Document:

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                                                                    EXHIBIT 10.8

                                 PRINTCAFE, INC.

                   SERIES C PREFERRED STOCK PURCHASE AGREEMENT

                                FEBRUARY 15, 2000

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                                TABLE OF CONTENTS

<TABLE>
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<S>                                                                                      <C>
1.    Purchase and Sale of Preferred Stock..................................................1
      1.1    Sale and Issuance of Series C Preferred Stock..................................1
      1.2    Closing; Delivery..............................................................1

2.    Representations and Warranties of the Company.........................................1
      2.1    Organization, Good Standing and Qualification..................................2
      2.2    Capitalization.................................................................2
      2.3    Rights of Registration and Voting Rights.......................................3
      2.4    Subsidiaries; Joint Ventures...................................................3
      2.5    Authorization..................................................................3
      2.6    Valid Issuance of Securities...................................................4
      2.7    Governmental Consents..........................................................4
      2.8    Litigation.....................................................................4
      2.9    Intellectual Property..........................................................5
      2.10   Confidential Information and Invention Assignment Agreements...................5
      2.11   Compliance with Other Instruments..............................................5
      2.12   Agreements; Action.............................................................6
      2.13   No Conflict of Interest........................................................6
      2.14   Title to Property and Assets...................................................7
      2.15   Financial Statements...........................................................7
      2.16   Changes........................................................................7
      2.17   Distributions..................................................................9
      2.18   Tax Returns and Payments.......................................................9
      2.19   Insurance......................................................................9
      2.20   Employee Benefit Plans.........................................................9
      2.21   Labor Agreements and Actions...................................................9
      2.22   Compliance with Environmental Requirements.....................................9
      2.23   Permits.......................................................................10
      2.24   Private Offering..............................................................10
      2.25   Brokers and Finders...........................................................10
      2.26   Certificate of Incorporation..................................................10
      2.27   Bylaws........................................................................10
      2.28   Disclosure....................................................................10
      2.29   Compliance with Other Laws....................................................11
      2.30   Year 2000 Compliance..........................................................11

3.    Interpretation.......................................................................11

4.    Representations and Warranties of the Purchasers.....................................11
      4.1    Authorization.................................................................12
      4.2    Purchase Entirely for Own Account.............................................12
      4.3    Disclosure of Information.....................................................12
</TABLE>

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                                TABLE OF CONTENTS

<TABLE>
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      4.4    Restricted Securities.........................................................12
      4.5    No Public Market..............................................................13
      4.6    Legends.......................................................................13
      4.7    Accredited Investor...........................................................13
      4.8    Foreign Investors.............................................................13

5.    Covenants of the Company.............................................................13
      5.1    Compliance....................................................................13
      5.2    Performance...................................................................13
      5.3    Books and Records.............................................................14
      5.4    Renewals and Good Standing....................................................14
      5.5    Principal Business............................................................14
      5.6    Proprietary Information and Assignment Agreement..............................14
      5.7    Stock Options.................................................................14
      5.8    Securities Filings............................................................14
      5.9    Investment of Funds...........................................................14
      5.10   Directors' and Officers' Insurance............................................15
      5.11   Survival of Company's Covenants...............................................15

6.    Conditions of the Purchasers' Obligations at the Closing.............................15
      6.1    Representations and Warranties................................................15
      6.2    Performance...................................................................15
      6.3    Compliance Certificate........................................................15
      6.4    Qualifications................................................................15
      6.5    Written Consents..............................................................15
      6.6    Stock Certificates............................................................15
      6.7    Restated Certificate..........................................................16
      6.8    Restated Investors' Rights Agreement..........................................16
      6.9    Restated Co-Sale Agreement....................................................16
      6.10   Restated Voting Agreement.....................................................16
      6.11   Confidential Information and Invention Assignment Agreement...................16
      6.12   No Material Adverse Change....................................................16
      6.13   Due Diligence.................................................................16
      6.14   Company Legal Opinions........................................................16
      6.15   Closing of Creo Transaction...................................................16
      6.16   Closing of PSI Transaction....................................................17
      6.17   No Litigation.................................................................17
      6.18   Proceedings and Documents.....................................................17
      6.20   Closing Documents.............................................................17
      6.21   Payoff of Silicon Valley Bank Loan............................................18
      6.22   General.......................................................................18

7.    Conditions of the Company's Obligations at the Closing...............................18
</TABLE>

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                                TABLE OF CONTENTS

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      7.1    Representations and Warranties................................................18
      7.2    Performance...................................................................18
      7.3    Qualifications................................................................18

8.    Miscellaneous........................................................................18
      8.1    Survival of Warranties........................................................18
      8.2    Entire Agreement..............................................................18
      8.3    Transfer; Successors and Assigns..............................................18
      8.4    Governing Law.................................................................19
      8.5    Counterparts..................................................................19
      8.6    Titles and Subtitles..........................................................19
      8.7    Notices.......................................................................19
      8.8    Finder's Fee..................................................................19
      8.9    Attorney's Fees...............................................................19
      8.10   Amendments and Waivers of Agreement...........................................19
      8.11   Severability..................................................................20
      8.12   Delays or Omissions...........................................................20
      8.13   Confidentiality...............................................................20
      8.14   Exculpation Among Purchasers..................................................20
      8.15   Indemnification...............................................................21
      8.16   Press Release.................................................................21
      8.17   Use of Proceeds...............................................................21
</TABLE>

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                                 PRINTCAFE, INC.

                   SERIES C PREFERRED STOCK PURCHASE AGREEMENT

        This Series C Preferred Stock Purchase Agreement (this "Agreement") is
made as of February 15, 2000 by and among printCafe, Inc., a Delaware
corporation (the "Company"), and the investors listed on Exhibit A attached
hereto (each a "Purchaser" and together the "Purchasers").

        In consideration of the mutual promises, covenants and conditions
hereinafter set forth, the parties hereto hereby agree as follows:

        1. PURCHASE AND SALE OF PREFERRED STOCK.

                1.1 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.

                        (a) The Company shall adopt and file with the Secretary
of State of the State of Delaware on or before the Closing (as defined in
Section 1.2(a) below) the Third Amended and Restated Certificate of
Incorporation in the form attached hereto as Exhibit B (the "Restated
Certificate").

