement) affected by any such
amendment, modification or supplement. Notwithstanding the foregoing, a waiver
or consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders of Registrable Notes whose Notes
are being sold pursuant to a Registration Statement and that does not directly
or indirectly affect, impair, limit or compromise the rights of other Holders of
Registrable Notes may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Notes being sold pursuant to such
Registration Statement.

          (d) NOTICES. All notices and other communications (including, without
limitation, any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, next-day air courier or facsimile:

           (i)   if to a Holder of the Registrable Notes or any Participating
     Broker-Dealer, at the most current address of such Holder or Participating
     Broker-Dealer, as the case may be, set forth on the records of the
     registrar under the Indenture, with a copy in like manner to the Initial
     Purchasers as follows:

                 Deutsche Bank Securities Inc.
                 31 West 52nd Street, 7th Floor
                 New York, New York 10019
                 Facsimile No: (212) 250-7200
                 Attention: Corporate Finance

<Page>

                                       28

     with a copy to:

                 Cahill Gordon & Reindel
                 80 Pine Street
                 New York, New York  10005
                 Facsimile No: (212) 269-5420
                 Attention: John A. Tripodoro, Esq.

          (ii)   if to the Initial Purchasers, at the address specified in
                 Section 10(d)(i);

         (iii)   if to the Company, at the address as follows:

                 Vertis, Inc.
                 250 W. Pratt Street
                 Baltimore, Maryland  21201
                 Facsimile No.: (410) 528-9287
                 Attention: General Counsel

     with a copy to:

                 Sullivan & Cromwell
                 125 Broad Street
                 New York, New York  10004
                 Facsimile No.: (212) 558-3588
                 Attention: Robert E. Buckholz, Jr.

          All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being timely delivered to a next-day air courier; and upon receiving
confirmation receipt by the addressee, if sent by facsimile.

          Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.

          (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto,
the Holders and the Participating Broker-Dealers, PROVIDED that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Notes in violation of the terms of the Purchase Agreement or the
Indenture.

<Page>

                                       29

          (f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.

          (g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

          (h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.

          (i) SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

          (j) NOTES HELD BY THE ISSUERS OR THEIR AFFILIATES. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by any Issuer or any of its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.

          (k) THIRD PARTY BENEFICIARIES. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement, and this Agreement may be enforced by such Persons.

<Page>

                                       30

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                           VERTIS, INC.

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

                                           SUBSIDIARY GUARANTORS:

                                           PRINTCO., INC.

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

                                           WEBCRAFT, LLC

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

                                           WEBCRAFT CHEMICALS, LLC

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

<Page>

                                              31

                                           ENTERON GROUP, LLC

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

                                           BIG FLOWER DIGITAL SERVICES
                                             (DELAWARE), INC.

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

                                           BIG FLOWER DIGITAL LLC

                                           By: /s/ John V. Howard, Jr.
                                               ---------------------------------
                                               Name: John V. Howard, Jr.
                                               Title: Senior Vice President

<Page>

                                       32

                                           INITIAL PURCHASERS:

                                           DEUTSCHE BANK SECURITIES INC.

                                           By: /s/ Vikrant Sawhney
                                               ---------------------------------
                                               Name: Vikrant Sawhney
                                               Title: Vice President

                                           J.P. MORGAN SECURITIES INC.

                                           By: /s/ Lauren Camp
                                               ---------------------------------
                                               Name: Lauren Camp
                                               Title: Managing Director

                                           BANC OF AMERICA SECURITIES LLC

                                           By: /s/ Stephan Jaeger
                                               ---------------------------------
                                               Name: Stephan Jaeger
                                               Title: Vice President

                                           FLEET SECURITIES, INC.

                                           By: /s/ Timothy Shoyer
                                               ---------------------------------
                                               Name: Timothy Shoyer
                                               Title: Managing DirectorExhibit
10.27

AGREEMENT AND PLAN OF MERGER

Among

EBAY INC.,

VAQUITA ACQUISITION CORP.

and

PAYPAL, INC.

Dated as of July 7, 2002

 

Table
of Contents

 

	
   

  	
   

  	
  Page

  
	
   

  	
  ARTICLE I

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  The Merger; Closing; Effective Time

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1.

  	
  The Merger

  	
  2

  
	
  1.2.

  	
  Closing

  	
  2

  
	
  1.3.

  	
  Effective Time

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE II

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Certificate of Incorporation and By-Laws of the Surviving Corporation

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1.

  	
  The Certificate of
  Incorporation

  	
  2

  
	
  2.2.

  	
  The By-Laws

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE III

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Officers and Directors of the Surviving Corporation

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1.

  	
  Directors

  	
  3

  
	
  3.2.

  	
  Officers

  	
  3

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IV

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Effect of the Merger on Capital Stock; Exchange of Certificates

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1.

  	
  Effect
  on Capital Stock

  	
  3

  
	
   

  	
  (a) Merger Consideration

  	
  3

  
	
   

  	
  (b) Cancellation of Shares

  	
  4

  
	
   

  	
  (c) Merger
  Sub

  	
  4

  
	
  4.2.

  	
  Exchange of
  Certificates for Shares

  	
  4

  
	
   

  	
  (a)
  Exchange Agent

  	
  4

  
	
   

  	
  (b) Exchange Procedures

  	
  4

  
	
   

  	
  (c) Transfers

  	
  5

  
	
   

  	
  (d)
  Fractional Shares

  	
  5

  
	
   

  	
  (e) Termination of
  Exchange Fund

  	
  6

  
	
   

  	
  (f) Lost,
  Stolen or Destroyed Certificates

  	
  6

  
	
   

  	
  (g)
  Distributions with Respect to Unexchanged Shares

  	
  6

  
	
   

  	
  (h)
  Affiliates

  	
  7

  
	
  4.3.

  	
  Dissenters’
  Rights

  	
  7

  
	
  4.4.

  	
  Adjustments to Prevent
  Dilution

  	
  7

  
	
   

  	
   

  	
   

  

 

 

-i-

 

 

	
   

  	
  ARTICLE V

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Representations and Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1.

  	
  Representations
  and Warranties of the Company

  	
  7

  
	
   

  	
  (a)
  Organization, Good Standing and Qualification

  	
  7

  
	
   

  	
  (b)
  Capital Structure

  	
  8

  
	
   

  	
  (c)
  Corporate Authority; Approval and Fairness

  	
  9

  
	
   

  	
  (d)
  Governmental Filings; No Violations; Certain Contracts

  	
  10

  
	
   

  	
  (e) Company
  Reports; Financial Statements

  	
  11

  
	
   

  	
  (f) Absence of Certain
  Changes

  	
  11

  
	
   

  	
  (g) Litigation and
  Liabilities

  	
  12

  
	
   

  	
  (h)
  Employee Benefits

  	
  12

  
	
   

  	
  (i) Compliance with
  Laws; Permits

  	
  14

  
	
   

  	
  (j) Certain Regulatory
  Matters

  	
  14

  
	
   

  	
  (k)
  Takeover Statutes

  	
  15

  
	
   

  	
  (l) Environmental Matters

  	
  15

  
	
   

  	
  (m) Tax
  Matters

  	
  15

  
	
   

  	
  (n) Taxes

  	
  15

  
	
   

  	
  (o)
  Labor Matters

  	
  16

  
	
   

  	
  (p) Insurance

  	
  16

  
	
   

  	
  (q) Intellectual Property

  	
  17

  
	
   

  	
  (r) Intercompany
  Restrictions

  	
  20

  
	
   

  	
  (s) Brokers and Finders

  	
  20

  
	
  5.2.

  	
  Representations
  and Warranties of Parent and Merger Sub

  	
  21

  
	
   

  	
  (a) Capitalization of
  Merger Sub

  	
  21

  
	
   

  	
  (b)
  Organization, Good Standing and Qualification

  	
  21

  
	
   

  	
  (c)
  Capital Structure

  	
  22

  
	
   

  	
  (d) Corporate Authority

  	
  23

  
	
   

  	
  (e) Governmental
  Filings; No Violations

  	
  23

  
	
   

  	
  (f) Parent
  Reports; Financial Statements

  	
  24

  
	
   

  	
  (g) Absence of Certain
  Changes

  	
  24

  
	
   

  	
  (h) Litigation and
  Liabilities

  	
  24

  
	
   

  	
  (i) Compliance with Laws

  	
  25

  
	
   

  	
  (j) Certain Regulatory
  Matters

  	
  25

  
	
   

  	
  (k) Tax
  Matters

  	
  25

  
	
   

  	
  (l) Taxes

  	
  26

  
	
   

  	
  (m) Intellectual Property

  	
  26

  
	
   

  	
  (n) Brokers and Finders

  	
  28

  
	
   

  	
   

  	
   

  

 

 

-ii-

 

 

	
   

  	
  ARTICLE VI

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1.

  	
  Interim Operations

  	
  28

  
	
  6.2.

  	
  Acquisition
  Proposals

  	
  30

  
	
  6.3.

  	
  Information
  Supplied

  	
  31

  
	
  6.4.

  	
  Stockholders
  Meeting

  	
  32

  
	
  6.5.

  	
  Filings; Other
  Actions; Notification

  	
  32

  
	
  6.6.

  	
  Taxation

  	
  35

  
	
  6.7.

  	
  Access

  	
  35

  
	
  6.8.

  	
  Affiliates

  	
  35

  
	
  6.9.

  	
  Nasdaq
  National Market Listing and De-listing

  	
  36

  
	
  6.10.

  	
  Publicity

  	
  36

  
	
  6.11.

  	
  Benefits

  	
  36

  
	
   

  	
  (a) Stock Options and
  Warrants

  	
  36

  
	
   

  	
  (b)
  Benefit Plans

  	
  37

  
	
   

  	
  (c)
  2001 ESPP and Company 401-K

  	
  38

  
	
  6.12.

  	
  Expenses

  	
  38

  
	
  6.13.

  	
  Indemnification;
  Directors’ and Officers’ Insurance

  	
  38

  
	
  6.14.

  	
  Takeover
  Statute

  	
  40

  
	
  6.15.

  	
  Retention of Certain
  Employees

  	
  40

  
	
  6.16.

  	
  Conduct
  of Merger Sub

  	
  40

  
	
  6.17.

  	
  Rule 144
  Reporting

  	
  40

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1.

  	
  Conditions
  to Each Party’s Obligation to Effect the Merger

  	
  41

  
	
   

  	
  (a)
  Stockholder Approval

  	
  41

  
	
   

  	
  (b) H-S-R

  	
  41

  
	
   

  	
  (c)
  Litigation

  	
  41

  
	
   

  	
  (d) S-4

  	
  41

  
	
   

  	
  (e)
  Blue Sky Approvals

  	
  41

  
	
  7.2.

  	
  Conditions
  to Obligations of Parent and Merger Sub

  	
  41

  
	
   

  	
  (a) Representations and
  Warranties

  	
  41

  
	
   

  	
  (b)
  Performance of Obligations of the Company

  	
  42

  
	
   

  	
  (c) Absence of Certain
  Changes

  	
  42

  
	
   

  	
  (d) Regulatory Consents

  	
  42

  
	
   

  	
  (e) Tax
  Opinion

  	
  42

  
	
   

  	
  (f)
  Accountant Letter

  	
  42

  
	
  7.3.

  	
  Conditions to
  Obligation of the Company

  	
  43

  
	
   

  	
  (a) Representations and
  Warranties

  	
  43

  

 

 

-iii-

 

 

	
   

  	
  (b)
  Performance of Obligations of Parent and Merger Sub

  	
  43

  
	
   

  	
  (c) Absence of Certain
  Changes

  	
  43

  
	
   

  	
  (d) Regulatory Consents

  	
  43

  
	
   

  	
  (e) Tax
  Opinion

  	
  44

  
	
   

  	
  (f) Nasdaq National
  Market Listing

  	
  44

  
	
   

  	
  (g) Accountant Letters

  	
  44

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE VIII

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Termination

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1.

  	
  Termination by Mutual Consent

  	
  44

  
	
  8.2.

  	
  Termination
  by Either Parent or the Company

  	
  44

  
	
  8.3.

  	
  Termination by the Company

  	
  45

  
	
  8.4.

  	
  Termination
  by Parent

  	
  45

  
	
  8.5.

  	
  Effect of
  Termination and Abandonment

  	
  45

  
	
   

  	
   

  	
   

  
	
   

  	
  ARTICLE IX

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Miscellaneous and General

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1.

  	
  Survival

  	
  47

  
	
  9.2.

  	
  Modification or Amendment

  	
  47

  
	
  9.3.

  	
  Waiver
  of Conditions

  	
  47

  
	
  9.4.

  	
  Counterparts

  	
  47

  
	
  9.5.

  	
  GOVERNING
  LAW AND VENUE; WAIVER OF JURY TRIAL

  	
  47

  
	
  9.6.

  	
  Notices

  	
  48

  
	
  9.7.

  	
  Entire
  Agreement; No Other Representations

  	
  49

  
	
  9.8.

  	
  No Third Party
  Beneficiaries

  	
  49

  
	
  9.9.

  	
  Obligations
  of Parent and of the Company

  	
  49

  
	
  9.10.

  	
  Definitions

  	
  49

  
	
  9.11.

  	
  Severability

  	
  49

  
	
  9.12.

  	
  Interpretation

  	
  50

  
	
  9.13.

  	
  Assignment

  	
  50

  

 

 

-iv-

 

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (hereinafter called this
“Agreement”), dated as of
July 7, 2002, among PAYPAL, INC., a Delaware corporation (the “Company”), EBAY INC., a Delaware
corporation (“Parent”),
and VAQUITA ACQUISITION CORP., a Delaware corporation and a wholly-owned
subsidiary of Parent (“Merger Sub,”
with the Company and Merger Sub sometimes being hereinafter collectively
referred to as the “Constituent
Corporations”).

RECITALS

WHEREAS, the respective boards of directors of each of
Parent, Merger Sub and the Company have approved the merger of Merger Sub with
and into the Company (the “Merger”)
and approved the Merger upon the terms and subject to the conditions set forth
in this Agreement;

WHEREAS, the respective boards of directors of each of
Parent and the Company have determined that the Merger is advisable and in the
best interests of their respective companies and stockholders and accordingly
have agreed to effect the Merger upon the terms and subject to the conditions
set forth in this Agreement;

WHEREAS, it is intended that, for federal income tax
purposes, the Merger shall qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder (the “Code”);

WHEREAS, in order to induce Parent and Merger Sub to
enter into this Agreement, certain stockholders of the Company have each
entered into a Stockholders Agreement with Parent with respect to the approval
of the Merger and certain restrictions on the transfer of securities of the
Company and Parent (collectively, the “Stockholders
Agreements”);

WHEREAS, in order to induce Parent and Merger Sub to
enter into this Agreement, certain officers of the Company are simultaneously
entering into employment, non-compete and non-solicitation agreements with
Parent to become effective at the Effective Time (as defined below)
(collectively, the “Employment Agreements”);
and

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

NOW, THEREFORE, in consideration of the premises, and
of the representations, warranties, covenants and agreements contained herein,
the parties hereto agree as follows:

 

-1-

 

ARTICLE I

The Merger; Closing;
Effective Time

1.1.          The Merger. 
Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub
shall be merged with and into the Company and the separate corporate existence
of Merger Sub shall thereupon cease. 
The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the “Surviving
Corporation”), and the separate corporate existence of the
Company with all its rights, privileges, immunities, powers and franchises
shall continue unaffected by the Merger, except as set forth in Article
II.  The Merger shall have the effects
specified in the Delaware General Corporation Law, as amended (the “DGCL”).

1.2.          Closing.  The
closing of the Merger (the “Closing”)
shall take place (i) at the offices of Sullivan & Cromwell, 1870
Embarcadero Road, Palo Alto, as promptly as practicable (but in no event later
than the fifth business day) after the last to be fulfilled or waived of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or
waiver of those conditions) shall be satisfied or waived in accordance with
this Agreement or (ii) at such other place and time and/or on such other
date as the Company and Parent may agree in writing (the “Closing Date”).

1.3.          Effective Time.  As of the Closing Date, the Company and Parent will cause a
Certificate of Merger (the “Delaware
Certificate of Merger”) to be executed, acknowledged and filed
with the Secretary of State of Delaware as provided in Section 251 of the
DGCL.  The Merger shall become effective
at the time when the Delaware Certificate of Merger has been duly filed with
and accepted by the Secretary of State of Delaware (the “Effective Time”).

ARTICLE II

Certificate of Incorporation and By-Laws

of the Surviving Corporation

2.1.          The Certificate of Incorporation.  The Amended and Restated Certificate of
Incorporation of the Company as in effect immediately prior to the Effective
Time shall be the certificate of incorporation of the Surviving Corporation
(the “Charter”), until
duly amended as provided therein or by applicable law, except that
Article IV of the Charter shall be amended to read in its entirety as
follows:  “The aggregate number of
shares that the Corporation shall have the authority to issue is 1,000 shares
of Common Stock, par value $1.00 per share.”