                        (b) Subject to the terms and conditions of this
Agreement, each Purchaser agrees to purchase at the Closing, and the Company
agrees to sell and issue to each Purchaser at the Closing, that number of shares
of the Company's Series C Preferred Stock and/or Series C-1 Preferred Stock,
each with $0.0001 par value per share (collectively, "Series C Preferred
Stock"), set forth opposite each such Purchaser's name on Exhibit A attached
hereto at a purchase price of $5.80 per share. The shares of Series C Preferred
Stock issued to the Purchasers pursuant to this Agreement shall be hereinafter
referred to as the "Stock."

                1.2 CLOSING; DELIVERY.

                        (a) The purchase and sale of the Stock shall take place
at the executive offices of the Company, at 10:00 a.m., on February 15, 2000, or
at such other time and place as the Company and the Purchasers mutually agree
upon, orally or in writing (which time and place are designated as the
"Closing").

                        (b) At the Closing, the Company shall deliver to each
Purchaser a certificate representing the Stock being purchased by such Purchaser
against payment of the purchase price therefor by check payable to the Company
or by wire transfer to the Company's bank account.

        2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser that (acknowledging that each
Purchaser is relying on the representations and warranties set forth in this
Section 2 in connection with the purchase of Stock by such Purchaser), except as
set forth on the Schedule of Exceptions attached hereto as Exhibit C:

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                2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business. The Company is duly qualified as a foreign
corporation or is otherwise duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify would, either
individually or in the aggregate, have a material adverse effect on its business
or properties.

                2.2 CAPITALIZATION. Immediately prior to the Closing, the
authorized capital of the Company shall consist of:

                        (a) 46,165,082 shares of Preferred Stock, of which (i)
2,500,000 shares have been designated Series A Preferred Stock, 2,455,798 of
which will be issued and outstanding immediately prior to the Closing, (ii)
10,250,000 shares have been designated Series A-1 Preferred Stock, 9,725,096 of
which will be issued and outstanding immediately prior to the Closing, (iii)
31,250,000 have been designated Series B Preferred Stock, 31,186,312 of which
will be issued and outstanding immediately prior to the Closing, (iv) 2,015,082
have been designated Series C Preferred Stock, none which will be issued and
outstanding immediately prior to the Closing, and (v) 150,000 have been
designated Series C-1 Preferred Stock, none which will be issued and outstanding
immediately prior to the Closing. The rights, privileges and preferences of the
Preferred Stock are as stated in the Restated Certificate. All of the
outstanding shares of Preferred Stock have been duly authorized, fully paid and
nonassessable and issued in compliance with all applicable federal and state
securities laws.

                        (b) 150,000,000 shares of Common Stock, of which (i)
118,750,000 have been designated Class A Common Stock, 5,886,656 shares of which
are issued and outstanding immediately prior to the Closing, and (ii) 31,250,000
have been designated Class B Common Stock, no shares of which are issued and
outstanding immediately prior to the Closing. All of the outstanding shares of
Common Stock have been duly authorized, fully paid and are nonassessable and
issued in compliance with all applicable federal and state securities laws.

                        (c) The Company has reserved 382,215 shares of Common
Stock and 516,976 shares of Series A-1 Preferred Stock (collectively, "Option
Stock") for issuance to officers, directors, employees and consultants of the
Company pursuant to its 1999 Revised Stock Plan duly adopted by the Board of
Directors and approved by the Company's stockholders (the "1999 Revised Stock
Plan"), and the Company has reserved 2,500,000 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company
pursuant to its 2000 Incentive Stock Plan duly adopted by the Board of Directors
and approved by the Company's stockholders (the "2000 Incentive Stock Plan" and,
together with the 1999 Revised Stock Plan, the "Stock Plans"). Of such reserved
shares of Option Stock under the 1999 Revised Stock Plan, no shares have been
issued pursuant to restricted stock purchase agreements, options to purchase
382,215 shares of Common Stock and 516,976 shares of Series A-1 Preferred Stock
have been granted and are currently outstanding, and no shares of Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Common Stock
under the 2000 Incentive Stock

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Plan, no shares have been issued pursuant to restricted stock purchase
agreements, options to purchase 175,000 shares of Common Stock have been granted
and are currently outstanding, and 2,325,000 shares of Common Stock remain
available for issuance to officers, directors, employees and consultants
pursuant to the 2000 Incentive Stock Plan.

                        (d) Except for outstanding options issued pursuant to
the Stock Plans, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal or similar rights)
or agreements, orally or in writing, for the purchase or acquisition from the
Company of any shares of its capital STOCK.

                2.3 RIGHTS OF REGISTRATION AND VOTING RIGHTS. Except as
contemplated in the First Amended and Restated Investors' Rights Agreement, in
the form attached hereto as Exhibit D (the "Restated Investors' Rights
Agreement"), the Company has not granted or agreed to grant any registration
rights, including piggyback registration rights, to any person or entity. To the
Company's knowledge, except as contemplated in the First Amended and Restated
Voting Agreement, in the form attached hereto as Exhibit E (the "Restated Voting
Agreement"), no stockholder of the Company has entered into any agreements with
respect to the voting of capital stock of the Company. Except as contemplated by
the Restated Certificate, the Restated Voting Agreement and the First Amended
and Restated Right of First Refusal and Co-Sale Agreement, in the form attached
hereto as Exhibit F (the "Restated Co-Sale Agreement"), there are no
stockholders agreements, pledge agreements, buy-sell arrangements, rights of
first refusal or proxies related to any securities of the Company to which the
Company is subject or a party or to which, to the Company's knowledge, any
stockholder, officer, director or affiliate of the Company is a party or
subject.

                2.4 SUBSIDIARIES; JOINT VENTURES. The Company does not currently
own or control, directly or indirectly, any interest in any other corporation,
association, or other business entity other than the subsidiaries set forth on
Schedule 2.4 of the Schedule of Exceptions (the "Subsidiaries"). The Company is
not a participant in any joint venture, partnership or similar arrangement.

                2.5 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the Restated Investors'
Rights Agreement, the Restated Voting Agreement and the Restated Co-Sale
Agreement (collectively, the "Transaction Documents"), the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance and delivery of the Stock and the Common Stock issuable upon conversion
of the Stock (together, the "Securities") has been taken or will be taken prior
to the Closing, and the Transaction Documents, when executed and delivered by
the Company, shall constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, or (ii) to the extent the indemnification provisions contained in the
Restated Investors' Rights Agreement may be limited by applicable federal or
state

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securities laws. All corporate action on the part of the Company or its
predecessor, its officers, directors, stockholders and subsidiaries necessary
for the authorization, execution and delivery for all past material corporate
actions was obtained.

                2.6 VALID ISSUANCE OF SECURITIES. The Stock that is being issued
to the Purchasers hereunder, when issued, sold and delivered in accordance with
the terms hereof for the consideration expressed herein, will be duly and
validly issued, fully paid and nonassessable and free and clear of all
preemptive rights, rights of first refusal, liens, charges, restrictions, claims
and any other encumbrances imposed by or through the Company other than
restrictions on transfer under this Agreement, the Restated Investors' Rights
Agreement, the Restated Co-Sale Agreement and applicable state and federal
securities laws of the United States and, where applicable, provincial
securities laws of Canada. Based in part upon the representations of the
Purchasers in this Agreement and subject to the provisions of Section 2.7 below,
the Stock will be issued in compliance with all applicable federal and state
securities laws. The Common Stock issuable upon conversion of the Stock has been
duly and validly reserved for issuance and, upon issuance in accordance with the
terms of the Restated Certificate, shall be duly and validly issued, fully paid
and nonassessable and free and clear of all preemptive rights, rights of first
refusal, liens, charges, restrictions, claims and any other encumbrances imposed
by or through the Company other than restrictions on transfer under this
Agreement, the Restated Investors' Rights Agreement, the Restated Co-Sale
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws of the United
States and, where applicable, provincial securities laws of Canada.

                2.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority of the United
States, or, where applicable, any federal, provincial or local government
authority of Canada, on the part of the Company is required in connection with
the consummation of the transactions contemplated by this Agreement, except for
filings pursuant to applicable state and, where applicable, provincial
securities laws and Regulation D of the Securities Act of 1933, as amended (the
"Securities Act"). The offer, sale and issuance of the Stock, in accordance with
the terms hereof for the consideration expressed herein, are exempt from the
registration requirements of Section 5 of the Securities Act and from the
qualification requirements of applicable state securities laws.

                2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company or any of its subsidiaries, or any basis therefor known to
the Company, that questions the validity of the Transaction Documents or the
right of the Company to enter into them, or to consummate the transactions
contemplated hereby or thereby, or that might result, either individually or in
the aggregate, in any material adverse change in the financial condition,
assets, liabilities, operations or financial performance of the Company,
financially or otherwise, or any change in the current equity ownership of the
Company. Neither the Company nor any of its subsidiaries is a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or any of its subsidiaries currently
pending or which the Company or any of its

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subsidiaries intends to initiate. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or technologies
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employees.

                2.9 INTELLECTUAL PROPERTY. To the Company's knowledge, (i) the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes (collectively, "Intellectual Property")
necessary for its business without any conflict with, or infringement of, the
rights of others; and (ii) no third party is infringing or violating any of the
Company's Intellectual Property. The Company has not received any written
communications alleging that the Company has violated or, by conducting its
business, would violate any of the Intellectual Property of any other person or
entity. There are no outstanding options, licenses or agreements of any kind
related to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the Intellectual Property of
any other forms.

                2.10 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENTS. Each director, officer, independent contractor, consultant and
employee of the Company (collectively, "Service Providers") have entered into an
agreement with the Company, substantially in the form or forms delivered to the
Purchasers, regarding confidentiality, non-solicitation of employees and
customers and assignment of all Intellectual Property, technical information and
other information developed and/or worked on by such Service Provider while
employed or engaged with the Company (each, a "Confidentiality and Invention
Assignment Agreement"). To the Company's knowledge, (i) no past or present
Service Provider is in violation of any term of any Confidentiality and
Invention Assignment Agreement between the Company and such Service Provider;
and (ii) it is not nor will it be necessary to use any inventions of any of its
Service Providers (or persons it currently intends to hire) made prior to their
employment or engagement by the Company. Each Service Provider hired or engaged
by the Company after the date hereof shall, prior to their employment or
engagement with the Company, enter into a Confidentiality and Invention
Assignment Agreement with the Company.

                2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation in any material respect or default of any provisions of its Restated
Certificate or Bylaws or of any provision, instrument, agreement, commitment,
arrangement, license, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company, which violation
or default is reasonably likely to result in a material adverse effect on the
financial condition, assets, liabilities, operations or financial performance of
the Company. No event has occurred which with the passage of time or the giving
of notice, or both, would constitute a material breach of or default under any
of the foregoing, which material violation or breach or default is reasonably
likely to result in a material adverse effect on the financial condition,
assets, liabilities, operations or financial performance of the Company. The
execution, delivery and performance of the Transaction Documents and the
consummation of the transactions contemplated thereby will not result in any
such violation or breach or be in conflict with or

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constitute, with or without the passage of time and giving of notice, either a
default under any such provision, agreement, commitment, arrangement, license,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company. Neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will, to the Company's knowledge, conflict
in any material respect with or result in a material breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of the Company's employees is now
obligated.

                2.12 AGREEMENTS; ACTION.

                        (a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.

                        (b) Except as explicitly contemplated by the Transaction
Documents, there are no agreements, understandings, instruments, contracts or
proposed transactions to which the Company or any of its subsidiaries is a party
or by which it is bound that involve (i) obligations (contingent or otherwise)
of, or payments to, the Company or any of its subsidiaries in excess of $50,000,
(ii) the license of any patent, copyright, trade secret or other proprietary
right to or from the Company or any of its subsidiaries, or (iii) the grant of
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person or affect the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products.

                        (c) Neither the Company nor any of its subsidiaries has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000 or in excess of $100,000 in the aggregate, (iii) made any
loans or advances to any person, other than ordinary advances to the Company's
employees for business expenses, or (iv) sold, exchanged or otherwise disposed
of any of its assets or rights, other than the sale of its inventory in the
ordinary course of business.

                        (d) Except as disclosed in Section 2.12 of the Schedule
of Exceptions or as set out in the Transaction Documents, the Company has not
entered into any binding letters of intent with any corporation, partnership,
association, other business entity or any individual regarding (i) the
consolidation or merger of the Company with or into any such corporation or
other business entity, (ii) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or a transaction or series of
transactions in which more than 50% of the voting power of the company is
disposed of, or (iii) any other form of acquisition, liquidation, dissolution or
winding-up of the Company.

                2.13 NO CONFLICT OF INTEREST. The Company is not indebted,
directly or indirectly, to any of its officers or directors, in any amount
whatsoever, other than in connection with expenses or advances of expenses
incurred in the ordinary course of business or relocation expenses of employees.
To the Company's knowledge, none of the Company's officers or

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directors are, directly or indirectly, indebted to the Company (other than in
connection with purchases of the Company's stock) or have any direct or indirect
ownership interest in any firm or corporation with which the Company is
affiliated or with which the Company has a business relationship, or any firm or
corporation which competes with the Company (other than ownership of stock in,
but not exceeding two percent (2%) of the outstanding capital stock of, any
publicly traded company that competes with the Company). To the Company's
knowledge, none of the Company's officers or directors are, directly or
indirectly, interested in any material contract with the Company. The Company is
not a guarantor of any indebtedness of any other person, firm or corporation.