 

-2-

 

 

2.2.          The By-Laws. 
The by-laws of the Company in effect at the Effective Time shall be the
by-laws of the Surviving Corporation (the “By-Laws”),
until thereafter amended as provided therein or by applicable law.

ARTICLE III

Officers and Directors

of the Surviving Corporation

3.1.          Directors. 
The directors of Merger Sub at the Effective Time shall, from and after
the Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Charter and the
By-Laws.

3.2.          Officers. 
The officers of the Company at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Charter and the
By-Laws.

ARTICLE IV

Effect of the Merger on Capital Stock;

Exchange of Certificates

4.1.          Effect on Capital Stock.  At the Effective Time, as a result of the
Merger and without any action on the part of Parent, Merger Sub or the Company
or their respective stockholders:

(a)           Merger Consideration.  Each share of the Common Stock, par value
$0.001 per share, of the Company (a “Share”
or, collectively, the “Shares”)
issued and outstanding immediately prior to the Effective Time (other than
Shares owned by Parent, Merger Sub or any other direct or indirect subsidiary
of Parent (collectively, the “Parent
Companies”) or Shares that are owned by the Company or any
direct or indirect subsidiary of the Company and in each case not held on
behalf of third parties (each, an “Excluded
Share” and collectively, “Excluded
Shares”)) shall be converted into, and become exchangeable for
0.39 shares  (the “Exchange Ratio”), of Common Stock, par
value $0.001 per share, of Parent (“Parent
Common Stock”).  At the
Effective Time, all Shares shall no longer be outstanding and shall be
automatically cancelled and retired and shall cease to exist, and each
certificate (a “Certificate”)
formerly representing any of such Shares (other than Excluded Shares) shall
thereafter represent only the right to the merger consideration set forth in
this Section 4.1(a) and the right, if any, to receive pursuant to Section
4.2(d) cash in lieu of fractional shares into which such Shares have been
converted pursuant to this Section 4.1(a).

 

 

-3-

 

 

(b)           Cancellation of Shares.  Each Excluded Share shall, by virtue of the
Merger and without any action on the part of the holder thereof, cease to be
outstanding, shall be automatically cancelled and retired without payment of
any consideration therefor and shall cease to exist.

(c)           Merger Sub. 
At the Effective Time, each share of Common Stock, par value $0.001 per
share, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into one share of Common Stock, par value $0.001 per
share, of the Surviving Corporation.

4.2.          Exchange of Certificates for Shares.

(a)           Exchange Agent.  As of the Effective Time, Parent shall deposit, or shall cause to
be deposited, with an exchange agent selected by Parent with the Company’s
prior approval, which shall not be unreasonably withheld (the “Exchange Agent”), for the benefit of
the holders of Shares, certificates representing the shares of Parent Common
Stock and, after the Effective Time, if applicable, any cash to be paid
pursuant to the last sentence of Section 4.1(a) in exchange for Shares
outstanding immediately prior to the Effective Time upon due surrender of the
Certificates (or affidavits of loss in lieu thereof) pursuant to the provisions
of this Article IV.  Parent will
promptly make available to the Exchange Agent as needed any dividends or
distributions with respect to the merger consideration set forth in Section
4.1(a).  Such certificates for shares of
Parent Common Stock, together with any cash, dividends or distributions payable
with respect thereto, being hereinafter referred to as the “Exchange Fund”.

(b)           Exchange Procedures.  Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of Shares
(other than holders of Excluded Shares) (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits
of loss in lieu thereof) to the Exchange Agent, such letter of transmittal to
be in such form and have such other provisions as Parent and the Company may
reasonably agree, and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for (A) certificates representing shares
of Parent Common Stock, (B) any cash in lieu of fractional shares and
(C) any unpaid dividends and distributions as contemplated by this Article
IV.  Subject to Section 4.2(h), upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing
that number of whole shares of Parent Common Stock that such holder is entitled
to receive pursuant to this Article IV, (y) a check in the amount
(after giving effect to any required tax withholdings) of any cash in lieu of
fractional shares and (z) any unpaid dividends and distributions as
contemplated by this Article IV, and the Certificate so surrendered shall
forthwith be cancelled.  No interest
will be paid or accrued on any amount payable upon due surrender of the
Certificates.  In the event of a
transfer of ownership of Shares that is not registered in the transfer records
of the Company, a certificate representing the proper number of shares of
Parent 

 

 

-4-

 

Common Stock, together with a check for any cash to be
paid upon due surrender of the Certificate may be issued and/or paid to such a
transferee if the Certificate formerly representing such Shares is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid.  If any certificate for
shares of Parent Common Stock is to be issued in a name other than that in
which the Certificate surrendered in exchange therefor is registered, it shall
be a condition of such exchange that the Person (as defined below) requesting
such exchange shall pay any transfer or other taxes required by reason of the
issuance of certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of Parent or the Exchange Agent that such tax has
been paid or is not applicable.

For the purposes of this Agreement, the term “Person” shall mean any individual,
corporation (including not-for-profit), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
Governmental Entity (as defined in Section 5.1(d)) or other entity of any
kind or nature.

(c)           Transfers. 
After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the Shares that were outstanding immediately
prior to the Effective Time.

(d)           Fractional Shares.  Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 4.2(d) shall be entitled to receive a cash payment in
lieu thereof in accordance with the terms of this Section 4.2(d).  As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (i) the number
of full shares of Parent Common Stock delivered to the Exchange Agent pursuant
to Section 4.2(a), over (ii) the aggregate number of full shares of Parent
Common Stock to be distributed to holders of Company Common Stock pursuant to
Section 4.2(b) (such excess, the “Excess
Shares”).  Following the
Effective Time, the Exchange Agent, as agent for the holders of Company Common
Stock, shall sell the Excess Shares at then prevailing prices on the Nasdaq
National Market.  The Exchange Agent
shall use all commercially reasonable efforts to complete the sale of the
Excess Shares as promptly following the Effective Time as, in the Exchange
Agent’s reasonable judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions.  The Exchange Agent shall determine the
portion of such net proceeds to which each holder of Company Common Stock shall
be entitled, if any, by multiplying the amount of the aggregate net proceeds by
a fraction the numerator of which is the amount of the fractional share
interest to which such holder of Company Common Stock is entitled (after
aggregating all shares of Parent Common Stock to be issued to such holder) and
the denominator of which is the aggregate amount of fractional share interests
to which all holders of Company Common Stock are entitled.  As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Company
Common 

 

 

-5-

 

 

Stock with respect to fractional share interests, the
Exchange Agent shall promptly pay such amounts to such holders of Company
Common Stock in accordance with the terms of Section 4.2(b).

(e)           Termination of Exchange Fund.  Any portion of the Exchange Fund (including
any Parent Common Stock) that remains unclaimed by the stockholders of the
Company for 180 days after the Effective Time shall be paid to Parent.  Any stockholders of the Company who have not
theretofore complied with this Article IV shall thereafter look only to Parent
for payment of their shares of Parent Common Stock and any cash payable
pursuant to Sections 4.1 or 4.2 upon due surrender of their Certificates (or
affidavits of loss in lieu thereof), in each case, without any interest
thereon.  Notwithstanding the foregoing,
none of Parent, the Surviving Corporation, the Exchange Agent or any other
Person shall be liable to any former holder of Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.

(f)            Lost, Stolen or Destroyed Certificates.  In the event any Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such Person of a bond in customary amount as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Parent Common Stock and any cash payable
upon due surrender of and deliverable in respect of the Shares represented by
such Certificate pursuant to this Agreement.

(g)           Distributions with Respect to
Unexchanged Shares.  Whenever a
dividend or other distribution is declared by Parent in respect of Parent
Common Stock, the record date for which is on or after the date of the
Effective Time, that declaration shall include such dividends or other
distributions in respect of all Parent Common Stock issued or issuable pursuant
to Section 4.1(a). No dividends or other distributions declared on or after the
date of the Effective Time, or made on or after the date of the Effective Time
with a record date on or after the date of the Effective Time, with respect to
Parent Common Stock issued or issuable in connection with this Agreement shall
be paid to the holder of any unsurrendered Certificate, and as well no merger
consideration shall be paid to any such holder, until such Certificate is
surrendered as provided in this Article IV. 
Promptly following the proper surrender of a Certificate, there shall be
paid, without interest, to the Person in whose name Parent Common Stock have
been or will be registered (if and to the extent Parent Common Stock are
payable in respect of such Certificate) any dividends or other distributions
with a record date on or after the date of the Effective Time and which have
then been previously paid, with respect to the number of whole Parent Common
Stock registered in the name of such Person, less the amount of any withholding
taxes that may be required thereon. 
There shall also be paid to the holders of Parent Common Stock issued in
the Merger any dividends or other distributions with (i) a record date on
or after the date of the Effective Time but prior to the issuance of the
respective Parent Common Stock and (ii) a payment date subsequent 

 

-6-

 

 

to the issuance of the respective Parent Common Stock,
at the appropriate payment date for such dividend or other distribution, less
the amount of any withholding taxes which may be required thereon.

(h)           Affiliates. 
Notwithstanding anything herein to the contrary, Certificates
surrendered for exchange by any “affiliate” (as determined pursuant to
Section 6.8) of the Company shall not be exchanged until Parent has
received a written agreement from such Person as provided in Section 6.8
hereof.

4.3.          Dissenters’ Rights.  In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of Shares in connection
with the Merger.

4.4.          Adjustments to Prevent Dilution.  In the event that the Company changes the
number of Shares or securities convertible or exchangeable into or exercisable
for Shares, or Parent changes the number of shares of Parent Common Stock or
securities convertible or exchangeable into or exercisable for shares of Parent
Common Stock, issued and outstanding prior to the Effective Time as a result of
a reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, the Exchange Ratio shall be equitably
adjusted as Parent and the Company shall mutually agree (such agreement not to
be unreasonably withheld or delayed) so as to preserve the economic benefits
that Parent and the Company reasonably expected on the date of this Agreement
to receive as a result of the consummation of the Merger and the other
transactions contemplated by this Agreement.

ARTICLE V

Representations and Warranties

5.1.          Representations and Warranties of
the Company.  Except as set
forth in the disclosure letter delivered to Parent by the Company that is
attached to this Agreement (the “Company
Disclosure Letter”) (any matter disclosed in a section or
subsection of the Company Disclosure Letter shall qualify the correspondingly
numbered representation, warranty and covenant of this Agreement and all other
representations, warranties and covenants of the Company in this Agreement
regardless of whether such matter is specifically cross referenced in such
section or subsection so long as the disclosure of such matter is sufficient as
to make its relevance to such other representation, warranty and covenant
readily apparent), the Company hereby represents and warrants to Parent and
Merger Sub that:

(a)           Organization, Good Standing and
Qualification.  Each of the
Company and its Subsidiaries has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction in which
it is chartered or organized with full corporate power and authority to own or
lease, as the case may be, and to operate its properties and conduct its
business as presently conducted, and is duly 

 

-7-

 

 

qualified to do business as a foreign corporation and
is in good standing under the laws of each jurisdiction which requires such
qualification except where failure to so qualify or to be in good standing is
not reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect (as defined below). 
The Company has made available to Parent a complete and correct copy of
the Company’s and its Subsidiaries’ certificates of incorporation and by-laws,
each as amended to date.  The Company’s
and its Subsidiaries’ certificates of incorporation and by-laws so made
available are in full force and effect. 
Section 5.1(a) of the Company Disclosure Letter contains a correct and
complete list of each jurisdiction where the Company and each of its
Subsidiaries is organized and qualified to do business.

As used in this Agreement, the term (i) “Subsidiary” means, with respect to the
Company, Parent or Merger Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which at least a majority of the securities
or ownership interests having by their terms ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions is directly or indirectly owned or controlled by such party or by one
or more of its respective Subsidiaries or by such party and any one or more of
its respective Subsidiaries and (ii) “Company
Material Adverse Effect” means (x) a material adverse
effect on the condition (financial or otherwise), prospects, business or
results of operations of the Company and its Subsidiaries taken as a whole or
(y) an effect that could prevent or materially burden or materially impair
the ability of the Company to consummate the transactions contemplated by this
Agreement; provided, however, that the following shall be
excluded from the definition of “Company Material Adverse Effect” and from the
determination of whether such a Company Material Adverse Effect has occurred:
(a) the effects of conditions or events resulting from general financial,
political, economic or market conditions (including the suspension of trading
in securities on the Nasdaq National Market); (b) any change in the
trading prices or volumes of the capital stock of the Company; (c) the
effects of conditions or events resulting from an outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war or the occurrence of any other calamity or
crisis, including the occurrence of a terrorist attack; (d) any change
resulting from the entry into this Agreement or the announcement of the
transactions contemplated by this Agreement or the performance of this
Agreement and the covenants set forth herein; and (e) any change resulting
from the actions of Parent.

(b)           Capital Structure.  The authorized capital stock of the Company
consists of 150,000,000 Shares, of which 60,646,087 Shares were outstanding as
of the close of business on July 5, 2002, and 10,000,000 shares of
Preferred Stock, par value $0.001 per share (the “Preferred Shares”), none of which were outstanding as of
the close of business on the date hereof. 
All of the outstanding Shares have been duly authorized and are validly
issued, fully paid and nonassessable. 
The Company has no Shares or Preferred Shares reserved for issuance,
except that, as of the date hereof, there were (i) 9,500,000 Shares
reserved for issuance pursuant to the Company’s 2001 Equity Incentive Plan (the
“2001 Equity Incentive Plan”)
and options with respect to 4,591,338 

 

-8-

 

 

Shares are currently outstanding under the 2001 Equity
Incentive Plan, (ii) 625,000 Shares reserved for issuance pursuant to the
Amended and Restated Company 2001 Employee Stock Purchase Plan (the “2001 ESPP”) and no options with
respect to Shares are currently outstanding under the 2001 ESPP,
(iii) 4,677,733 Shares reserved for issuance pursuant to the X.com
Corporation 1999 Stock Plan (the “X.com
1999 Stock Plan”) and options with respect to 1,503,567 Shares
are currently outstanding under the X.com 1999 Stock Plan, (iv) 1,207,583
Shares reserved for issuance pursuant to the Confinity, Inc. 1999 Stock Plan
(the “Confinity 1999 Plan”
and, together with the 2001 Equity Incentive Plan, the 2001 ESPP and the X.com
1999 Stock Plan, the “Stock Plans”)
and options with respect to 282,633 Shares are currently outstanding under the
Confinity 1999 Plan, and (v) 125,000 Shares were reserved for issuance
pursuant to warrants issued by the Company (the “Company Warrants”). 
The Company Disclosure Letter contains a correct and complete list of
each outstanding (i) option to purchase Shares under the Stock Plans or
otherwise (each a “Company Option”),
including the holder, date of grant, exercise price and number of Shares
subject thereto and the Stock Plan under which it is issued, (ii) Share of
restricted stock which is still subject to vesting, repurchase or forfeiture,
including the holder, date of grant, vesting schedule and the Stock Plan under
which it was issued and (iii) Company Warrant, including the holder, date
of grant, exercise price and number of Shares subject thereto.  Each of the outstanding shares of capital
stock or other securities of each of the Company’s Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by the
Company or a direct or indirect wholly-owned subsidiary of the Company, free
and clear of any lien, pledge, security interest, claim or other
encumbrance.  Except as set forth above,
as of the date hereof, there are no preemptive or other outstanding rights,
options, warrants, conversion rights, stock appreciation rights, redemption
rights, repurchase rights, agreements, arrangements, calls, commitments or
rights of any kind that obligate the Company or any of its Subsidiaries to
issue or sell any shares of capital stock or other securities of the Company or
any of its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of the Company or any of its Subsidiaries, and
no securities or obligations evidencing such rights are authorized, issued or
outstanding.  The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or convertible into or exercisable for securities
having the right to vote) with the stockholders of the Company on any matter (“Voting Debt”).

(c)           Corporate Authority; Approval and
Fairness.  (i)  The Company has all requisite corporate
power and authority and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement and to
consummate, subject only to approval of this Agreement by the holders of a
majority of the outstanding Shares (the “Company
Requisite Vote”), the Merger. 
This Agreement is a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’
rights and to general equity principles (the “Bankruptcy and Equity Exception”).

 

 

-9-

 

 

(ii)           The
Board of Directors of the Company (A) has approved this Agreement and the
Merger and the other transactions contemplated hereby and (B) has received
the opinion of its financial advisor, Morgan Stanley & Co., to the effect
that the Exchange Ratio pursuant to this Agreement is fair from a financial
point of view to holders of the Shares (other than Parent and its Affiliates
(as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”))), a
copy of which opinion has been delivered to Parent.