                2.14 TITLE TO PROPERTY AND ASSETS. The Company has good and
valid title to all of its properties and assets, both real and personal, and has
good title to all its leasehold interests, in each case free and clear of all
mortgages, liens, pledges, loans, security interests, conditional sales
agreements, encumbrances or charges, except for Permitted Liens (as defined
below). The Company owns or leases all properties and assets reasonably
necessary to the operation of its business as now conducted. With respect to the
property and assets it leases, the Company is in compliance with such leases
and, to the Company's knowledge, holds a valid leasehold interest free of any
liens, claims or encumbrances, except for Permitted Liens. For purposes of this
Agreement, "Permitted Liens" shall mean any (a) mechanics', carriers', workers'
and other similar liens arising in the ordinary course of business which are not
delinquent and which in the aggregate are not material in amount, and do not
interfere with the present use of the assets of the Company to which they apply;
(b) liens for current taxes and assessments not yet due and payable; (c) liens
and encumbrances that have arisen in the ordinary course of business and that do
not (in any case or in the aggregate) materially detract from the value of the
assets subject thereto or materially impair the operations of the Company; and
(d) with respect to any asset of the Company which consists of a leasehold or
other possessory interest in real property, all encumbrances, covenants,
imperfections in title, easements, restrictions and other title matters (whether
or not the same are recorded) not known to the Company to which the underlying
fee estate in such real property is subject which were not created by or
incurred by the Company.

                2.15. FINANCIAL STATEMENTS. Attached hereto as Exhibit G are
the unaudited balance sheet of the Company as of September 30, 1999, together
with an unaudited statement of income and expenses and statement of cash flows
for the nine month period ended September 30, 1999 (collectively, the "Financial
Statements"). The Financial Statements are complete and in accordance with the
books and records of the Company and fairly present the financial position of
the Company on the dates thereof. The Financial Statements fairly set out and
describe the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject to the lack of footnote
disclosures and normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to September 30, 1999, (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, and (iii) performance obligations of the Company under the
Transaction Documents.

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                2.16 CHANGES. Since September 30, 1999 there has not been:

                        (a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;

                        (b) any damage, destruction, loss or other occurrence or
development materially and adversely affecting the business, properties or
financial condition of the Company;

                        (c) any waiver or compromise by the Company of a
valuable right or any material debt owed to it;

                        (d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, business, properties
or financial condition or operating results of the Company;

                        (e) any material change or amendment to a material
contract or agreement by which the Company or any of its assets or properties is
bound or subject;

                        (f) any material change or amendment in any compensation
arrangement or agreement with any employee, officer, director or stockholder;

                        (g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;

                        (h) any resignation or termination of employment of any
officer or key employee of the Company; and the Company, is not aware of any
impending resignation or termination of employment of any such officer or key
employee;

                        (i) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect to any of its
material properties or assets, except for Permitted Liens;

                        (j) any loans or guarantees made by the Company to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;

                        (k) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase, or other acquisition of any of such stock by the
Company;

                        (l) to the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, properties or financial condition of the Company; or

                                       8
<PAGE>   13

                        (m) any arrangement or commitment by the Company to do
any of the things described in this Section 2.16.

                2.17 DISTRIBUTIONS. There has been no declaration or payment by
the Company of any dividend, nor any distribution by the Company of any assets
of any kind, to any of its stockholders.

                2.18 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns and reports as required by applicable law and such tax returns and
reports are true and correct in all material respects. The Company has paid all
taxes, fees, assessments and other governmental charges upon the Company, or
upon any of its properties, income, or franchises, shown in such returns and on
assessments received by the Company to be due as of the date hereof and no such
taxes or assessments are being contested.

                2.19 INSURANCE. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and has such other insurance policies and
coverages as are customary in the Company's industry.

                2.20 EMPLOYEE BENEFIT PLANS. The Company has previously provided
to the Purchasers or Purchasers' counsel copies of all currently effective
employment contracts, deferred compensation arrangements, bonus plans, incentive
plans, profit sharing plans, retirement agreements or other employee
compensation agreements, and disclosed the existence of such plans and
agreements in Section 2.20 of the Schedule of Exceptions. The Company does not
have any Employee Benefit Plan as defined in the Employee Retirement Income
Security Act of 1974, as amended.

                2.21 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the knowledge of
the Company, has sought to represent any of the employees, representatives or
agents of the Company. There is no strike or other labor dispute involving the
Company pending, or to the knowledge of the Company threatened, which could have
a material adverse effect on the financial condition, assets, liabilities,
operations or financial performance of the Company, nor is the Company aware of
any labor organization activity involving its employees. The employment of each
officer and employee of the Company is terminable at the will of the Company.
The services of each consultant and independent contractor is terminable by the
Company upon not more than thirty (30) days prior written notice. To its
knowledge, the Company has complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment.

                2.22 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. To the
Company's knowledge, it has obtained all material permits, licenses and other
authorizations required under federal, state and local laws relating to
pollution or protection of the environment. The Company has not violated any
applicable Environmental Law, the violation of which is reasonably likely to
result in a material adverse change in the financial condition, assets,
liabilities, operations or

                                       9
<PAGE>   14

financial performance of the Company. To the knowledge of the Company, there are
no present requirements of any applicable Environmental Law which is due to be
imposed upon it which will materially increase its cost of complying with the
Environmental Laws. All past on-site generation, treatment, storage and disposal
of Waste, including Hazardous Waste, by the Company and, to its knowledge, by
its predecessors have been done in compliance with the currently applicable
Environmental Laws, and all past off-site treatment, storage and disposal of
Waste, including Hazardous Waste, generated by the Company and, to its
knowledge, by its predecessors have been done in compliance with the currently
applicable Environmental Laws. As used in this Agreement, the terms (i)
"Environmental Laws" include, but are not limited to, any federal, state, local
or foreign law, statute, charter or ordinance, and any rule, regulation, binding
interpretation, binding policy, permit, order, court order or consent decree
issued pursuant to any of the foregoing, which pertains to, governs or otherwise
regulates any of the following activities, including, without limitation, (a)
the emission, discharge, release or spilling of any substance into the air,
surface water, groundwater, soil or substrata; (b) the manufacturing,
processing, sale, generation, treatment, storage, disposal labeling or other
management of any Waste, Hazardous Substance or Hazardous Waste, and (ii)
"Waste," "Hazardous Substance," and "Hazardous Waste" include any substance
defined as such by any applicable Environmental Law.

                2.23 PERMITS. The Company and each of its subsidiaries has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business, the lack of which could materially and adversely affect
the business, properties or financial condition of the Company and, to its
knowledge, it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted. The Company is not
in default in any material respect under any of such franchises, permits,
licenses or other similar authority.

                2.24 PRIVATE OFFERING. Neither the Company nor anyone acting on
its behalf has offered any of the Stock or similar securities for issuance or
sale to, or solicited any offer to acquire any of the same from, anyone so as to
make the issuance and sale of the Stock subject to registration requirements of
Section 5 of the Securities Act.

                2.25 BROKERS AND FINDERS. The Company has not retained any
investment banker, broker, finder or any other third party in connection with
the transactions contemplated by this Agreement, except that the Company has
retained, and shall be responsible for the fees and expenses of, McDonald
Investments to act as its agent with respect to certain placements of the Stock
offered hereby.

                2.26 CERTIFICATE OF INCORPORATION. At the time of Closing, the
Company's certificate of incorporation on file with the Secretary of the State
of Delaware shall be in the form of the Restated Certificate, and no action
shall have been taken to amend or modify such Restated Certificate.

                2.27 BYLAWS. The Bylaws of the Company are in the form attached
hereto as Exhibit H and no action has been taken to amend or modify such Bylaws.

                                       10
<PAGE>   15

                2.28 DISCLOSURE. The Company has provided the Purchasers with
all the information that the Purchasers have requested for deciding whether to
acquire the Stock. This Agreement, including all representations herein by the
Company, and any exhibits hereto and the historical and factual information
contained in the Company's Confidential Information Memorandum dated December,
1999 (the "Memorandum") or any certificate furnished or to be furnished to
Purchasers at the Closing, taken together, do not contain any untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances under which they were made. The projections set forth in the
Memorandum were prepared by the Company in good faith based upon assumptions
which the Company deemed reasonable.

                2.29 COMPLIANCE WITH OTHER LAWS. The Company has complied in all
material respects with all laws, statutes, rules, regulations and orders of,
and, to its knowledge, has secured all necessary permits and authorizations and
licenses issued by, federal, state, local and foreign agencies and authorities,
applicable to its business, properties and operations.

                2.30 YEAR 2000 COMPLIANCE. To the Company's knowledge, each item
of software and hardware that has been developed by the Company is Year 2000
Compliant (as defined below). For purposes of this Section 2.30, an item of
software or hardware shall be deemed to be "Year 2000 Compliant" only if
operating on a stand-alone basis without reference to dates supplied by third
party software or hardware: (i) the functions, calculations, and other computing
processes of such item of software or hardware (collectively, "Processes")
perform without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000; (ii) such item of software
or hardware accepts, calculates, compares, sorts, extracts, sequences and
otherwise processes date inputs and date values, and returns and displays date
values, without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000; (iii) such item of software
or hardware stores and displays date information without interruption related to
the processing of date data representing calendar dates before, on or after
January 1, 2000; and (iv) such item of software or hardware determines leap
years without interruption related to the processing of date data representing
calendar dates before, on or after January 1, 2000, unless, in each case, such
interruption related to the processing of date data representing calendar dates
before, on or after January 1, 2000 is caused by external sources, such as in
third party operating systems, data, or other applications not supplied by the
Company, or with respect to incorrect or two-digit date information provided by
the user, third party operating systems or from any other external product,
source or interface.

        3. INTERPRETATION.

                (a) For the purposes of the representations and warranties
contained in Section 2, whenever "to the Company's knowledge" or "to its
knowledge" is used, it means to the knowledge of the officers and directors of
the Company after making such diligent inquiry as may be reasonable under the
circumstances.

                                       11
<PAGE>   16

                (b) For the purposes of the representations and warranties
contained in Section 2, all references to the "Company" shall be deemed to
include Programmed Solutions, Inc. and the Subsidiaries.

        4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company that:

                4.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into the Transaction Documents. The Transaction Documents, when
executed and delivered by the Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies, or (b) to the extent the indemnification
provisions contained in the Restated Investors' Rights Agreement may be limited
by applicable federal or state securities laws.

                4.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the Purchaser in reliance upon the Purchaser's representations to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof in
violation of the Securities Act, and that the Purchaser has no present intention
of selling, granting any participation in, or otherwise distributing the same in
violation of the Securities Act. By executing this Agreement, the Purchaser
further represents that the Purchaser does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. The Purchaser has not been formed for the specific purpose of
acquiring the Securities.

                4.3 DISCLOSURE OF INFORMATION. The Purchaser has had an
opportunity to discuss the Company's business, management, financial affairs and
the terms and conditions of the offering of the Stock with the Company's
management and has had an opportunity to review the Company's facilities. The
Purchaser understands that such discussions, as well as any other written
information delivered by the Company to the Purchaser, were intended to describe
the aspects of the Company's business which it believes to be material.

                4.4 RESTRICTED SECURITIES. The Purchaser understands that the
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such registration and
qualification requirements is available. The Purchaser acknowledges that the
Company has

                                       12
<PAGE>   17

no obligation to register or qualify the Securities for resale except as set
forth in the Restated Investors' Rights Agreement. The Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements, including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy except as specifically provided in the Restated Investors' Rights
Agreement.

                4.5 NO PUBLIC MARKET. The Purchaser understands that no public
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.

                4.6 LEGENDS. The Purchaser understands that the Securities, and
any securities issued in respect of or exchange for the Securities, may bear one
or all of the following legends:

                        (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."

                        (b) Any legend set forth in the other Transaction
Documents.

                        (c) Any legend required by the Blue Sky laws of any
state to the extent such laws are applicable to the shares represented by the
certificate so legended.

                4.7 ACCREDITED INVESTOR. The Purchaser is an accredited investor
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

                4.8 FOREIGN INVESTORS. If the Purchaser is not a United States
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities or any use of this Agreement,
including (i) the legal requirements within its jurisdiction for the purchase of
the Securities, (ii) any foreign exchange restrictions applicable to such
purchase, (iii) any governmental or other consents that may need to be obtained,
and (iv) the income tax and other tax consequences, if any, that may be relevant
to the purchase, holding, redemption, sale, or transfer of the Securities. Such
Purchaser's subscription and payment for and continued beneficial ownership of
the Securities, will not violate any applicable securities or other laws of the
Purchaser's jurisdiction.