(d)           Governmental Filings; No Violations;
Certain Contracts. 
(i)  Other than the filings and/or notices (A) pursuant
to Section 1.3, (B) under the Hart-Scott-Rodino Antitrust Improvement
Act of 1976, as amended (the “HSR Act”),
the Exchange Act and the Securities Act of 1933, as amended (the “Securities Act”), (C) to comply with
state securities or “blue-sky” laws, (D) required to be made with the
Nasdaq National Market and (E) to comply with foreign antitrust and unfair competition
laws, no notices, reports or other filings are required to be made by the
Company with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by the Company from, any governmental or
regulatory authority, agency, commission, body or other governmental entity,
whether federal, state, local or foreign (“Governmental
Entity”), in connection with the execution and delivery of this
Agreement by the Company and the consummation by the Company of the Merger and
the other transactions contemplated. 
Neither Parent nor Merger Sub is, or will be, required to make any
filings and/or notices to comply with state bill payer, cash checker, money
transmitter or similar laws in connection with this Agreement and the transactions
contemplated hereby.

(ii)           The
execution, delivery and performance of this Agreement by the Company do not,
and the consummation by the Company of the Merger and the other transactions
contemplated hereby will not, conflict with, result in a breach or violation or
imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any of its Subsidiaries pursuant to (A) the certificate of
incorporation or by-laws of the Company or any of its Subsidiaries,
(B) the terms of any indenture, contract, lease, mortgage, deed of trust,
note agreement, loan agreement or other agreement, obligation, condition,
covenant or instrument pursuant to the terms of which there are obligations or
commitments or consideration by any party thereto valued in excess of $250,000
in any year or in excess of $500,000 during the initial term thereof
(collectively, “Material Contracts”)
to which the Company or any of its Subsidiaries is a party or bound or to which
its or their property is subject, or (C) any material Law applicable to
the Company or any of its Subsidiaries of any court, Governmental Entity,
arbitrator or other authority having jurisdiction over the Company or any of
its Subsidiaries or any of its or their properties.  “Laws” shall
mean any statute, law, rule, regulation, judgment, order or decree.  Section 5.1(d) of the Company
Disclosure Letter sets forth a correct and complete list of Material Contracts
of the Company and its Subsidiaries pursuant to which consents or waivers are
or may be required prior to consummation of the transactions contemplated by
this Agreement.  Each of the Material 

 

-10-

 

 

Contracts of the Company and its Subsidiaries is in
full force and effect and enforceable in accordance with its terms, subject to
the Bankruptcy and Equity Exception.

(iii)          Neither
the Company nor any of its Subsidiaries is a party to or bound by any
non-competition contract or other indenture, contract, lease, mortgage, deed of
trust, note agreement, loan agreement or other agreement, obligation,
condition, covenant or instrument (collectively, “Contracts”) that purports to limit in any respect either
the type of business in which the Company or its Subsidiaries (or, after giving
effect to the Merger, the Parent or its Subsidiaries) may engage or the manner
or locations in which any of them may so engage in any business.

(e)           Company Reports; Financial
Statements.  The Company has
made available to the Parent each registration statement, report, proxy
statement or information statement prepared by it since February 14, 2002,
including the Company’s Annual Report on Form 10-K for the year ended
December 31, 2001 in the form (including exhibits, annexes and any amendments
thereto) filed with the Securities and Exchange Commission (the “SEC”) (collectively, including any
such reports filed subsequent to the date hereof and as amended, the “Company Reports”).  As of their respective dates, (or, if
amended, as of the date of such amendment) the Company Reports did not, and any
Company Reports filed with the SEC subsequent to the date hereof will not, as
of their respective dates, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading.  Each of the
consolidated balance sheets included in or incorporated by reference into the
Company Reports (including the related notes and schedules) fairly presents in
all material respects, or will fairly present in all material respects, the
consolidated financial position of the Company and its Subsidiaries as of its
date and each of the consolidated statements of operations and statements of cash
flows included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents in all material
respects, or will fairly present in all material respects, the results of
operations and cash flows, as the case may be, of the Company and its
Subsidiaries for the periods set forth therein (subject, in the case of
unaudited statements, to notes and normal year-end audit adjustments that will
not be material in amount or effect), in each case in accordance with generally
accepted accounting principles (“GAAP”)
consistently applied during the periods involved, except as may be noted
therein.

(f)            Absence of Certain Changes.  Except as disclosed in the Company Reports,
since December 31, 2001 (the “Audit Date”)
through the date hereof the Company and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any material transaction
other than according to, the ordinary and usual course of such businesses.  Except as disclosed in the Company Reports,
since the Audit Date there has not been (i) a Company Material Adverse
Effect or any development or combination of developments of which management of
the Company has knowledge that, individually or in the aggregate, has had or is
reasonably likely to have a Company Material Adverse Effect; (ii) any material
damage, destruction or other casualty 

 

-11-

 

 

loss with respect to any material asset or property
owned, leased or otherwise used by the Company or any of its Subsidiaries,
whether or not covered by insurance; (iii) any declaration, setting aside
or payment of any dividend or other distribution in cash, stock or property in
respect of the capital stock of the Company; or (iv) any change by the
Company in accounting principles, practices or methods.  Since the Audit Date, except as provided for
herein or as disclosed in the Company Reports, there has not been any increase
in the compensation payable or that could become payable by the Company or any
of its Subsidiaries to officers or key employees or any amendment of any of the
Compensation and Benefit Plans (except for increases in salary, wages, bonuses
or other compensation of non-executive employees made in the ordinary course of
business consistent with past practice).

(g)           Litigation and Liabilities.  Except as disclosed in the Company Reports
filed prior to the date hereof and except for liabilities or obligations
reflected or reserved against in the most recent consolidated balance sheet of
the Company included in the Company Reports, there are no (i) material
civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings pending or, to the knowledge of the officers of
the Company, threatened against the Company or any of its affiliates or
(ii) material obligations or liabilities, whether or not accrued,
contingent or otherwise and whether or not required to be disclosed, including
those relating to matters involving any environmental and occupational safety
and health matters, or any other facts or circumstances of which the officers
of the Company has knowledge that are reasonably likely to result in any
material claims against, or obligations or liabilities of, the Company or any
of its Affiliates, except in the case of (i) and (ii) those arising in the
ordinary course of business consistent with past practice.

(h)           Employee Benefits.  (i) All benefit and compensation plans,
contracts, policies or arrangements covering current or former employees of the
Company and its Subsidiaries (the “Employees”)
and current or former directors of the Company and its Subsidiaries, including,
but not limited to, “employee benefit plans” within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and deferred compensation,
stock option, stock purchase, stock appreciation rights, stock based, incentive
and bonus plans, (the “Benefit Plans”)
are listed in Section 5.1(h) of the Company Disclosure Letter.  True and complete copies of all Benefit
Plans listed in Section 5.1 of the Company Disclosure Letter, including, but
not limited to, any trust instruments and insurance contracts forming a part of
any Benefit Plans, and all amendments thereto have been provided or made
available to Parent.

(ii)           All
Benefit Plans covering Employees which are subject to ERISA (the “ERISA Plans”) are in compliance in all
material respects with ERISA.  Each
ERISA Plan which is an “employee pension benefit plan” within the meaning of
Section 3(2) of ERISA (“Pension Plan”)
and which is intended to be qualified under Section 401(a) of the Code has
received or will timely file for a favorable determination letter from the
Internal Revenue Service (the “IRS”),
and the Company is not aware of any circumstances likely to result in
revocation of any such favorable determination letter or 

 

-12-

 

 

the loss
of the qualification of such Plan under Section 401(a) of the Code.  Neither the Company nor any of its
Subsidiaries has engaged in a transaction with respect to any ERISA Plan that,
assuming the taxable period of such transaction expired as of the date hereof,
could subject the Company or any Subsidiary to a tax or penalty imposed by
either Section 4975 of the Code or Section 502(i) of ERISA in an
amount which would be material.

(iii)          Neither
the Company, nor any of its Subsidiaries nor any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an “ERISA Affiliate”)
(x) maintains or contributes to or has within the past six years maintained or
contributed to a Pension Plan that is subject to Subtitles C or D of Title IV
of ERISA or (y) maintains or has an obligation to contribute to or has within
the past six years maintained or had an obligation to contribute to a
“multiemployer plan” within the meaning of Section 3(37) of ERISA.  All contributions required to be made under
the terms of any Benefit Plan have been timely made or have been reflected in
the Company’s audited financial statements. 
No Pension Plan has an “accumulated funding deficiency” (whether or not
waived) within the meaning of Section 412 of the Code or Section 302
of ERISA.

(iv)          There
is no material pending or, to the knowledge of the Company threatened,
litigation relating to the Benefit Plans.

(v)           Since
the Audit Date, there has been no amendment to, announcement by the Company or
any of its Subsidiaries relating to, or change in employee participation or
coverage under, any Benefit Plan which would increase materially the expense of
maintaining such Plan above the level of the expense incurred therefor for the
most recent fiscal year, except for increases directly resulting from an
increase in the number of persons employed by the Company or its Subsidiaries
or promotions of existing employees in the ordinary course of business
consistent with past practice.  Except
as specifically noted in Section 5.1(h) of the Company Disclosure Letter,
neither the execution of this Agreement, stockholder approval of this Agreement
nor the consummation of the transactions contemplated hereby will (v) entitle
any employees of the Company or any of its Subsidiaries to severance pay or any
increase in severance pay upon any termination of employment after the date
hereof, (w) accelerate the time of payment or vesting or result in any payment
or funding (through a grantor trust or otherwise) of compensation or benefits
under, result in the acceleration or lapse of any repurchase right, increase the
amount payable or result in any other material obligation pursuant to, any of
the Benefit Plans, (x) limit or restrict the right of the Company or, after the
consummation of the transactions contemplated hereby, Parent to merge, amend or
terminate any of the Benefit Plans, (y) cause the Company or any of its
Subsidiaries or, after the consummation of the transactions contemplated
hereby, Parent to record additional compensation expense on its income
statement with respect to any outstanding stock option or other equity-based
award or (z) result in payments under any of the Benefit Plans which would not
be deductible under Section 162(m) or Section 280G of the Code.

 

-13-

 

 

(vi)          All
Benefit Plans maintained outside of the United States comply in all material
respects with applicable local law.

(i)            Compliance with Laws; Permits.  Neither the
Company nor any of its Subsidiaries is in material violation or default of
(i) any provision of its certificate or by-laws, (ii) the terms of
any Material Contract to which it is a party or bound or to which its property
is subject, (iii) the terms of any Contract to which it is a party or bound or
to which its property is subject which violation or default, when taken together
with all other such violations and defaults, could be considered material to
the Company and its Subsidiaries or (iv) any material Laws of any court,
Governmental Entity, arbitrator or other authority having jurisdiction over the
Company or such Subsidiary or any of its properties, as applicable.  No material action, suit or proceeding by or
before any court, Governmental Entity or any arbitrator involving the Company
or any of its Subsidiaries or its or their property is pending or, to the best
knowledge of the officers of the Company, threatened.  The Company and its Subsidiaries possess or have applied for all
material licenses, certificates, permits and other authorizations from or of
the appropriate Governmental Entity necessary to conduct their respective
businesses, other than any such license, certificate, permit or other
authorization required in connection with the consummation of the transactions
contemplated by this Agreement, and neither the Company nor any such Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such license, certificate, permit or authorization.

(j)            Certain Regulatory Matters.  (i) 
The Company and its Subsidiaries (A) are in compliance in all
material respects with any and all material Laws relating to the banking,
investment adviser, broker-dealer, trust, custody and escrow businesses, the
business of money transmission, or other payment services businesses and the
rights of consumers who use the services of such businesses (“Regulatory Laws”) and (B) are in
material compliance with all terms and conditions of any such material
licenses, certificates, permits or approvals required of them under applicable
Regulatory Laws to conduct their respective businesses.  Neither the Company nor any of its
Subsidiaries is required to register as a bank holding company under the Bank
Holding Company Act of 1956, as amended, nor is the Company or any of its
Subsidiaries required to obtain deposit insurance from the Federal Deposit
Insurance Corporation for any of their accounts or services.

(ii)           None
of the Company and its Subsidiaries is subject to any order or action, and none
has been threatened with any action by any Government Entity concerning its
compliance with applicable Regulatory Laws (including, but not limited to, the
failure to obtain any license, certificate, permit or approval, or to comply
with the terms thereof).

(iii)          PayPal
Asset Management, Inc. (the “Asset
Management Company”) (A) has duly registered with the SEC
as an “investment adviser” as such term is defined in the Investment Advisers
Act of 1940, as amended (the “Advisers
Act”), such registration is in effect and no order or other
regulatory action has been threatened by the 

 

-14-

 

 

SEC that concerns the effectiveness of such
registration or the Asset Management Company’s compliance with the Advisers Act
or applicable regulations thereunder and (B) the Asset Management Company
has taken all actions required to maintain the effectiveness of that
registration.  No other Subsidiary of
the Company is required to be registered as an investment adviser under the
Advisers Act.  Neither the Company nor
any of its Subsidiaries, wherever located, is a broker (as defined in Section 3(a)(4)
of the Exchange Act) or a dealer (as defined in Section 3(a)(5) of the Exchange
Act) or is registered or required to be registered as a broker or a dealer
under Section 15(b) the Exchange Act or under the Laws of any State in the
United States of America or the District of Columbia.

(k)           Takeover Statutes.  No “fair price,” “moratorium,” “control
share acquisition” or other similar anti-takeover statute or regulation
(including Section 203 of the DGCL) (each a “Takeover Statute”) or any anti-takeover provision in the
Company’s certificate of incorporation and by-laws is, or at the Effective Time
will be, applicable to the Company, the Shares, the Merger or the other
transactions contemplated by this Agreement. 
The Board of Directors of the Company has taken all action so that
Parent will not be prohibited from entering into a “business combination” with
the Company as an “interested stockholder” (in each case as such term is used
in Section 203 of the DGCL) as a result of the execution of this Agreement,
or the consummation of the transactions contemplated hereby.

(l)            Environmental Matters.  The Company and its Subsidiaries are
(i) in compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants (“Environmental Laws”),
(ii) have received and are in compliance with all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) have not received notice of any
actual or potential liability for the investigation or remediation of any
disposal or release of hazardous or toxic substances or wastes, pollutants or
contaminants, except as is not reasonably likely to have, individually or in
the aggregate, a Company Material Adverse Effect.  Neither the Company nor any of its Subsidiaries has been named as
a “potentially responsible party” under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.

(m)          Tax Matters. 
As of the date hereof, neither the Company nor any of its Affiliates has
taken or agreed to take any action, nor do the officers of the Company have any
knowledge of any fact or circumstance, that would prevent the Merger and the
other transactions contemplated by this Agreement from qualifying as a
“reorganization” within the meaning of Section 368(a) of the Code.

(n)           Taxes.  The Company and each of its Subsidiaries
(i) have prepared in good faith and duly and timely filed (taking into
account any extension of time within which to file) all Tax Returns (as defined
below) required to be filed by any 

 

-15-

 

 

of them and all such filed Tax Returns are complete
and accurate in all material respects; (ii) have paid all Taxes (as
defined below) that are required to be paid or that the Company or any of its
Subsidiaries are obligated to withhold from amounts owing to any employee,
creditor or third party, except with respect to matters contested in good
faith; and (iii) have not waived any statute of limitations with respect
to Taxes or agreed to any extension of time with respect to a Tax assessment or
deficiency.  As of the date hereof,
there are not pending or, to the knowledge of the officers of the Company,
threatened in writing, any audits, examinations, investigations or other
proceedings in respect of Taxes or Tax matters.  There are not, to the knowledge of the officers of the Company,
any unresolved questions or claims concerning the Company’s or any of its
Subsidiaries’ Tax liability that are reasonably likely to have, individually or
in the aggregate, a Company Material Adverse Effect.  The Company has made available to Parent true and correct copies
of the United States federal income Tax Returns filed by the Company and its
Subsidiaries for each of the fiscal years ended December 31, 2001, 2000 and
1999.  Neither the Company nor any of
its Subsidiaries has any liability with respect to income, franchise or similar
Taxes that accrued on or before December 31, 1999 in excess of the amounts
accrued with respect thereto that are reflected in the financial statements
included in the Company Reports filed on or prior to the date hereof.

As used in this Agreement, (i) the term “Tax” (including, with correlative
meaning, the terms “Taxes”,
and “Taxable”) includes
all federal, state, local and foreign income, profits, franchise, gross
receipts, environmental, customs duty, capital stock, severances, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy and other taxes, duties
or assessments of any nature whatsoever, together with all interest, penalties
and additions imposed with respect to such amounts and any interest in respect
of such penalties and additions, and (ii) the term “Tax Return” includes all returns and
reports (including elections, declarations, disclosures, schedules, estimates
and information returns) required to be supplied to a Tax authority relating to
Taxes.