                                       13
<PAGE>   18

        5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Purchaser that:

                5.1 COMPLIANCE. The Company shall comply with all laws, rules,
regulations and orders, the non-compliance with which could materially and
adversely affect the financial condition, assets, liabilities, operations or
financial performance of the Company or its obligations under this Agreement or
any other agreement with each Purchaser.

                5.2 PERFORMANCE. The Company shall diligently observe and
perform or cause to be observed and performed all covenants to be observed or
performed under the Transaction Documents and under any other agreement between
the Company and each Purchaser.

                5.3 BOOKS AND RECORDS. The Company shall maintain complete and
accurate records and books of account in which entries shall be made in
accordance with generally accepted accounting principles consistently applied,
reflecting all transactions of the Company and its subsidiaries, if any.

                5.4 RENEWALS AND GOOD STANDING. The Company shall (a) do all
things necessary to obtain, promptly renew and maintain in good standing from
time to time, all approvals, leases, licenses, permits and consents as are
required to own, develop and operate the business, assets or operations of the
Company and undertaking, except where the failure to obtain, renew or maintain
in good standing such approvals, leases, licenses, permits and consents is not
reasonably likely to result in a material adverse change in the Company's
financial condition, assets, liabilities, operations or financial performance
and (b) perform its obligations under this Agreement and all other agreements
between the Company and each Purchaser.

                5.5 PRINCIPAL BUSINESS. Prior to the initial public offering of
the Company's Common Stock, the Company shall not change its principal business
or engage in any other business from that which it is engaged on the date of
this Agreement without the written consent of at least two-thirds of the holders
of shares of Stock converted or convertible into Common Stock.

                5.6 PROPRIETARY INFORMATION AND ASSIGNMENT AGREEMENT. The
Company shall require all future officers, directors and employees of the
Company and each subsidiary of the Company to execute and deliver a proprietary
information and assignment agreement and shall require all future consultants
and independent contractors to the Company to execute and deliver a consulting
agreement which provides substantially similar protection from misappropriation
to the intellectual property of the Company.

                5.7 STOCK OPTIONS. All stock options granted by the Company
shall have a term of ten (10) years and shall be exercisable, over time, based
upon continued employment over a vesting period to be determined by the
Company's Board of Directors. The per share exercise price of all options
granted by the Company will be no less than the fair market value on the date of
grant as determined by the Board of Directors in good faith. Unless otherwise

                                       14
<PAGE>   19

specifically approved by the Board of Directors, options granted by the Company
will not accelerate upon a change of control of the Company or any subsidiary of
the Company.

                5.8 SECURITIES FILINGS. Within the prescribed time after the
Closing, the Company shall file all documents and take all proceedings required
to be taken by it to permit the Stock to be distributed to each Purchaser in
compliance with applicable federal and state securities laws and the applicable
securities legislation in Canada.

                5.9 INVESTMENT OF FUNDS. The Company shall not make any
investments in any securities, other than high grade commercial paper or other
form of comparable security.

                5.10 DIRECTORS' AND OFFICERS' INSURANCE. Within 45 days after
the Closing, the Company agrees to have in place Directors' and Officers'
insurance, from a reputable organization, of such type and amount as a
comparable company in its industry.

                5.11 SURVIVAL OF COMPANY'S COVENANTS. The covenants of the
Company set forth in this Section 5 will survive the completion of the
transactions contemplated by this Agreement and will continue in full force and
effect for the benefit of each Purchaser until the earlier to occur of (a) five
(5) years from the Closing, or (b) the consummation of a firm commitment
underwritten public offering by the Company of shares of its Common Stock
pursuant to a registration statement under the Securities Act, the public
offering price of which is not less than $11.60 per share (appropriately
adjusted for any stock split, dividend, combination or other recapitalization)
and which results in aggregate gross cash proceeds to the Company of at least
$30,000,000 (before underwriting discounts and commissions).

        6. CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT THE CLOSING. The
obligations of each Purchaser to the Company under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

                6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.

                6.2 PERFORMANCE. The Company shall have performed and complied
in all material respects with all covenants, agreements, obligations and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.

                6.3 COMPLIANCE CERTIFICATE. The President or CEO of the Company
shall deliver to the Purchasers at the Closing a certificate certifying that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled.

                6.4 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required to be obtained prior to the Closing in connection
with the lawful issuance and sale of the Stock pursuant to this Agreement shall
be obtained and effective as of the Closing.

                                       15
<PAGE>   20

                6.5 WRITTEN CONSENTS. The Company shall have obtained and
delivered to the Purchasers any and all written waivers, permits, consents and
approvals required to be obtained prior to the Closing in connection with the
consummation of the transactions contemplated by the Transaction Documents in a
form and content reasonably acceptable to the Purchasers.

                6.6 STOCK CERTIFICATES. The Company shall have delivered to the
Purchasers stock certificates in form and content acceptable to the Purchasers
and sufficient to transfer to and vest in each Purchaser good and valid title to
the purchased Stock free of any lien created by or through the Company.

                6.7 RESTATED CERTIFICATE. The Company shall have filed the
Restated Certificate with the Department of State of the State of Delaware on or
prior to the Closing, which shall continue to be in full force and effect as of
the Closing.

                6.8 RESTATED INVESTORS' RIGHTS AGREEMENT. The Company, each
Purchaser and Creo SRL ("Creo") shall have executed and delivered the Restated
Investors' Rights Agreement in substantially the form attached as Exhibit D.

                6.9 RESTATED CO-SALE AGREEMENT. The Company, each Purchaser, the
holders of a majority of the outstanding Founders Shares (as defined in the
Restated Co-Sale Agreement), and Creo shall have executed and delivered the
Restated Co-Sale Agreement in substantially the form attached as Exhibit F.

                6.10 RESTATED VOTING AGREEMENT. The Company, each Purchaser and
Creo shall have executed and delivered the Restated Voting Agreement in
substantially the form attached as Exhibit E.

                6.11 CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT
AGREEMENT. The Company and each of its Service Providers (other than as set
forth on Section 2.10 of the Schedule of Exceptions) shall have entered into a
Confidential Information and Invention Assignment Agreement, in substantially
the form provided to the Purchasers.