(o)           Labor Matters. 
No material labor problem or dispute with the employees of the Company
or any of its Subsidiaries exists or, to the knowledge of the officers of the
Company, is threatened or imminent. 
Neither the Company nor any of its Subsidiaries is a party to or
otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is the
Company or any of its Subsidiaries the subject of any material proceeding
asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice or is seeking to compel it to bargain with any labor union or
labor organization nor is there pending or, to the knowledge of the officers of
the Company, threatened, nor has there been since inception of the Company, any
labor strike, dispute, walk-out, work stoppage, slow-down or lockout involving
the Company or any of its Subsidiaries.

(p)           Insurance. 
The Company and each of its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are commercially reasonable in the businesses in which they are 

 

-16-

 

 

engaged; all policies of insurance insuring the
Company or any of its Subsidiaries or their respective businesses, assets,
employees, officers and directors are in full force and effect; the Company and
its Subsidiaries are in compliance with the terms of such policies and
instruments in all material respects; and there are no claims by the Company or
any of its Subsidiaries under any such policy or instrument as to which any
insurance company is denying liability or defending under a reservation of
rights clause; neither the Company nor any such Subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
Subsidiary has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that is not materially higher than its current cost.

(q)           Intellectual Property.  The following terms have the following
meanings as used in this Section 5.1(q).

                                “Business Intellectual Property” means
the Owned Intellectual Property and the Licensed Intellectual Property.

 

                                “Intellectual Property” means all
foreign and domestic rights in and to (i) trademarks, service marks, brand
names, certification marks, collective marks, d/b/a’s, Internet domain names,
logos, symbols, trade dress, assumed names, fictitious names, trade names, and
other indicia of origin, all applications and registrations for the foregoing,
and all goodwill associated therewith and symbolized thereby, including all
renewals of same (collectively, “Trademarks”);
(ii) inventions and discoveries, whether patentable or not, and all
patents, registrations, invention disclosures and applications therefor,
including divisions, continuations, continuations-in-part and renewal
applications, and including renewals, extensions and reissues (collectively, “Patents”); (iii) confidential and
proprietary information, trade secrets and know-how, including processes,
schematics, business methods, formulae, drawings, prototypes, models, designs,
customer lists and supplier lists (collectively, “Trade Secrets”); (iv) published and unpublished
works of authorship, whether copyrightable or not (including without limitation
databases and other compilations of information), copyrights therein and
thereto, and registrations and applications therefor, and all renewals,
extensions, restorations and reversions thereof (collectively, “Copyrights”); and (v) all other
intellectual property or proprietary rights.

 

                                “Intellectual Property Contracts” means
all agreements concerning the Business Intellectual Property to which the
Company or its Subsidiaries are a party, including without limitation agreements
granting the Company or its Subsidiaries rights to use the Licensed
Intellectual Property, nonassertion agreements, settlement agreements,
agreements granting rights to use Owned Intellectual Property, confidentiality
agreements, Trademark coexistence agreements and Trademark consent agreements.

 

 

-17-

 

 

                                “IT Assets” means the Company’s and its
Subsidiaries’ computers, computer software, firmware, middleware, servers,
workstations, routers, hubs, switches, data communications lines, and all other
information technology equipment, and all associated documentation.

 

                                “Licensed Intellectual Property” means
Intellectual Property that the Company or its Subsidiaries are licensed or
otherwise permitted by other Persons to use.

 

                                “Owned Intellectual Property” means
Intellectual Property owned by the Company or its Subsidiaries.

 

                                “Registered” means issued, registered,
renewed or the subject of a pending application.

 

(i)            Schedule
5.1(q)(i) sets forth a true and complete list and summary description of all of
the Registered Trademarks, Patents and Copyrights of the Company and its
Subsidiaries.

(ii)           All
material Owned Intellectual Property is owned exclusively by the Company and
its Subsidiaries; all material Registered Owned Intellectual Property is
validly filed, subsisting and, to the Company’s knowledge, enforceable, and to
the Company’s knowledge all other Owned Intellectual Property is enforceable,
and none has been canceled or adjudicated invalid (excepting any expirations in
the ordinary course), or is subject to any outstanding order, judgment or
decree restricting its use or adversely affecting or reflecting the Company’s
or its Subsidiaries’ rights thereto.  To
the Company’s knowledge, all material Licensed Intellectual Property is the
subject of a valid license to Company or its Subsidiaries as applicable, is
subsisting and enforceable, and none has been canceled or adjudicated invalid
(excepting any expirations in the ordinary course), or is subject to any
outstanding order, judgment or decree restricting its use or adversely
affecting or reflecting the Company’s or its Subsidiaries’ rights thereto,
except as would not be material to the business of the Company.

(iii)          No
material suit, action, reissue, reexamination, public protest, interference,
opposition, cancellation or other proceeding (collectively, “Suit”) is pending concerning any claim
that the Company or its Subsidiaries have violated any Intellectual Property
rights.  No material claim has been
threatened or asserted to an officer, director or legal representative against
the Company or its Subsidiaries or any of their indemnitees for violation of
any Intellectual Property rights.  To
the Company’s knowledge, the Company and its Subsidiaries are not violating and
have not violated any Intellectual Property rights material to their respective
businesses (excluding such Intellectual Property rights that relate generally
to the internet or internet payment systems that, if valid, would also be violated
by Parent or its Subsidiaries in their respective businesses as currently
conducted).

 

-18-

 

 

(iv)          No
Suit is pending concerning any material Intellectual Property Contract,
including any Suit concerning any claim that the Company or its Subsidiaries
or, to the Company’s knowledge, another Person has breached any such
Intellectual Property Contract.  No
claim has been threatened or asserted to an officer, director or legal
representative that the Company or its Subsidiaries or, to the Company’s
knowledge another Person, has breached any material Intellectual Property
Contract.  To the Company’s knowledge,
there exists no event, condition or occurrence which, with the giving of notice
or lapse of time, or both, would constitute a material breach or default by the
Company or its Subsidiaries or another Person under any material Intellectual
Property Contract.  No party to any
material Intellectual Property Contract has given the Company or its
Subsidiaries notice of its intention to cancel, terminate, change the scope of
rights under, or fail to renew any such Intellectual Property Contract.

(v)           No
Suit is pending concerning any material Owned Intellectual Property, including
any Suit concerning a claim that any material Owned Intellectual Property has
been violated or is invalid, unenforceable, unpatentable, unregisterable,
cancelable, not owned or not owned exclusively by the Company or its
Subsidiaries.  No such claim has been
threatened or asserted to any officer, director or legal representative of the
Company.  To the Company’s knowledge, no
valid basis for any such Suits or claims exists.

(vi)          To
the Company’s knowledge, no Suit is pending concerning any material Licensed
Intellectual Property, including any Suit concerning (i) a claim that such
Licensed Intellectual Property has been violated or is invalid, unenforceable,
unpatentable, unregisterable, cancelable; or (ii) the Company’s or its
Subsidiaries’ use of or rights to such Licensed Intellectual Property.  To the Company’s knowledge, no such claim
has been threatened or asserted to any officer, director or legal
representative of the Company.

(vii)         To
the Company’s knowledge, no Person is violating any of the Company’s or its
Subsidiaries’ rights in the material Business Intellectual Property.

(viii)        To
the Company’s knowledge, the Company and its Subsidiaries own or otherwise have
the right to use pursuant to a valid license sufficient for the Company’s and
its Subsidiaries’ use, all material Intellectual Property used or contemplated
to be used by the Company and its Subsidiaries, including, without limitation,
all material software currently used by the Company or any of its
Subsidiaries.  Except as indicated on
Schedule 5.1(q)(viii), all such rights that are owned by the Company or its
Subsidiaries are free of all Liens (excluding licenses granted in the ordinary
course) and all such rights shall survive the execution, consummation and
performance of this Agreement unchanged.

(ix)           The
Company and its Subsidiaries have taken all reasonable measures to protect the
secrecy, confidentiality and value of all material Trade Secrets which are
Business Intellectual Property (collectively, “Business Trade Secrets”).  To the 

 

-19-

 

 

Company’s
knowledge, its material Business Trade Secrets have only been disclosed or made
accessible to Persons with a bona fide business purpose and need for receiving
or accessing such information.  Each
such Person has executed a valid and appropriate non-disclosure and non-use
agreement in connection therewith.

(x)            The
Company’s and its Subsidiaries’ material IT Assets operate and perform as
described on the Company’s web site and in all material respects in accordance
with past performance, subject to reasonable scheduled and unscheduled
downtime.  To the Company’s knowledge,
the IT Assets do not contain any “time bombs,” “Trojan horses,” “back doors,”
“trap doors,” “worms”, viruses or other similar devices or effects that
(A) enable or assist any Person to access without authorization the IT
Assets, or (B) otherwise hinder operation of material functionality of the
IT Assets except as disclosed in its documentation.  The Company and the Subsidiaries have taken reasonable measures
to protect the confidentiality of its trade secret and confidential information
contained within the IT Assets.  The
Company and the Subsidiaries have taken reasonable security measures to protect
the operation of the material IT Assets consistent with industry practice.  To the Company’s and Subsidiaries’ knowledge
no Person has accessed any material IT Assets without proper authorization.

(xi)           All
material computer software that is Owned Intellectual Property has been
exclusively developed either (A) internally by employees of the Company and its
Subsidiaries working within the scope of their employment or (B) by third
Persons pursuant to written work made for hire and assignment agreements
placing ownership of such computer software with the Company and its
Subsidiaries.  True and complete copies
of all such agreements have been provided to the Parent; provided, however, to
the extent necessary to protect the confidentiality of the Company’s trade
secrets or confidential information, such copies, may have been redacted.

(xii)          As
of the date hereof, no Suit is pending concerning any claim that the Company or
its Subsidiaries have violated the terms of any applicable privacy statement or
similar policy published by the Company or its Subsidiaries.  The Company and its Subsidiaries comply with
such statement or similar policy in effect as of the date hereof and hereafter
in all material respects.  As of the
date hereof, no such claim has been threatened or asserted to any officer,
director or legal representative of the Company in the past 6 months.

(r)            Intercompany Restrictions.  No Subsidiary of the Company is currently
prohibited, directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such Subsidiary’s capital stock, from
repaying to the Company any loans or advances to such Subsidiary from the
Company or from transferring any of such Subsidiary’s property or assets to the
Company or any other Subsidiary of the Company.

(s)           Brokers and Finders.  Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any 

 

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brokerage fees, commissions or finders, fees in
connection with the Merger or the other transactions contemplated in this
Agreement except that the Company has employed Morgan Stanley & Co. as its
financial advisor, the arrangements with which have been disclosed to Parent
prior to the date hereof.

5.2.          Representations and Warranties of
Parent and Merger Sub.  Except
as set forth in the disclosure letter delivered to the Company by Parent that
is attached to this Agreement (the “Parent
Disclosure Letter”) (any matter disclosed in a section or
subsection of the Parent Disclosure Letter shall qualify the correspondingly
numbered representation, warranty and covenant of this Agreement and all other
representations, warranties and covenants of Parent in this Agreement
regardless of whether such matter is specifically cross referenced in such
section or subsection so long as the disclosure of such matter is sufficient as
to make its relevance to such other representation, warranty and covenant
readily apparent), Parent and Merger Sub each hereby represent and warrant to
the Company that:

(a)           Capitalization of Merger Sub.  The authorized capital stock of Merger Sub
consists of 1,000 shares of Common Stock, par value $0.001 per share, all of
which are validly issued and outstanding. 
All of the issued and outstanding capital stock of Merger Sub is, and at
the Effective Time will be, owned by Parent, and there are (i) no other
shares of capital stock or voting securities of Merger Sub, (ii) no
securities of Merger Sub convertible into or exchangeable for shares of capital
stock or voting securities of Merger Sub and (iii) no options or other
rights to acquire from Merger Sub, and no obligations of Merger Sub to issue,
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of Merger Sub.

(b)           Organization, Good Standing and
Qualification.  Each of Parent,
Merger Sub and Parent’s Significant Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
jurisdiction in which it is chartered or organized with full corporate power
and authority to own or lease, as the case may be, and to operate its
properties and conduct its business as presently conducted, and is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each jurisdiction which requires such qualification except where
failure to so qualify or to be in good standing is not reasonably likely to
have, individually or in the aggregate, a Parent Material Adverse Effect (as
defined below).  Parent has made
available to the Company a complete and correct copy of Parent’s certificate of
incorporation and by-laws, each as amended to the date hereof.  Parent’s and its Significant Subsidiaries’
certificates of incorporation and by-laws are in full force and effect.  “Significant
Subsidiary” shall have the meaning ascribed to such term in
Rule 1-02(w) of Regulation S-X promulgated under the Exchange Act.

As used in this Agreement, the term “Parent Material Adverse Effect” means
(x) a material adverse effect on the condition (financial or otherwise),
prospects, business or results of operations of Parent and its Significant
Subsidiaries taken as a 

 

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whole or (y) an effect that could prevent or
materially burden or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement; provided, however,
that the following shall be excluded from the definition of “Parent Material
Adverse Effect” and from the determination of whether such a Parent Material
Adverse Effect has occurred: (a) the effects of conditions or events
resulting from general financial, political, economic or market conditions
(including the suspension of trading in securities on the Nasdaq National
Market); (b) any change in the trading prices or volumes of the capital
stock of Parent; (c) the effects of conditions or events resulting from an
outbreak or escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war or the
occurrence of any other calamity or crisis, including the occurrence of a
terrorist attack; (d) any change resulting from the entry into this
Agreement or the announcement of the transactions contemplated by this
Agreement or the performance of this Agreement and the covenants set forth
herein; and (e) any change resulting from the actions of the Company.

(c)           Capital
Structure.  The authorized
capital stock of Parent consists of 900,000,000 shares of Parent Common Stock,
of which 281,627,707 shares were outstanding as of the close of business on
June 30, 2002, and 10,000,000 shares of Preferred Stock par value $0.001
per share (the “Parent Preferred Shares”),
none of which were outstanding as of the close of business on the date
hereof.  All of the outstanding Parent
Common Stock have been duly authorized and are validly issued, fully paid and
nonassessable.  Parent has no shares of
Parent Common Stock reserved for issuance, except that, as of June 30,
2002, there were 25,158,126 shares of Parent Common Stock reserved for issuance
pursuant to Parent’s stock option plans (not including Parent’s 1998 employee
stock purchase plan) and options with respect to 37,431,071 shares of Parent
Common Stock were outstanding under such plans as of such date.  Each of the outstanding shares of capital
stock or other securities of each of Parent’s Significant Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable and owned by Parent or
a direct or indirect wholly-owned subsidiary of Parent, free and clear of any
lien, pledge, security interest, claim or other encumbrance.  Except as set forth above and except as is
not material to the capitalization of Parent, as of the date hereof, there are
no preemptive or other outstanding rights, options, warrants, conversion
rights, stock appreciation rights, redemption rights, repurchase rights,
agreements, arrangements, calls, commitments or rights of any kind that
obligate Parent to issue or sell any shares of capital stock or other
securities of Parent or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to subscribe
for or acquire, any securities of Parent, and no securities or obligations evidencing
such rights are authorized, issued or outstanding.  Parent does not have outstanding any bonds, debentures, notes or
other obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
stockholders of Parent on any matter.

 

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(d)           Corporate
Authority.

(i)            No
vote of holders of capital stock of Parent is necessary to approve this
Agreement and the Merger and the other transactions contemplated hereby.  Parent, as the sole stockholder of the
Merger Sub, has taken all action necessary to approve this Agreement, the
Merger and the other transactions contemplated hereby.  Each
of the Parent and Merger Sub has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under this Agreement and to consummate the Merger.  This Agreement is a valid and binding
agreement of Parent and Merger Sub, enforceable against each of Parent and
Merger Sub in accordance with its terms, subject to the Bankruptcy and Equity
Exception.

(ii)           The
Board of Directors of Parent (A) has approved this Agreement and the
Merger and the other transactions contemplated hereby and (B) has received
the opinion of its financial advisor, Goldman, Sachs & Co., to the effect
that the consideration to be paid by Parent in the Merger is fair to Parent
from a financial point of view.

(iii)          Prior
to the Effective Time, Parent will have taken all necessary action to permit it
to issue the number of duly authorized shares of Parent Common Stock required
to be issued or issuable pursuant to Article IV and Section 6.11(a).  Such Parent Common Stock, when issued, will
be validly issued, fully paid and nonassessable, and no stockholder of Parent
will have any preemptive right of subscription or purchase in respect
thereof.  Such Parent Common Stock, when
issued, will be registered under the Securities Act and Exchange Act and
registered or exempt from registration under any applicable state securities or
“blue sky” laws.