                6.12 NO MATERIAL ADVERSE CHANGE. Except as set forth on the
Schedule of Exceptions, there shall have been no material adverse change in the
Company's the financial condition, assets, liabilities, operations or financial
performance since September 30, 1999 (it being understood that none of the
following shall be deemed, in and of itself, to constitute a material adverse
change in the financial condition, assets, liabilities, operations or financial
performance of the Company since September 30, 1999: (a) a change that results
from conditions generally affecting the U.S. economy or the world economy, (b) a
change that results from conditions generally affecting the Company's industry,
(c) a change that results from the announcement or pendency of the transactions
contemplated hereby and (d) a change that results from the taking of any action
required by this Agreement).

                6.13 DUE DILIGENCE. The Purchasers shall have completed and be
satisfied with their due diligence investigation into the Company, in the
Purchasers' reasonable discretion.

                                       16
<PAGE>   21

                6.14 COMPANY LEGAL OPINIONS. Orrick, Herrington & Sutcliffe LLP,
special counsel for the Company, shall have delivered a legal opinion to the
Purchasers in the form attached hereto as Exhibit J, and Mathew D'Emilio,
counsel for the Company, shall have delivered a legal opinion to the Purchasers
in the form attached hereto as Exhibit K.

                6.15 CLOSING OF CREO TRANSACTION. The Company shall have
completed and otherwise closed the transactions contemplated by that certain
Series B Preferred Stock Purchase Agreement, dated as of February 9, 2000,
between the Company and Creo, and that certain Strategic Alliance Agreement
between the Company and Creo Products, Inc. shall have become effective in
accordance with the terms thereof.

                6.16 CLOSING OF PSI TRANSACTION. The Company shall have
completed and otherwise closed the transactions contemplated by that certain
Stock Purchase Agreement, dated as of January 13, 2000, between the Company and
PSI.

                6.17 NO LITIGATION. There shall be no action, suit or proceeding
or investigation instituted or threatened to set aside the transactions provided
for herein or to enjoin or prevent the consummation of the transactions
contemplated hereby.

                6.18 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and all
documents and instruments incident to such transactions shall be in form and
substance satisfactory to each Purchaser and its counsel and each Purchaser
shall have received all such counterpart originals or certified or other copies
of such documents as it may reasonably request.

                6.19 BOARD OF DIRECTORS. The Company shall have reconstituted
the Board of Directors of the Company in accordance with the Restated Voting
Agreement and the Company shall have entered into indemnity agreements with each
of the directors in the form attached hereto as Exhibit I.

                6.20 CLOSING DOCUMENTS. The Company shall have delivered the
following documents to each of the Purchasers:

                        (a) copies certified by the Secretary of the Company of
the resolutions duly adopted by the Company's board of directors authorizing and
approving: (i) the execution, delivery and performance of the Transaction
Documents and each of the other agreements contemplated hereby, (ii) the
Restated Certificate and the filing of the Restated Certificate with the
Secretary of the State of Delaware, (iii) the reservation for issuance upon
conversion of the Series C Preferred Stock of an aggregate number of shares of
Common Stock equal to the total number of shares initially issuable upon
conversion, (iv) the issuance and sale of the Series C Preferred Stock, and (v)
the consummation of all other transactions contemplated by the Transaction
Documents;

                        (b) copies certified by the Secretary of the Company of
the resolutions of the Company's stockholders authorizing and approving the
Restated Certificate and the filing of the Restated Certificate with the
Delaware Secretary of the State;

                                       17
<PAGE>   22

                        (c) copies certified by the Secretary of the Company of
the Restated Certificate (as filed with the Delaware Secretary of the State) and
the Company's Bylaws, each as in effect at the Closing;

                        (d) a good standing certificate with respect to the
Company from the Delaware Secretary of State; and

                        (e) such other documents relating to the transactions
contemplated by this Agreement as the Purchasers or their counsel may reasonably
request.

                6.21 PAYOFF OF SILICON VALLEY BANK LOAN. The Company shall have
paid in full all amounts due and payable under and pursuant to that certain
Assumption Agreement, dated October 31, 1999, between the Company and Silicon
Valley Bank, and shall have delivered to counsel to the Purchasers a payoff
letter or other evidence of cancellation of indebtedness related thereto.

                6.22 GENERAL.

                        (a) Each Purchasers obligations under Section 1 shall be
contingent upon the performance by each other Purchaser of its obligations under
Section 1.

                        (b) In any event the Purchasers may in their sole
discretion waive any conditions to the Closing and close. No such waiver shall
be effective unless it shall be in writing and signed by each Purchaser.

        7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING. The
obligations of the Company to each Purchaser under this Agreement are subject to
the fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

                7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser contained in Section 4 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.

                7.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed by the Purchasers on or prior to the
Closing shall have been performed or complied with in all material respects.

                7.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing.

        8. MISCELLANEOUS.

                8.1 SURVIVAL OF WARRANTIES. Unless otherwise set forth in this
Agreement, the warranties and representations of the Company contained in
Section 2 hereof shall survive

                                       18
<PAGE>   23

the execution and delivery of this Agreement and the Closing for a period of two
(2) years following the Closing.

                8.2 ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement between the Company and the Purchasers
relative to the subject matter hereof and thereof. Any previous agreement or
negotiations between the Company and the Purchasers concerning the subject
matter hereof is superseded by this Agreement and the Transaction Documents
except for any agreements relating to confidentiality.

                8.3 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

                8.4 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.

                8.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

                8.6 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

                8.7 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or five (5) days
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, addressed to the party to be notified at such party's address
as set forth on the signature page or Exhibit A hereto, or as subsequently
modified by written notice, and if to the Company, with a copy (not constituting
notice) to Orrick, Herrington & Sutcliffe LLP, 400 Capitol Mall, Suite 3000,
Sacramento, California 95814, Attention: Iain Mickle.

                8.8 FINDER'S FEE. Each party represents that it neither is nor
will be obligated for any finder's fee or commission in connection with this
transaction except as set forth on the Schedule of Exceptions. Each Purchaser
agrees to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Purchaser or any of its officers, employees, or representatives is
responsible. The Company agrees to indemnify and hold harmless each Purchaser
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against

                                       19
<PAGE>   24

such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

                8.9 ATTORNEY'S FEES. If any action at law or in equity
(including arbitration) is necessary to enforce or interpret the terms of any of
the Transaction Documents, the prevailing party shall be entitled to reasonable
attorney's fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.

                8.10 AMENDMENTS AND WAIVERS OF AGREEMENT. Any term of this
Agreement may be amended or waived only with the written consent of the Company
and at least a majority of the holders of shares of Stock converted or
convertible into the Common Stock. Any amendment or waiver effected in
accordance with this Section 8.10 shall be binding upon the Purchasers and each
transferee of the Stock (or the Common Stock issuable upon conversion thereof),
each future holder of all such securities, and the Company.