(e)           Governmental Filings; No Violations.  (i)  Other than the filings and/or
notices (A) pursuant to Section 1.3, (B) under the HSR Act, the
Securities Act and the Exchange Act, (C) to comply with state securities
or “blue sky” laws, (D) required to be made with the Nasdaq National Market
and (E) to comply with foreign antitrust and unfair competition laws, no
notices, reports or other filings are required to be made by Parent or Merger
Sub with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Parent or Merger Sub from, any
Governmental Entity, in connection with the execution and delivery of this
Agreement by Parent and Merger Sub and the consummation by Parent and Merger
Sub of the Merger and the other transactions contemplated hereby, except those
that the failure to make or obtain is not reasonably likely to have,
individually or in the aggregate, a Parent Material Adverse Effect or prevent,
materially delay or materially impair the ability of Parent or Merger Sub to
consummate the transactions contemplated by this Agreement.

(ii)           The
execution, delivery and performance of this Agreement by Parent and Merger Sub
do not, and the consummation by Parent and Merger Sub of the Merger and the
other transactions contemplated hereby will not, conflict with, result in a 

 

-23-

 

 

breach or violation or imposition of any lien, charge
or encumbrance upon any property or assets of the Parent or any of its
Significant Subsidiaries pursuant to (A) the certificate of incorporation
or by-laws of the Parent or any of its Significant Subsidiaries, or
(B) the terms of any Material Contracts to which Parent or any of its
Significant Subsidiaries is a party or bound or to which it or their property
is subject, or (C) any Laws applicable to Parent or any of its Significant
Subsidiaries of any court, Governmental Entity, arbitrator or other authority
having jurisdiction over Parent or any of its Significant Subsidiaries or any
of its or their properties; except, in the case of clauses (B) and (C), for
such conflict, breach, violation or imposition that is not reasonably likely to
have, individually or in the aggregate, a Parent Material Adverse Effect.

(f)            Parent Reports; Financial
Statements.  Parent has made
available to the Company each registration statement, report, proxy statement
or information statement prepared by it since December 31, 1999, including
(i) Parent’s Annual Report on Form 10-K for the year ended December
31, 2001 (the “Parent Audit Date”)
in the form (including exhibits, annexes and any amendments thereto) filed with
the SEC (collectively, including any such reports filed subsequent to the date
hereof, the “Parent Reports”).  As of their respective dates, the Parent
Reports did not, and any Parent Reports filed with the SEC subsequent to the
date hereof will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.  Each of the
consolidated balance sheets included in or incorporated by reference into the
Parent Reports (including the related notes and schedules) fairly presents, or
will fairly present, the consolidated financial position of Parent and its
Subsidiaries as of its date and each of the consolidated statements of income
and consolidated statements of cash flows included in or incorporated by
reference into the Parent Reports (including any related notes and schedules)
fairly presents, or will fairly present, the results of operations and cash
flows, as the case may be, of Parent and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to notes and
normal year-end audit adjustments that will not be material in amount or
effect), in each case in accordance with GAAP consistently applied during the
periods involved, except as may be noted therein.

(g)           Absence of Certain Changes.  Except as disclosed in the Parent Reports
filed prior to the date hereof, since the Parent Audit Date through the date
hereof Parent and its Subsidiaries have conducted their respective businesses
only in, and have not engaged in any material transaction other than according
to, the ordinary and usual course of such businesses.  Except as disclosed in the Parent Reports filed prior to the date
hereof, since the Parent Audit Date there has not been a Parent Material
Adverse Effect or any development or combination of developments of which management
of Parent has knowledge that is reasonably likely to have, individually or in
the aggregate, a Parent Material Adverse Effect.

(h)           Litigation and Liabilities.  Except as disclosed in the Parent Reports
filed prior to the date hereof and except for liabilities or obligations
reflected or 

 

-24-

 

 

reserved against in the most recent consolidated
balance sheet of Parent included in the Parent Reports, there are no
(i) civil, criminal or administrative actions, suits, claims, hearings,
investigations or proceedings pending or, to the knowledge of the officers of
Parent, threatened against Parent or any of its Affiliates or
(ii) obligations or liabilities, whether or not accrued, contingent or
otherwise and whether or not required to be disclosed, including those relating
to matters involving any environmental and occupational safety and health
matters, or any other facts or circumstances of which the officers of Parent
have knowledge that could result in any claims against, or obligations or
liabilities of, Parent or any of its Affiliates, except for those that are not
reasonably likely to have, individually or in the aggregate, a Parent Material
Adverse Effect or prevent or materially burden or materially impair the ability
of Parent or Merger Sub to consummate the transactions contemplated by this
Agreement.

(i)            Compliance with Laws.  Neither Parent nor any of its Significant
Subsidiaries is in violation or default of (i) any provision of its
certificate or by-laws, (ii) the terms of any Material Contract to which
it is a party or bound or to which its property is subject, (iii) the
terms of any Contract to which it is a party or bound or to which its property
is subject which violation or default, when taken together with all other such
violations and defaults, could be considered material to the Company and its
Subsidiaries, or (iv) any Laws of any court, Governmental Entity,
arbitrator or other authority having jurisdiction over Parent or such Significant
Subsidiary or any of its properties, as applicable, which, with respect to
clauses (ii), (iii) and (iv), is reasonably likely to have, individually or in
the aggregate, a Parent Material Adverse Effect.

(j)            Certain Regulatory Matters.  Each of Parent and its Significant
Subsidiaries (A) is in compliance with any and all Regulatory Laws
applicable to it, (B) holds all licenses, certificates, permits,
franchises and other authorizations required of it for the lawful conduct of
its business under and pursuant to each and (C) is in compliance with, and
not in default under, all terms and conditions of any such licenses,
certificates, permits, franchises or authorizations, except where the failure
to hold such license, certificate, permit, franchise or authorization or such
noncompliance or default is not reasonably likely to have, individually or in
the aggregate, a Parent Material Adverse Effect.  Neither Parent nor any of its Significant Subsidiaries is
required to register as a bank holding company under the Bank Holding Company
Act of 1956, as amended, nor is Parent or any of its Significant Subsidiaries
required to obtain deposit insurance from the Federal Deposit Insurance
Corporation for any of their respective products or services.

(k)           Tax Matters. 
As of the date hereof, neither Parent nor any of its Affiliates has
taken or agreed to take any action, nor do the officers of Parent have any
knowledge of any fact or circumstance, that would prevent the Merger and the
other transactions contemplated by this Agreement from qualifying as a
“reorganization” within the meaning of Section 368(a) of the Code.

 

 

-25-

 

 

(l)            Taxes.  Parent
and each of its Significant Subsidiaries (i) have prepared in good faith
and duly and timely filed (taking into account any extension of time within
which to file) all Tax Returns required to be filed by any of them and all such
filed Tax Returns are complete and accurate in all material respects; and
(ii) have paid all Taxes that are required to be paid or that Parent or
any of its Significant Subsidiaries are obligated to withhold from amounts
owing to any employee, creditor or third party, except with respect to matters
contested in good faith.  As of the date
hereof, there are not pending or, to the knowledge of the officers of Parent,
threatened in writing, any audits, examinations, investigations or other
proceedings in respect of United States federal, state or local taxes or tax
matters that are reasonably likely to have, individually or in the aggregate, a
Parent Material Adverse Effect.

(m)          Intellectual Property.  The following terms have the following
meanings used in this Section 5.2(m):

“Parent Owned Intellectual Property”
means Intellectual Property owned by Parent or its Subsidiaries.

“Parent Business Intellectual Property”
means the Owned Intellectual Property and Intellectual Property that the Parent
or its Subsidiaries are license or otherwise permitted by other Persons to use.

“Parent Intellectual Property Contracts”
means all agreements concerning the Parent Business Intellectual Property to
which the Parent or its Subsidiaries are a party, including without limitation
agreements granting the Parent or its Subsidiaries rights to use the Licensed
Intellectual Property, nonassertion agreements, agreements granting rights to
use Parent Owned Intellectual Property, confidentiality agreements relating to
Intellectual Property, Trademark coexistence agreements and Trademark consent
agreements.

(i)            Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect: the Parent Owned Intellectual Property is owned
exclusively by the Parent and its Subsidiaries; all registered Parent Owned
Intellectual Property is validly filed, subsisting and, to Parent’s knowledge,
enforceable, and to Parent’s knowledge all other Parent Owned Intellectual
Property is enforceable, and none has been canceled or adjudicated invalid
(excepting any expirations in the ordinary course), or is subject to any outstanding
order, judgment or decree restricting its use or adversely affecting or
reflecting Parent’s or its Subsidiaries’ rights thereto; and, to Parent’s
knowledge, all Parent Licensed Intellectual Property is the subject of a valid
license to Parent or its Subsidiaries as applicable, is subsisting and
enforceable, and none has been canceled or adjudicated invalid (excepting any
expirations in the ordinary course), or is subject to any outstanding order,
judgment or decree restricting its use or adversely affecting or reflecting
Parent’s or its Subsidiaries’ rights thereto.

(ii)           Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect, no Suit is pending concerning any claim that 

 

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Parent
or its Subsidiaries have violated any Intellectual Property rights and no claim
has been threatened or asserted to an officer, director or legal representative
against Parent or its Subsidiaries or any of their indemnitees for violation of
any Intellectual Property rights. 
Except as is not reasonably likely to have, individually or in the
aggregate, a Parent Material Adverse Effect, Parent and its Subsidiaries are
not violating and have not violated any Intellectual Property rights (excluding
such Intellectual Property rights that relate generally to the internet or
internet payment systems that, if valid, would also be violated by the Company
or its Subsidiaries in their respective businesses as currently conducted).

(iii)          Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect, no Suit is pending concerning any Parent Intellectual
Property Contract, including any Suit concerning any claim that Parent or its
Subsidiaries or, to Parent’s knowledge, another Person has breached any Parent
Intellectual Property Contract and no claim has been threatened or asserted to
an officer, director or legal representative of the Parent that Parent or its
Subsidiaries or, to Parent’s knowledge another Person, has breached any Parent
Intellectual Property Contract.  To
Parent’s knowledge, there exists no event, condition or occurrence which, with
the giving of notice or lapse of time, or both, would constitute a material
breach or default by the Parent or its Subsidiaries or another Person under any
Parent Intellectual Property Contract, except as is not reasonably likely to
have, individually or in the aggregate, a Parent Material Adverse Effect.  No party to any Parent Intellectual Property
Contract has given the Parent or its Subsidiaries notice of its intention to
cancel, terminate, change the scope of rights under, or fail to renew any
Parent Intellectual Property Contract except as is not reasonably likely to
have, individually or in the aggregate, a Parent Material Adverse Effect.

(iv)          Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect, no Suit is pending concerning any Parent Owned
Intellectual Property, including any Suit concerning a claim that any Parent
Owned Intellectual Property has been violated or is invalid, unenforceable,
unpatentable, unregisterable, cancelable, not owned or not owned exclusively by
Parent or its Subsidiaries.  No such
claim has been threatened or asserted to any officer, director or legal
representative of the Parent.

(v)           Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect, to Parent’s knowledge, Parent and its Subsidiaries own
or otherwise have the right to use pursuant to a valid license sufficient for
the Parent’s and its Subsidiaries’ use, all Intellectual Property used by the
Company and its Subsidiaries, including, without limitation, all software
currently used by the Company or any of its Subsidiaries.  Except as is not reasonably likely to have,
individually or in the aggregate, a Parent Material Adverse Effect, all such
rights shall survive the execution, consummation and performance of this
Agreement unchanged.

 

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(vi)          Except
as is not reasonably likely to have, individually or in the aggregate, a Parent
Material Adverse Effect, all computer software that is Parent Owned
Intellectual Property has been exclusively developed either (A) internally
by employees of the Parent and its Subsidiaries working within the scope of
their employment or (B) by third Persons pursuant to written work made for
hire and assignment agreements placing ownership of such computer software with
the Parent and its Subsidiaries.

(vii)         Parent
and its Subsidiaries have taken all reasonable measures to protect the secrecy,
confidentiality and value of all Trade Secrets which are Parent Business
Intellectual Property, except as is not reasonably likely to have, individually
or in the aggregate, a Parent Material Adverse Effect.

(n)           Brokers and Finders.  Neither Parent nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Merger or the other transactions contemplated by this Agreement,
except that Parent has employed Goldman, Sachs & Co. as its financial
advisor.

ARTICLE VI

Covenants

6.1.          Interim Operations.  The Company covenants and agrees as to
itself and its Subsidiaries that, after the date hereof and prior to the
Effective Time (unless Parent shall otherwise approve in writing and except as
otherwise expressly contemplated by this Agreement or set forth in the
corresponding section or subsections of the Company Disclosure Schedule):

(a)   the business of it and its Subsidiaries shall
be conducted in all material respects in the ordinary course consistent with
past practice and, to the extent consistent therewith, it and its Subsidiaries
shall use their respective commercially reasonable efforts to preserve its
present business organization intact and maintain its existing relations and
goodwill with customers, suppliers, distributors, creditors, lessors, employees
and business associates consistent with past practice;

(b)   it shall not (i) issue, sell, pledge, dispose
of or encumber any capital stock owned by it in any of its Subsidiaries;
(ii) amend its certificate of incorporation or by-laws; (iii) split,
combine or reclassify its outstanding shares of capital stock;
(iv) declare, set aside or pay any dividend payable in cash, stock or
property in respect of any capital stock other than dividends from its direct
or indirect wholly-owned Subsidiaries; or (v) repurchase, redeem or otherwise
acquire, except (x) in connection with the Stock Plans and (y) for the
repurchase of unvested Shares issued as restricted stock or issued upon the
early exercise of options from departing employees at a repurchase price equal
to the lower of the employees’ purchase or exercise price or the fair market
value of such Shares at the time of repurchase; or (vi) permit any of its 

 

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Subsidiaries to purchase
or otherwise acquire, any shares of its capital stock or any securities
convertible into or exchangeable or exercisable for any shares of its capital
stock;

(c)   neither it nor any of its Subsidiaries shall
(i) issue, sell, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable or exercisable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
its capital stock of any class or any other property or assets (other than
Shares issuable pursuant to options outstanding on the date hereof under the
Stock Plans, Shares issuable pursuant to the 2001 ESPP, and Shares issuable
pursuant to the Company Warrants and the grant to new employees of the Company
(other than new officers of the Company) hired after the date hereof consistent
with the hiring plan set forth in Section 6.1(c) of the Company Disclosure
Letter of options pursuant to the Stock Plans in the ordinary course of
business consistent with past practice, provided that such grants shall not
exceed in the aggregate 500,000 Shares per quarter without the prior consent of
Parent, which consent shall not be unreasonably withheld or delayed);
(ii) other than in the ordinary and usual course of business, transfer,
lease, license, guarantee, sell, mortgage, pledge, dispose of or encumber any
other property or assets or incur or modify any material indebtedness or other
liability; (iii) make or authorize or commit for any capital expenditures
other than as set forth on Schedule 6.1(c)(iii) hereto; (iv) make any
acquisition of, or investment in, assets or stock of or other interest in, any
other Person or entity; (v) enter into any Contract the terms of which
contemplate material changes in the obligations, rights or responsibilities of
any party thereto or any terms therein after giving effect to the Merger; (vi)
enter into, modify, amend or terminate any Material Contract except in the
ordinary course consistent with past practice or without the prior consent of
Parent, which consent shall not be unreasonably withheld or delayed; (vii) enter
into or amend any Contract for payment processing without the prior consent of
Parent, which consent shall not be unreasonably withheld or delayed;
(viii) enter into any non-competition Contracts or other Contracts that
purport to limit in any respect either the type of business in which it (or,
after giving effect to the Merger, the Parent or its Subsidiaries) may engage
or the manner or locations in which any of them may so engage in any business;
(ix) enter into any partnership, joint venture, strategic alliance, revenue or
profit sharing agreement or similar arrangement with any Person; or (x) change
or modify its line of business from the line of business in which it is engaged
as of the date hereof or enter into any new line of business;

(d)   neither it nor any of its Subsidiaries shall
terminate, establish, adopt, enter into, make any new grants or awards under,
amend or otherwise modify, any Benefit Plans, amend or modify the terms of any
Company Option or increase the salary, wage, bonus or other compensation of any
employees (except for (i) increases in salary, wages, bonuses or other
compensation of non-executive employees made in the ordinary course of business
consistent with past practice and (ii) subject to Section 6.1(c)(i), the grant of
options to new employees of the Company pursuant to the Stock Plans);

 

-29-

 

(e)   neither it nor any of its Subsidiaries shall
(i) commence any litigation or arbitration proceeding or any regulatory or
other governmental action or proceeding with or before any Governmental Entity
other than ordinary contract and commercial litigation that the Company does
not reasonably expect to result in total costs to the Company in excess of
$300,000 and except for litigation to which the Parent consents, which consent
shall not be unreasonably withheld or delayed, (ii) settle or compromise
any material claims or litigation without the prior consent of Parent, which
consent shall not be unreasonably withheld or delayed, or (iii) waive,
release or assign any material rights or claims without the prior consent of
Parent, which consent shall not be unreasonably withheld or delayed;

(f)    neither it nor any of its Subsidiaries shall
make any material Tax election or permit any material insurance policy naming
it as a beneficiary or loss-payable payee to be cancelled or terminated except
in the ordinary and usual course of business; and

(g)   neither it nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.

6.2.          Acquisition Proposals.  The Company agrees that neither it nor any
of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall not authorize or knowingly permit its and
its Subsidiaries’ employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to, directly or indirectly, initiate, solicit, knowingly
encourage or facilitate any inquiries or the making of any proposal or offer
with respect to a merger, reorganization, share exchange, consolidation or
similar transaction involving, or any purchase of all or any material portion
of the assets of, or 20% or more of the equity securities in, the Company or
any of its Subsidiaries (any such proposal or offer being hereinafter referred
to as an “Acquisition Proposal”).  The Company further agrees that neither it
nor any of its Subsidiaries nor any of the officers and directors of it or its
Subsidiaries shall, and that it shall not authorize or knowingly permit its and
its Subsidiaries’ employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal, or otherwise
entertain or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal; provided, however, that nothing contained
in this Agreement shall prevent the Company or its Board of Directors or its
officers, employees, agents or representatives from (A) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal or making any disclosure required by applicable law;
(B) at any time prior, but not after, the Stockholders Meeting (as defined
in Section 6.4) is convened, providing information in response to a request
therefor by a Person who has made an unsolicited bona fide written Acquisition
Proposal if the Board of Directors receives from the Person so requesting such
information an executed confidentiality agreement on terms substantially
similar to 

 

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those contained in the Confidentiality Agreement (as
defined in Section 9.7); (C) engaging in any negotiations or
discussions with any Person who has made an unsolicited bona fide written
Acquisition Proposal; or (D) recommending such an Acquisition Proposal to
the stockholders of the Company, if and only to the extent that, in each such
case referred to in clause (B), (C) or (D) above, the Board of Directors of the
Company determines in good faith (after consultation with its outside legal
counsel) that such action is necessary in order for its directors to comply
with their respective fiduciary duties under applicable law and the Board of
Directors determines in good faith (after consultation with its financial
advisor) that such Acquisition Proposal is, or is reasonably likely to result
in, a Superior Proposal.  A “Superior Proposal” is an Acquisition
Proposal that, if accepted, would be reasonably likely to be consummated
(taking into account the legal, financial and regulatory aspects of the
proposal) and would, if consummated, result in a transaction more favorable to
the Company’s stockholders from a financial point of view than the transaction
contemplated by this Agreement.  The
Company agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal.  The Company agrees that it will take the necessary steps to
promptly inform the individuals or entities referred to in the first sentence
hereof of the obligations undertaken in this Section 6.2 and in the
Confidentiality Agreement (as defined in Section 9.7).  The Company agrees that it will notify
Parent immediately if any such inquiries, proposals or offers are received by,
any such information is requested from, or any such discussions or negotiations
are sought to be initiated or continued with, any of its representatives
indicating, in connection with such notice, the name of such Person and the material
terms and conditions of any proposals or offers.  The Company also agrees that it will promptly request each Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return or destroy
all confidential information heretofore furnished to such Person by or on
behalf of it or any of its Subsidiaries.

6.3.          Information Supplied.  The Company and Parent each agrees, as to
itself and its Subsidiaries, that none of the information expressly supplied or
to be supplied by it or its Subsidiaries for inclusion or incorporation by
reference in (i) the Registration Statement on Form S-4 to be filed
with the SEC by Parent in connection with the issuance of shares of Parent Common
Stock in the Merger (including the proxy statement and prospectus (the “Prospectus/Proxy Statement”)
constituting a part thereof) (the “S-4
Registration Statement”) will, at the time the S-4 Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the
Prospectus/Proxy Statement and any amendment or supplement thereto will, at the
date of mailing to stockholders and at the times of the meetings of
stockholders of the Company to be held in connection with the Merger, 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 were made, not
misleading.  The Company and Parent will
cause the 

 

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Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act and the rules and
regulations thereunder, except that neither the Company nor Parent makes any
covenant other than with respect to statements made or incorporated by
reference based on information supplied by such party specifically for
inclusion or incorporation by reference therein.

6.4.          Stockholders Meeting.  The Company will take, in accordance with
applicable law and its certificate of incorporation and by-laws, all action
necessary to call, hold and convene a meeting of holders of Shares (the “Stockholders Meeting”) as promptly as
reasonably practicable after the S-4 Registration Statement is declared effective
to consider and vote upon the approval of this Agreement.  Except on the determination of the
occurrence of a Superior Proposal and during such time as there remains a
Superior Proposal or as the Company’s Board of Directors may determine in good
faith (after consultation with its outside legal counsel) in order to comply
with its fiduciary duties under applicable law, the Company’s Board of
Directors shall recommend such approval, the Company’s Board of Directors shall
not amend, modify, withdraw, condition or qualify such recommendation and shall
take all lawful action to solicit such approval.  The Company agrees that it will provide Parent with at least 48
hours prior notice of the Company’s Board of Director’s intention to make any
such amendment, modification, withdrawal, condition or qualification; provided,
however, that such notice shall not be required to the extent that the
Company’s Board of Directors determines (after consultation with its outside
legal counsel) that such notice violates its fiduciary duties or would cause
the Company to violate any applicable law. 
Notwithstanding anything to the contrary in this Agreement, the
obligation of the Company to convene a Stockholders Meeting shall not be limited
or otherwise affected by the commencement, disclosure, announcement or
submission to it of any Acquisition Proposal, or by any change of
recommendation of the Company’s Board of Directors.  The Company shall not submit to the vote of its stockholders any
Acquisition Proposal or propose to do so.

6.5.          Filings; Other Actions; Notification.  (a) The Company and Parent shall
promptly prepare and file with the SEC the Prospectus/Proxy Statement, and
Parent shall prepare and file with the SEC the S-4 Registration Statement as
promptly as practicable after the date hereof. 
Parent and the Company each shall use its commercially reasonable
efforts to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing, and promptly
thereafter mail the Prospectus/Proxy Statement to the stockholders of the
Company.  Parent shall also use its
commercially reasonable efforts to obtain prior to the effective date of the
S-4 Registration Statement all necessary state securities law or “blue sky”
permits and approvals required in connection with the Merger and to consummate
the other transactions contemplated by this Agreement and will pay all expenses
incident thereto.

(b)           No amendment or supplement to the Registration Statement
or the Proxy Statement/Prospectus will be made by the Company or Parent without
the prior 

 

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approval
of the other party. Each party will advise the other party, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, the issuance of any
stop order, the suspension of the qualification of the Parent Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or any request by the SEC for amendment of the Registration Statement or the
Proxy Statement/Prospectus or comments of the SEC thereon and responses thereto
or requests by the SEC for additional information.  If at any time prior to the Effective Time, the Company or Parent
discovers any information relating to itself, or any of its affiliates,
officers or directors, that should be set forth in an amendment or supplement
to the Registration Statement or the Proxy Statement/Prospectus, so that such
document would not include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, such party that
discovers such information shall promptly notify the other parties hereto and
the parties shall jointly prepare an appropriate amendment or supplement
describing such information which shall be promptly filed with the SEC and, to
the extent required by law or regulation, disseminated to the stockholders of
the Company.

(c)           The Company and Parent each shall use its commercially
reasonable efforts to cause to be delivered to the other party and its
directors a letter of its independent auditors, dated (i) the date on
which the S-4 Registration Statement shall become effective and (ii) the
Closing Date, and addressed to the other party and its directors, in form and
substance customary for “comfort” letters delivered by independent public
accountants in connection with registration statements similar to the S-4
Registration Statement.

(d)           The Company and Parent shall cooperate with each other and
use (and shall cause their respective Subsidiaries to use) their respective
commercially reasonable efforts to take or cause to be taken all actions, and
do or cause to be done all things, necessary, proper or advisable on its part
under this Agreement and applicable Laws to consummate and make effective the
Merger and the other transactions contemplated by this Agreement as soon as
practicable, including preparing and filing as promptly as practicable all
documentation to effect all required notices, reports and other filings and to
obtain as promptly as practicable all consents, registrations, approvals,
permits and authorizations required to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement; provided, however,
that nothing in this Section 6.5 shall require, or be construed to
require, Parent to proffer to, or agree to, sell or hold separate and agree to
sell, before or after the Effective Time, any assets, businesses, or interest
in any assets or businesses of Parent, the Company or any of their respective
Affiliates (or to consent to any sale, or agreement to sell, by the Company of
any of its assets or businesses) or to agree to any material changes or
restriction in the operations of any such assets or businesses.  Nothing in this Section shall require Parent
or the Company to take any action which would be inconsistent with the
fiduciary duties of its Board of Directors as such duties would exist under
applicable law in the absence of this Section. 
Without 

 

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limiting
the generality of the foregoing, each of Parent and the Company shall file any
Notification and Report Forms and related materials that it may be required to
file in connection with the transactions contemplated by this Agreement with
the Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, shall each use its commercially
reasonable efforts to obtain an early termination of the applicable waiting
period, and shall each make any submissions pursuant thereto that may be
necessary, proper or advisable.  Subject
to applicable laws relating to the exchange of information, Parent and the
Company shall (i) have the right to review in advance, and to the extent
practicable each will consult the other on, all the information relating to
Parent or the Company, as the case may be, and any of their respective
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection with
the Merger and the other transactions contemplated by this Agreement and
(ii) consult with each other before meeting with, or engaging in any
conference calls with, any antitrust agency to discuss the transactions
contemplated hereby.  In exercising the
foregoing right, each of the Company and Parent shall act reasonably and as
promptly as practicable.

(e)           The Company and Parent each shall, upon request by the
other and subject to applicable law, furnish the other with all information
concerning itself, its Subsidiaries, directors, officers and stockholders and
such other matters as may be reasonably necessary or advisable in connection
with the Prospectus/Proxy Statement, the S-4 Registration Statement or any
other statement, filing, notice or application made by or on behalf of Parent,
the Company or any of their respective Subsidiaries to any third party and/or
any Governmental Entity in connection with the Merger and the transactions
contemplated by this Agreement.

(f)            The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notice or other communications received by Parent or the Company, as the case
may be, or any of its Subsidiaries, from any third party and/or any
Governmental Entity with respect to the Merger and the other transactions
contemplated by this Agreement.  The
Company and Parent each shall give prompt notice to the other of any change
that is reasonably likely to result in a Company Material Adverse Effect or
Parent Material Adverse Effect, respectively.

(g)           The Company shall promptly furnish Parent with copies of
any notices and other communications received by the Company or any of its
Subsidiaries from any third party and/or any Governmental Entity with respect
to the Company’s and its Subsidiaries’ licenses, certificates, permits or other
authorizations from or of Governmental Entities and any applications relating
thereto, unless the Company reasonably determines that furnishing such copies
would violate the terms of a written confidentiality obligation of the Company
to such third party or applicable law.

 

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6.6.          Taxation. 
Parent and Company intend the Merger to qualify as a reorganization
within the meaning of Section 368(a) of the Code.  Subject to Section 6.2, each party will (and will cause its
Subsidiaries to) both before and after the Effective Time, (i) use
reasonable efforts to cause the Merger to so qualify; (ii) refrain from
taking any action that would reasonably be expected to cause the Agreement to
fail to so qualify; and (iii) take the position for all U.S. federal
income tax purposes that the Merger so qualifies.

6.7.          Access.  Upon
reasonable notice, and except as may otherwise be required by applicable law,
the Company and Parent each shall (and shall cause its Subsidiaries to) afford
the other’s officers, employees, counsel, accountants and other authorized
representatives (“Representatives”)
reasonable access, during normal business hours throughout the period prior to
the Effective Time, to its properties, books, contracts and records and, during
such period, each shall (and shall cause its Subsidiaries to) furnish promptly
to the other all information concerning its business, properties and personnel
as may reasonably be requested, provided that no investigation pursuant
to this Section shall affect or be deemed to modify any representation or
warranty made by the Company, Parent or Merger Sub, and provided, further,
that the foregoing shall not require the Company or Parent to permit any
inspection, or to disclose any information, that in the reasonable judgment of
the Company or Parent, as the case may be, would result in the disclosure of
any trade secrets of third parties or violate any of its obligations with
respect to confidentiality if the Company or Parent, as the case may be, shall
have used commercially reasonable efforts to obtain the consent of such third
party to such inspection or disclosure. 
All requests for information made pursuant to this Section shall be
directed to an executive officer of the Company or Parent, as the case may be,
or such Person as may be designated by either of its officers, as the case may
be.  All such information shall be
governed by the terms of the Confidentiality Agreement and applicable antitrust
and trade regulation laws. 
Notwithstanding the generality of the foregoing, access to “Highly
Confidential Information” (as defined in the Confidentiality Agreement) shall
be restricted in accordance with the terms of such Confidentiality Agreement.

6.8.          Affiliates. 
Prior to the date of the Stockholders Meeting, Parent shall deliver to
the Company a list of names and addresses of those Persons who are, in the
opinion of the Parent, as of the time of the Stockholders Meeting referred to
in Section 6.4, “affiliates” of the Company within the meaning of
Rule 145 under the Securities Act. 
The Company shall provide to Parent such information and documents as Parent
shall reasonably request for purposes of preparing such list.  The Company shall exercise its best efforts
to deliver or cause to be delivered to Parent, prior to the date of the
Stockholders Meeting, from each affiliate of the Company identified in the
foregoing list (as the same may be supplemented as aforesaid), a letter dated
as of the Closing Date substantially in the form attached as Exhibit A
(the “Affiliates Letter”).  Parent shall not be required to maintain the
effectiveness of the S-4 Registration Statement or any other registration
statement under the Securities Act for the purposes of resale of Parent Common
Stock by such affiliates received in the Merger and the certificates
representing 

 

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Parent Common Stock received by such affiliates shall
bear a customary legend regarding applicable Securities Act restrictions and
the provisions of this Section.

6.9.          Nasdaq National Market Listing and
De-listing.  Parent shall use
its best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for quotation on the Nasdaq National Market subject to
official notice of issuance, prior to the Closing Date.  The Surviving Corporation shall use its best
efforts to cause the Shares to no longer be quoted on the Nasdaq National
Market and de–registered under the Exchange Act as soon as practicable
following the Effective Time.

6.10.        Publicity. 
The initial press release shall be a joint press release and thereafter
the Company and Parent each shall consult with each other prior to issuing any
press releases or otherwise making public announcements with respect to the
Merger and the other transactions contemplated by this Agreement and prior to
making any filings with any third party and/or any Governmental Entity with
respect thereto, except as may be required by law or by obligations pursuant to
any listing agreement with or rules of the Nasdaq National Market.

6.11.        Benefits.

(a)           Stock
Options and Warrants.

(i)            At
the Effective Time, each outstanding Company Option, whether vested or
unvested, shall be deemed to constitute an option to acquire, on the same terms
and conditions as were applicable under such Company Option, the number of
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio
(rounded down to the nearest whole number), at a price per share (rounded up to
the nearest whole cent) equal to (y) the exercise price per Share at which
such Company Option was exercisable immediately prior to the Effective Time
divided by (z) the Exchange Ratio; provided, however, that
in the case of any Company Option to which Section 422 of the Code
applies, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the
Code.  At or prior to the Effective
Time, each of the Company and Parent shall make all necessary arrangements and
take all necessary actions to cause the assumption of the unexercised Company
Options and Company Warrants by Parent pursuant to this Section.  Except with respect to Company Options that
accelerate in vesting pursuant to the specific terms of their respective option
award agreements or under the applicable Stock Option Plan, the Company shall
not take any actions that would result in the accelerated vesting or cashing
out of any Company Options.

 

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(ii)           Effective
at the Effective Time, Parent shall assume each Company Option in accordance
with the terms of the Stock Plan under which it was issued and the stock option
agreement by which it is evidenced.  At
or prior to 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 Company Options assumed by it in
accordance with this Section.  As soon
as practicable after the Effective Time but in no event later than seven days
after the Closing Date, Parent shall file a registration statement on
Form S-3 or Form S-8, as the case may be (or any successor or other
appropriate forms), or another appropriate form with respect to the Parent
Common Stock subject to such Company Options, and shall use its commercially
reasonable efforts to maintain the effectiveness of such registration statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for so long as such Company Options remain outstanding.

(iii)          At
the Effective Time, each outstanding Company Warrant shall be deemed to
constitute a warrant to acquire, on the same terms and conditions as were
applicable under such Company Warrant, the number of shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock that
were issuable upon exercise of such Company Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio (rounded up to the nearest
whole number), at a price per share (rounded down to the nearest whole cent)
equal to (y) the exercise price per Share at which such Company Warrant
was exercisable immediately prior to the Effective time divided by (z) the
Exchange Ratio.  At or prior to 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 Company Warrants assumed by it in accordance with this Section.

(iv)          The
Board of Directors of the Company and Parent shall, prior to the Effective Time,
take all such actions as may be necessary or appropriate pursuant to
Rule 16b-3(d) and Rule 16b-3(e) to exempt (i) the conversion of Shares and
Company Options into Parent Common Stock or options to purchase Parent Common
Stock, as the case may be, and (ii) the acquisition of Parent Common Stock or
options to purchase Parent Common Stock, as the case may be, pursuant to the
terms of this Agreement by officers and directors of the Company subject to the
reporting requirements of Section 16(a) of the Exchange Act or by
employees of the Company who may become an officer or director of Parent
subject to the reporting requirements of Section 16(a) of the Exchange
Act.

(b)           Benefit Plans. 
(i) Subject to any necessary transition periods (during which Parent
will cause the Company to maintain its applicable existing welfare plans), from
and after the Effective Time, Parent shall (x) provide employees of the
Company who become employees of Parent or any of its Subsidiaries or remain
employees of the Company with employee welfare and pension benefits no less
favorable in the aggregate than those provided to similarly situated employees
of Parent and its Subsidiaries, and (y) cause each employee welfare and
pension benefit plan, program, 

 

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policy or arrangement of Parent in which employees of
the Company become eligible to participate to take into account for purposes of
eligibility and vesting thereunder the service of such employees with the
Company to the same extent as such service was credited for such purpose by the
Company.  Nothing herein shall limit the
ability of Parent to amend or terminate any of its welfare and pension benefit
plans in accordance with their terms at any time.

(ii)           When
employees of the Company become eligible to participate in a medical, dental or
health plan of Parent, to the extent permissible under the applicable benefit
plan, Parent shall cause each such plan to (x) waive any preexisting
condition limitations to the extent such conditions were covered under the
applicable medical, health or dental plans of the Company and (y) waive any
waiting period limitation or evidence of insurability requirement which would
otherwise be applicable to such employee on or after the Effective Time to the
extent such employee had satisfied any similar limitation or requirement under
an analogous Company plan prior to the Effective Time.

(c)           2001 ESPP and Company 401-K.  The Company shall take all actions necessary
to cause the 2001 ESPP and the Company’s 401(k) Plan to terminate prior to the
Effective Time and to (i) cause each Company employee’s 2001 ESPP account
balance to be distributed in cash to such employee at the time of plan
termination and (ii) cause each Company’s employee’s 401(k) Plan account
balance to be distributed to such employee (or rolled over into another
qualified plan) at the time of plan termination.  Employees of the Company shall become eligible to participate in
Parent’s 1998 Employee Stock Purchase Plan, as amended, and 401(k) Savings Plan
on the first date new employees are permitted to join such plans pursuant to
the terms of such plans.

6.12.        Expenses. 
The Surviving Corporation shall pay all charges and expenses, including
those of the Exchange Agent, in connection with the transactions contemplated
in Article IV, and Parent shall reimburse the Surviving Corporation for
such charges and expenses.  Except as
otherwise provided in Section 8.5(b), whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
Merger and the other transactions contemplated by this Agreement shall be paid
by the party incurring such expense, except that expenses incurred in
connection with the filing fee for the S-4 Registration Statement and printing
and mailing the Prospectus/Proxy Statement and the S-4 Registration Statement
shall be shared equally by Parent and the Company.

6.13.        Indemnification; Directors’ and
Officers’ Insurance. 
(a) From and after the Effective Time, Parent agrees that it shall
indemnify and hold harmless each present and former director and officer of the
Company, (when acting in such capacity) determined as of the Effective Time
(the “Indemnified Parties”),
against any costs or expenses (including reasonable attorneys’ fees),
judgments, fines, losses, claims, damages or liabilities (collectively, “Costs”) incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or 

 

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investigative (collectively, “Claims”), arising out of matters
existing or occurring at or prior to the Effective Time (including the
transactions contemplated hereby), whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that the Company would have
been permitted under Delaware law and any Claims arising from or related to the
transactions contemplated hereby (and Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable law, provided
the Person to whom expenses are advanced provides an undertaking to repay such
advances if it is ultimately determined that such Person is not entitled to
indemnification); and provided, further, that any determination
required to be made with respect to whether an officer’s or director’s conduct
complies with the standards set forth under Delaware law shall be made by
independent counsel mutually selected by the Surviving Corporation and the
Indemnified Party.

(b)           Any
Indemnified Party wishing to claim indemnification under paragraph (a) of
this Section 6.13, upon learning of any such Claim, shall promptly notify
Parent thereof; provided, however, that no delay on the part of the Indemnified
Party in notifying the Parent shall lessen the Indemnified Party’s right to
indemnification under this Section unless Parent is prejudiced thereby.  In the event of any such Claim (whether
arising before or after the Effective Time), (i) Parent or the Surviving
Corporation shall have the right to assume the defense thereof and Parent shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified Parties
in connection with the defense thereof, so long as (x) such party notifies
in writing the Indemnified Party (and acknowledges in writing) within 10
business days after the Indemnified Party has given the requisite notice to
Parent that such Indemnified Party will be indemnified from and against any
Costs the Indemnified Party may suffer resulting from, arising out of, or
caused by any such Claim without giving effect to the scope of or limitations
on indemnification set forth in Section 6.13(a) (y) such Claim involves
only money damages and does not seek an injunction or other equitable relief
and (z) the settlement of, or an adverse judgment with respect to, such
Claim will not, in the good faith judgment of the Indemnified Party, likely be
detrimental to the reputation, professional stature or business(es) of the Indemnified
Party; provided, further, that such party may not consent to the entry of any
judgment or settlement with respect to such Claim without the prior written
consent of the Indemnified Party, with such consent not to be unreasonably
withheld; (ii) the Indemnified Parties will cooperate in the defense of
any such matter and (iii) Parent shall not be liable for any settlement
effected without its prior written consent, with such consent not to be
unreasonably withheld; and provided, further, that Parent shall
not have any obligation hereunder to any Indemnified Party if and when a court
of competent jurisdiction shall ultimately determine, and such determination
shall have become final, that the indemnification of such Indemnified Party in
the manner contemplated hereby is prohibited by applicable law.  If an Indemnified Party is successful, in
whole or in part, in any proceeding challenging such Indemnified Party’s right
to indemnification hereunder, Parent shall pay any and all costs or expenses
(including reasonable attorneys’ fees) incurred by such Indemnified Party in
connection with such proceeding.

 

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(c)           Parent shall cause the Surviving Corporation to maintain
the Company’s existing officers’ and directors’ liability insurance (“D&O Insurance”) for a period of
six years after the Effective Time so long as the annual premium therefor is
not in excess of 150% of the last annual premium paid prior to the date hereof
(the “Current Premium”); provided,
however, that if the existing D&O Insurance expires, is terminated
or cancelled during such six-year period, the Surviving Corporation will use
its best efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis)
of the Current Premium.

(d)           If the Surviving Corporation or any of its successors or
assigns (i) shall consolidate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) shall transfer all or substantially
all of its properties and assets to any individual, corporation or other
entity, then, and in each such case, proper provisions shall be made so that
the successors and assigns of the Surviving Corporation shall assume all of the
obligations set forth in this Section.

(e)           The provisions of this Section are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified Parties,
their heirs and their representatives.

6.14.        Takeover Statute.  If any Takeover Statute is or may become applicable to the Merger
or the other transactions contemplated by this Agreement, each of Parent and
the Company and its Board of Directors shall grant such approvals and take such
actions as are necessary so that such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement or by the
Merger and otherwise act to eliminate or minimize the effects of such statute
or regulation on such transactions. 
Nothing in this Section shall require Parent or the Company to take any
action which would be inconsistent with the fiduciary duties of its Board of
Directors as such duties would exist under applicable law in the absence of this
Section.

6.15.        Retention of Certain Employees.  The Company and Parent shall work together
in good faith using reasonable efforts to retain selected key employees of the
Company and its Subsidiaries, including new employment terms as appropriate.

6.16.        Conduct of Merger Sub.  Parent will 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.

6.17.        Rule 144 Reporting.  From and after the Effective Time, unless
and until the earlier of the time that (i) each affiliate of the Company has
disposed of all Parent Common Stock received as merger consideration in the
Merger and (ii) such shares are permitted to be resold pursuant to Rule 145(d)(3)
under the Securities Act, Parent shall make and keep “available adequate
current public information” (as those terms are understood and defined in Rule
144 under the Securities Act) with respect to Parent.

 

 

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ARTICLE VII

Conditions

7.1.          Conditions to Each Party’s
Obligation to Effect the Merger. 
The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver at or prior to the Effective Time of each of the following
conditions:

(a)           Stockholder Approval.  This Agreement shall have been duly approved
by holders of Shares constituting the Company Requisite Vote in accordance with
applicable law and the certificate of incorporation and by-laws of the Company.

(b)           H-S-R.  The
waiting period applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.

(c)           Litigation. 
No court or Governmental Entity of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, law, ordinance,
rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) that is in effect and restrains, enjoins
or otherwise prohibits consummation of the Merger or the other transactions
contemplated by this Agreement (collectively, an “Order”), and no Governmental Entity shall have
instituted any proceeding seeking any such Order.

(d)           S-4.  The S-4 Registration Statement shall have become effective under
the Securities Act.  No stop order
suspending the effectiveness of the S-4 Registration Statement shall have been
issued, and no proceedings for that purpose shall have been initiated or be
threatened, by the SEC.

(e)           Blue Sky Approvals.  Parent shall have received all state securities
and “blue sky” permits and approvals necessary to consummate the transactions
contemplated hereby.

7.2.          Conditions to Obligations of Parent
and Merger Sub.  The obligations
of Parent and Merger Sub to effect the Merger are also subject to the satisfaction
or waiver by Parent at or prior to the Effective Time of the following
conditions:

(a)           Representations and Warranties.  The representations and warranties of the
Company set forth in this Agreement shall be true and correct as of the date of
this Agreement (without regard to any materiality qualification contained in
such representation or warranty) and as of the Closing Date (without regard to
any materiality qualification contained in such representation or warranty) as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date); provided,
however, that notwithstanding anything herein to the contrary, this
Section 7.2(a) shall be deemed to have been satisfied even if such
representations or warranties are not so true and correct unless the failure of
such 

 

-41-

 

 

representations or warranties to be so true and
correct, individually or in the aggregate, has had, or is reasonably likely to
have, a Company Material Adverse Effect. 
Parent shall have received a certificate signed on behalf of the Company
by the President of the Company to such 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 Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the President of the
Company to such effect.

(c)           Absence of Certain Changes.  Since the date hereof, there shall not have
been any change in the financial condition, properties, prospects, business or
results of operations of the Company and its Subsidiaries or any development or
combination of developments that, individually or in the aggregate, has had or
is reasonably likely to have, individually or in the aggregate, a Company
Material Adverse Effect.

(d)           Regulatory Consents.  Other than the filing provided for in
Section 1.3, all notices, reports and other filings required to be made
prior to the Effective Time by the Company or Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any
Governmental Entity in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby by the Company, Parent and Merger Sub shall have been made
or obtained (as the case may be); provided, however,
that notwithstanding anything herein to the contrary, this Section 7.2(d) shall
be deemed to have been satisfied unless the failure to make such notices, reports
and other filings or obtain such consents, registrations, approvals, permits
and authorizations, individually or in the aggregate, has had, or is reasonably
likely to have, a Company Material Adverse Effect.

(e)           Tax Opinion. 
Parent shall have received the opinion of Sullivan & Cromwell,
counsel to Parent, dated the Closing Date, to the effect that the Merger will
be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger Sub
and the Company will be a party to that reorganization within the meaning of
Section 368(b) of the Code.  In
rendering its opinion, Sullivan & Cromwell may require and rely upon
representations contained in letters from the Company, Parent and Merger Sub
and/or their officers or principal stockholders as are customary for such
opinions.

(f)            Accountant Letter.  Parent shall have received, in form and
substance reasonably satisfactory to Parent, from PricewaterhouseCoopers LLP
the “comfort” letter described in Section 6.5(b).

 

-42-

 

 

7.3.          Conditions to Obligation of the
Company.  The obligation of the
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:

(a)           Representations and Warranties.  The representations and warranties of Parent
and Merger Sub set forth in this Agreement shall be true and correct as of the
date of this Agreement (without regard to any materiality qualification
contained in such representation or warranty) and as of the Closing Date
(without regard to any materiality qualification contained in such
representation or warranty) as though made on and as of the Closing Date,
(except to the extent any such representation and warranty expressly speaks as
of an earlier date); provided, however, that notwithstanding
anything herein to the contrary, this Section 7.3(a) shall be deemed to
have been satisfied even if such representations or warranties are not so true
and correct unless the failure of such representations or warranties to be so
true and correct, individually or in the aggregate, has had, or is reasonably
likely to have, a Parent Material Adverse Effect.  The Company shall have received a certificate signed on behalf of
Parent by the President of Parent and the President of Merger Sub to such
effect.

(b)           Performance of Obligations of
Parent and Merger Sub.  Each of
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent and Merger Sub by the President of Parent to such effect.

(c)           Absence of Certain Changes.  Since the date hereof, there shall not have
been any change in the financial condition, properties, prospects, business or
results of operations of the Parent and its Significant Subsidiaries or any
development or combination of developments that, individually or in the
aggregate, has had or is reasonably likely to have, individually or in the
aggregate, a Parent Material Adverse Effect.

(d)           Regulatory Consents.  Other than the filing provided for in
Section 1.3, all notices, reports and other filings required to be made
prior to the Effective Time by Parent or any of its Subsidiaries with, and all
consents, registrations, approvals, permits and authorizations required to be
obtained prior to the Effective Time by Parent or any of its Subsidiaries from,
any Governmental Entity in connection with the execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
contemplated hereby by the Company, Parent and Merger Sub shall have been made
or obtained (as the case may be); provided, however, that
notwithstanding anything herein to the contrary, this Section 7.3(d) shall be
deemed to have been satisfied unless the failure to make such notices, reports
and other filings or obtain such consents, registrations, approvals, permits
and authorizations, individually or in the aggregate, has had, or is reasonably
likely to have, a Parent Material Adverse Effect.

 

-43-

 

 

(e)           Tax Opinion. 
The Company shall have received the opinion of Kirkland & Ellis,
counsel to the Company, dated the Closing Date, to the effect that the Merger
will be treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code, and that each of Parent, Merger Sub
and the Company will be a party to that reorganization within the meaning of
Section 368(b) of the Code.  In
rendering its opinion, Kirkland & Ellis may require and rely upon
representations contained in letters from the Company, Parent and Merger Sub
and/or their officers or principal stockholders as are customary for such
opinions.

(f)            Nasdaq National Market Listing.  The shares of Parent Common Stock issuable
to the Company stockholders and the shares of Parent Common Stock issuable
pursuant to the Company Options and Company Warrants assumed by Parent pursuant
to this Agreement shall have been authorized for listing on the Nasdaq National
Market upon official notice of issuance.

(g)           Accountant Letters.  The Company shall have received from
PricewaterhouseCoopers LLP the “comfort” letter described in Section 6.5(c).

ARTICLE VIII

Termination

8.1.          Termination by Mutual Consent.  This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in
Section 7.1(a), by mutual written consent of the Company and Parent by
action of their respective Boards of Directors.

8.2.          Termination by Either Parent or the
Company.  This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Board of Directors of either Parent or the Company if
(i) the Merger shall not have been consummated by December 31, 2002,
whether such date is before or after the date of approval by the stockholders
of the Company;  provided, however,
that if either party determines that additional time is necessary in order to
forestall any action to restrain, enjoin or prohibit the Merger by any federal,
state, local or foreign court or Governmental Entity with jurisdiction over
enforcement of any applicable antitrust laws, the Termination Date may be
extended by such party  to a date
not beyond March 31, 2003 (the “Termination
Date”); provided, further, that the right to terminate
this Agreement pursuant to this clause (i) shall not be available to any party
that has breached in any material respect its obligations under this Agreement
in any manner that shall have proximately caused the occurrence of the failure
of the Merger to be consummated; (ii) the approval of the Company’s
stockholders required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof;
or (iii) any Order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and 

 

-44-

 

 

non-appealable (whether before or after the approval
by the stockholders of the Company).  If
a party (the “Extending Party”)
elects to extend  the Termination
Date pursuant to the first proviso of this Section 8.2, then the other party
(the “Non-Extending Party”)
may deliver the Extending Party a written update of its Company Disclosure
Letter or Parent Disclosure Letter, as the case may be, within three Business
Days of such election to reflect new facts occurring after the date hereof
together with a written request that the Extending Party confirm that such new
facts shall not be deemed to render any of the Non-Extending Party’s
representations and warranties untrue or incorrect as of such date or deemed to
constitute a Company Material Adverse Effect or a Parent Material Adverse
Effect, as the case may be, as of such date. 
If the Extending Party does not provide such confirmation prior to the
fifth Business Day after receiving such written update, then the Termination
Date shall not be extended.

8.3.          Termination by the Company.  This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval by stockholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of the Company if
there has been a breach of any representation, warranty, covenant or agreement
made by Parent or Merger Sub in this Agreement, or any such representation and
warranty shall have become untrue after the date of this Agreement, such that
Section 7.3(a) or 7.3(b), as applicable, would not be satisfied and such breach
or condition is not curable or, if curable, is not cured within 30 days after
written notice thereof is given by the Company to Parent.

8.4.          Termination by Parent.  This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Board of Directors of Parent if (i) the Board of Directors of the Company
shall have withdrawn or adversely modified its approval or recommendation of
this Agreement or (ii) there has been a breach of any representation,
warranty, covenant or agreement made by the Company in this Agreement, or any
such representation and warranty shall have become untrue after the date of
this Agreement, such that Section 7.2(a) or 7.2(b), as applicable, would not be
satisfied and such breach or condition is not curable or, if curable, is not
cured within 30 days after written notice thereof is given by Parent to the
Company.

8.5.          Effect of Termination and
Abandonment.  (a) In the
event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, this Agreement (other than as set forth in
Section 9.1) shall become void and of no effect with no liability on the
part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); provided,
however, except as otherwise provided herein, no such termination shall
relieve any party hereto of any liability or damages resulting from any willful
breach of this Agreement.

(b)           If
this Agreement is terminated by Parent pursuant to Section 8.4(i) in the
case of a withdrawal or adverse notification of the Company’s Board of
Directors’ 

 

-45-

 

 

approval or recommendation of this Agreement in the
absence of an Acquisition Proposal, then the Company shall promptly, but in no
event later than two days after the date of such termination, pay Parent a
termination fee of $5,000,000 and shall promptly, but in no event later than
two days after being notified of such by Parent, pay all of the charges and
expenses, including those of the Exchange Agent, incurred by Parent or Merger
Sub in connection with this Agreement and the transactions contemplated by this
Agreement, in each case payable by wire transfer of same day funds.

(c)           In the event that an Acquisition Proposal shall have been
made to the Company or any of its Subsidiaries or any of its stockholders or
any Person shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal with respect to the Company or any
of its Subsidiaries and thereafter this Agreement is terminated by either
Parent or the Company pursuant to Section 8.2(i) or Section 8.2(ii)
or this Agreement is terminated by Parent pursuant to Section 8.4(i)
(other than under the circumstances contemplated in Section 8.5(b)) or
Section 8.4(ii) and thereafter the Company enters into any agreement to
consummate a transaction or series of transactions which, had such agreement
been proposed or negotiated during the term of this Agreement, would have
constituted an Acquisition Proposal (each, a “Company Acquisition Agreement”), which is publicly
announced within twelve (12) months after the termination of this Agreement and
is consummated within eighteen (18) months after the termination of this Agreement
(whether or not any Company Acquisition Agreement related to an Acquisition
Proposal which had been made or announced at the time of the termination of
this Agreement), then the Company shall, contemporaneously with such
consummation, pay Parent a termination fee of $45,000,000 and shall promptly,
but in no event later than two days after being notified of such by Parent, pay
all of the charges and expenses, including those of the Exchange Agent,
incurred by Parent or Merger Sub in connection with this Agreement and the
transactions contemplated by this Agreement, in each case payable by wire
transfer of same day funds.

(d)           The Company acknowledges that the agreements contained in
Sections 8.5(b) and (c) are an integral part of the transactions contemplated
by this Agreement, and that, without these agreements, Parent and Merger Sub
would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to Sections 8.5(b) or (c), and, in
order to obtain such payment, Parent or Merger Sub commences a suit which
results in a judgment against the Company for the fee set forth in Section
8.5(b) or (c), the Company shall pay to Parent or Merger Sub its costs and
expenses (including attorneys’ fees) in connection with such suit, together
with interest on the amount of the fee at the prime rate of Citibank, N.A. in
effect on the date such payment was required to be made.

 

-46-

 

ARTICLE IX

Miscellaneous and General

9.1.          Survival. 
This Article IX and the agreements of the Company, Parent and Merger Sub
contained in Sections 6.6 (Taxation), 6.9 (Nasdaq National Market Listing
and De-listing), 6.11 (Benefits), 6.12 (Expenses), 6.13 (Indemnification;
Directors’ and Officers’ Insurance) and 6.17 (Rule 144 Reporting) shall survive
the consummation of the Merger.  This
Article IX, the agreements of the Company, Parent and Merger Sub contained in
Section 6.12 (Expenses), Section 8.5 (Effect of Termination and
Abandonment) and the Confidentiality Agreement shall survive the termination of
this Agreement.  All other
representations, warranties, covenants and agreements in this Agreement shall
not survive the consummation of the Merger or the termination of this
Agreement.

9.2.          Modification or Amendment.  Subject to the provisions of the applicable
law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.

9.3.          Waiver of Conditions.  The conditions to each of the parties’
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law.

9.4.          Counterparts. 
This Agreement may be executed in any number of counterparts, each such
counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.

9.5.          GOVERNING
LAW AND VENUE; WAIVER OF JURY TRIAL. 
(a)  THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL
RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH
THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.  The
parties hereby irrevocably submit to the jurisdiction of the courts of the
State of Delaware and the Federal courts of the United States of America
located in the State of Delaware solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred
to in this Agreement, and in respect of the transactions contemplated hereby,
and hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such
document, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement or any such
document may not be enforced in or by such courts, and the parties hereto
irrevocably agree that all claims with respect to such action or proceeding
shall be heard and determined in such a Delaware State or Federal court.  The parties hereby consent to and grant any
such court 

 

-47-

 

 

jurisdiction over the person of such parties and over
the subject matter of such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 9.6 or in such other manner as may be permitted by law shall be
valid and sufficient service thereof.

(b)           EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT,
OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 9.5.

9.6.          Notices.  Any
notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by facsimile:

if to Parent or
Merger Sub

eBay Inc.

2145 Hamilton Avenue

San Jose, California  95125

Attention:  General Counsel

Fax:  (408) 376-7514

with a copy, which
shall not constitute

notice, to:

Alison Ressler,
Esq.,

Sullivan & Cromwell,

1888 Century Park East

Los Angeles, California 90067

Fax:  (310) 712-8800

 

-48-

 

if to the Company

PayPal, Inc.

303 Bryant Street

Mountain View, California  94041

Attention:  General Counsel

Fax:  (650) 864-8225

with a copy, which
shall not constitute

notice, to:

Richard Porter,
P.C.

Kirkland & Ellis

200 East Randolph Drive

Chicago, Illinois 60601

Fax:  (312) 861-2200

or to such other persons or addresses as may be
designated in writing by the party to receive such notice as provided above.

9.7.          Entire Agreement; No Other
Representations.  This Agreement
(including any exhibits hereto), the Company Disclosure Letter, the Parent
Disclosure Letter, two letters from the Company to Parent dated the date hereof
and the most recent Confidentiality Agreement between Parent and the Company
(the “Confidentiality Agreement”)
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties both written and oral, among the
parties, with respect to the subject matter hereof.

9.8.          No Third Party Beneficiaries.  Except as provided in Section 6.13
(Indemnification; Directors’ and Officers’ Insurance), this Agreement is not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.

9.9.          Obligations of Parent and of the
Company.  Whenever this
Agreement requires a Subsidiary of Parent to take any action, such requirement
shall be deemed to include an undertaking on the part of Parent to cause such
Subsidiary to take such action. 
Whenever this Agreement requires a Subsidiary of the Company to take any
action, such requirement shall be deemed to include an undertaking on the part
of the Company to cause such Subsidiary to take such action and, after the
Effective Time, on the part of the Surviving Corporation to cause such
Subsidiary to take such action.

9.10.        Definitions. 
Each of the terms set forth in Annex A is defined in the Section of
this Agreement set forth opposite such term.

9.11.        Severability. 
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability or the other provisions hereof.  If any provision of this Agreement, or the application thereof to
any Person or any circumstance, is invalid or 

 

-49-

 

 

unenforceable, (a) a suitable and equitable provision
shall be substituted therefor in order to carry out, so far as may be valid and
enforceable, the intent and purpose of such invalid or unenforceable provision
and (b) the remainder of this Agreement and the application of such provision
to other Persons or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction.

9.12.        Interpretation.  The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.  Where a reference in this Agreement is made
to a Section or Exhibit, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. 
Whenever the words “include,” “includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without
limitation.”

9.13.        Assignment. 
This Agreement shall not be assignable by operation of law or otherwise;
provided, however, that at any time prior to the Stockholders
Meeting, Parent may designate, by written notice to the Company, another
wholly-owned direct or indirect subsidiary to be a Constituent Corporation in
lieu of Merger Sub, in which event the parties hereto shall take such actions
as are necessary to effect such assignment and all references herein to Merger
Sub shall be deemed references to such other subsidiary, except that all
representations and warranties made herein with respect to Merger Sub as of the
date of this Agreement shall be deemed representations and warranties made with
respect to such other subsidiary as of the date of such designation.

 

-50-

 

 

IN WITNESS WHEREOF, this
Agreement has been duly executed and delivered by the duly authorized officers
of the parties hereto as of the date first written above.

	
   

  	
  PAYPAL, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Peter A. Thiel

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer and President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  EBAY INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Margaret C. Whitman

  
	
   

  	
   

  	
  Title:

  	
  President, Chief Executive Officer and Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VAQUITA ACQUISITION CORP.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Michael R. Jacobson

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board and Secretary

  

 

 

 

-51-

 

 

DEFINED TERMS

 

	
  Terms

  	
  Section

  
	
   

  	
   

  
	
  2001 Equity Incentive Plan

  	
   5.1(b)

  
	
  2001 ESPP

  	
   5.1(b)

  
	
  Acquisition Proposal

  	
   6.2

  
	
  Advisers Act

  	
   5.1(j)(iii)

  
	
  Affiliates Letter

  	
   6.8

  
	
  Agreement

  	
   Preamble

  
	
  Asset Management Company

  	
   5.1(j)(iii)

  
	
  Audit Date

  	
   5.1(f)

  
	
  Bankruptcy and Equity
  Exception

  	
   5.1(c)(i)

  
	
  Benefit Plans

  	
   5.1(h)(i)

  
	
  Business Intellectual
  Property

  	
   5.1(q)

  
	
  Business Trade Secrets

  	
   5.1(q)(ix)

  
	
  By-laws

  	
   2.2

  
	
  Certificate

  	
   4.1(a)

  
	
  Charter

  	
   2.1

  
	
  Claims

  	
   6.13(a)

  
	
  Closing

  	
   1.2

  
	
  Closing Date

  	
   1.2

  
	
  Code

  	
   Recitals

  
	
  Company

  	
   Preamble

  
	
  Company Acquisition
  Agreement

  	
   8.5(c)

  
	
  Company Disclosure Letter

  	
   5.1

  
	
  Company Material Adverse
  Effect

  	
   5.1(a)

  
	
  Company Option

  	
   5.1(b)

  
	
  Company Reports

  	
   5.1(e)

  
	
  Company Requisite Vote

  	
   5.1(c)(i)

  
	
  Company Warrants

  	
   5.1(b)

  
	
  Confidentiality Agreement

  	
   9.7

  
	
  Confinity 1999 Plan

  	
   5.1(b)

  
	
  Constituent Corporations

  	
   Preamble

  
	
  Contracts

  	
   5.1(d)(iii)

  
	
  Copyrights

  	
   5.1(q)

  
	
  Costs

  	
   6.13(a)

  
	
  Current Premium

  	
   6.13(c)

  
	
  D&O Insurance

  	
   6.13(c)

  
	
  Delaware Certificate of
  Merger

  	
   1.3

  
	
  DGCL

  	
   1.1

  
	
  Effective Time

  	
   1.3

  
	
  Employees

  	
   5.1(h)(i)

  
	
  Employment Agreements

  	
   Recitals

  
	
  Environmental Laws

  	
   5.1(l)

  

 

 

A-1

 

 

	
  ERISA

  	
   5.1(h)(i)

  
	
  ERISA Affiliate

  	
   5.1(h)(iii)

  
	
  ERISA Plans

  	
   5.1(h)(ii)

  
	
  Excess Shares

  	
   4.2(d)

  
	
  Exchange
  Act

  	
   5.1(c)(ii)

  
	
  Exchange Agent

  	
   4.2(a)

  
	
  Exchange Fund

  	
   4.2(a)

  
	
  Exchange Ratio

  	
   4.1(a)

  
	
  Excluded Share

  	
   4.1(a)

  
	
  Excluded Shares

  	
   4.1(a)

  
	
  Extending Party

  	
   8.2

  
	
  GAAP

  	
   5.1(e)

  
	
  Governmental Entity

  	
   5.1(d)(i)

  
	
  HSR Act

  	
   5.1(d)(i)

  
	
  Indemnified Parties

  	
   6.13(a)

  
	
  Intellectual Property

  	
   5.1(q)

  
	
  Intellectual Property
  Contracts

  	
   5.1(q)

  
	
  IRS

  	
   5.1(h)(ii)

  
	
  IT Assets

  	
   5.1(q)

  
	
  Laws

  	
   5.1(d)(ii)

  
	
  Licensed Intellectual
  Property

  	
   5.1(q)

  
	
  Material Contracts

  	
   5.1(d)(ii)

  
	
  Merger

  	
   Recitals

  
	
  Merger Sub

  	
   Preamble

  
	
  Non-Extending Party

  	
   8.2

  
	
  Order

  	
   7.1(c)

  
	
  Owned Intellectual
  Property

  	
   5.1(q)

  
	
  Parent

  	
   Preamble

  
	
  Parent Audit Date

  	
   5.2(f)

  
	
  Parent Business
  Intellectual Property

  	
   5.2(m)

  
	
  Parent Common Stock

  	
   4.1(a)

  
	
  Parent Companies

  	
   4.1(a)

  
	
  Parent Disclosure Letter

  	
   5.2

  
	
  Parent Intellectual
  Property Contracts

  	
   5.2(m)

  
	
  Parent Material Adverse
  Effect

  	
   5.2(b)

  
	
  Parent Owned Intellectual
  Property

  	
   5.2(m)

  
	
  Parent Preferred Shares

  	
   5.2(c)

  
	
  Parent Reports

  	
   5.2(f)

  
	
  Patents

  	
   5.1(q)

  
	
  Pension Plan

  	
   5.1(h)(ii)

  
	
  Person

  	
   4.2(b)

  
	
  Preferred Shares

  	
   5.1(b)

  
	
  Prospectus/Proxy Statement

  	
   6.3

  
	
  Registered

  	
   5.1(q)

  
	
  Regulatory Laws

  	
   5.1(j)(i)

  

 

 

A-2

 

 

	
  Representatives

  	
   6.7

  
	
  S-4 Registration Statement

  	
   6.3

  
	
  SEC

  	
   5.1(e)

  
	
  Securities Act

  	
   5.1(d)(i)

  
	
  Share

  	
   4.1(a)

  
	
  Shares

  	
   4.1(a)

  
	
  Significant Subsidiary

  	
   5.2(b)

  
	
  Stockholders Agreements

  	
   Recitals

  
	
  Stockholders Meeting

  	
   6.4

  
	
  Stock Plans

  	
   5.1(b)

  
	
  Subsidiary

  	
   5.1(a)

  
	
  Suit

  	
   5.1(q)(iii)

  
	
  Superior Proposal

  	
   6.2

  
	
  Surviving Corporation

  	
   1.1

  
	
  Takeover Statute

  	
   5.1(k)

  
	
  Tax

  	
   5.1(n)

  
	
  Taxable

  	
   5.1(n)

  
	
  Taxes

  	
   5.1(n)

  
	
  Tax Return

  	
   5.1(n)

  
	
  Termination Date

  	
   8.2

  
	
  Trade Secrets

  	
   5.1(q)

  
	
  Trademarks

  	
   5.1(q)

  
	
  Voting Debt

  	
   5.1(b)

  
	
  X.com 1999 Stock Plan

  	
   5.1(b)

  

 

 

 

A-3

 

 

 

 

 

 

 

 

 

 

 

S-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00041-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00041-of-00352.parquet"}]]