                8.11 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of
this Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of this Agreement shall be enforceable in accordance with its
terms.

                8.12 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and signed
by the party charged with such waiver and such waiver shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.

                8.13 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party, it shall at all times keep
confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other parties to which such party has been
or shall become privy by reason of this Agreement, discussions or negotiations
relating to this Agreement, the performance of its obligations hereunder or the
ownership of Stock purchased hereunder; provided, however, that the receiving
party may disclose such information (i) on a confidential basis to its
attorneys, accountants, consultants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of Stock from the such receiving
party as long as such prospective

                                       20
<PAGE>   25

purchaser agrees in writing to be bound by the provisions of this Section 8.13,
(iii) on a confidential basis to any affiliate or partner of such receiving
party and (iv) as required by judicial decree or applicable law. The provisions
of this Section 8.13 shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby.

                8.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.

                8.15 INDEMNIFICATION. The Company shall defend, indemnify and
hold the Purchasers harmless from and against any and all claims, liabilities,
damages, losses and expenses, including reasonable attorney's fees and expenses
and costs of suit, arising out of any breach of the representations and
warranties, and out of any and all breaches of covenants, warranties,
stipulations, agreements and certifications made by or on behalf of the Company,
in the Transaction Documents or in any document delivered hereunder or
thereunder.

                8.16 PRESS RELEASE. Upon the consummation of this transaction,
the Company may issue a press release identifying Mellon Ventures II, L.P.
("Mellon"), Key Principal Partners LLC ("Key") and/or BancBoston Capital
("BancBoston") as a Purchaser, subject to the prior approval by Mellon, Key
and/or BancBoston, as applicable, of such press release, which approval will not
be unreasonably withheld.

                8.17 USE OF PROCEEDS. The proceeds the Company shall receive
upon the consummation of the transactions contemplated hereby shall be solely
used for product development, working capital and other general corporate
purposes and not for investment purposes other than high grade commercial paper
or other instruments.

                            [Signature Pages Follow]

                                       21
<PAGE>   26

        The parties have executed this Series C Preferred Stock Purchase
Agreement as of the date first written above.

                                            COMPANY:

                                            PRINTCAFE, INC.

                                            By:
                                               ---------------------------------

                                            Name:
                                                 -------------------------------

                                            Title:
                                                  ------------------------------

                                            Address: 40 24th Street, 5th Floor
                                                     Pittsburgh, PA  15222
                                                     Attn: President
                                                     Fax: (412) 456-1151

                      SIGNATURE PAGE TO PURCHASE AGREEMENT

<PAGE>   27

                                            PURCHASERS:

                                            MELLON VENTURES II, L.P.
                                            By its general partner
                                            MVMA II L.P.

                                            By its general partner
                                            MVMA Inc.

                                            By:
                                               ---------------------------------
                                               Ryan Busch, Senior Associate

                                            KEY PRINCIPAL PARTNERS LLC

                                            By:
                                               ---------------------------------
                                               John Sinnenberg, President

                                            BANCBOSTON CAPITAL INC.

                                            By:
                                               ---------------------------------
                                               Jason Hurd, Vice President

                                            ORRICK, HERRINGTON & SUTCLIFFE LLP

                                            By:
                                               ---------------------------------
                                            Name:
                                            Title:

                                            MENLO VENTURES VII, L.P.
                                            By: MV MANAGEMENT VII, L.L.C.,
                                            its General Partner

                                            By:
                                               ---------------------------------
                                            Its Managing Member

                      SIGNATURE PAGE TO PURCHASE AGREEMENT

<PAGE>   28

                                            MENLO ENTREPRENEURS FUND VII, L.P.
                                            By: MV MANAGEMENT VII, L.L.C.,
                                            its General Partner

                                            By:
                                               ---------------------------------
                                            Its Managing Member

                                            OLYMPIC VENTURE PARTNERS III, L.P.
                                            By: OVMC III, L.P.,
                                            its General Partner

                                            By:
                                               ---------------------------------
                                            Name:
                                            Title:

                                            OVP III ENTREPRENEURS FUND
                                            By OVMC III, L.P.,
                                            its General Partner

                                            By:
                                               ---------------------------------
                                            Name:
                                            Title:

                                            ------------------------------------
                                                          Iain Mickle

                                            ------------------------------------
                                                          Gary Herrmann

                      SIGNATURE PAGE TO PURCHASE AGREEMENT

<PAGE>   29

                                    EXHIBITS

Exhibit A - Schedule of Purchasers

Exhibit B - Form of Amended and Restated Certificate of Incorporation

Exhibit C - Schedule of Exceptions to Representations and Warranties

Exhibit D - Form of Restated Investors' Rights Agreement

Exhibit E - Restated Voting Agreement

Exhibit F - Form of Restated Co-Sale Agreement

Exhibit G - Financial Statements

Exhibit H - Form of Bylaws

Exhibit I - Form of Indemnification Agreement

Exhibit J - Form of Opinion of Orrick, Herrington & Sutcliffe LLP

Exhibit K - Form of Opinion of Mathew D'Emilio

<PAGE>   30

                                    EXHIBIT A

                             SCHEDULE OF PURCHASERS

<TABLE>
<CAPTION>
                                         NO. OF SHARES OF      NO. OF SHARES OF
                                             SERIES C             SERIES C-1
        NAME/ADDRESS/FAX NO.             PREFERRED STOCK        PREFERRED STOCK
        --------------------            ------------------     -----------------
<S>                                     <C>                    <C>
  BancBoston Capital Inc.
  Attn: Jason H. Hurd                          172,413
  175 Federal Street, 10th Floor
  Boston, MA  02110
  Fax: (617) 434-1153

  Gary Herrmann
  c/o Orrick, Herrington & Sutcliffe LLP           862
  Old Federal Reserve Bank Building
  400 Sansome Street
  San Francisco, CA  94111-3143
  Fax: (415) 773-5759

  Key Principal Partners LLC
  Attn: Bill Blake                             344,827
  127 Public Square, 2nd Floor
  Cleveland, OH  44114
  Fax: (216) 689-4121

  Mellon Venture II, L.P.
  c/o Mellon Ventures, Inc.                   1,143,103              150,000
  Attn:  Ryan Busch
  One Mellon Center, Suite 5300
  Pittsburgh, PA  15258-0001
  Fax: (412) 236-3593

  Menlo Ventures VII, L.P.
  Attn: Doug Carlisle                           55,776
  3000 Sand Hill Road M
  Building 4 Suite 100
  Menlo Park, CA  94026
  Fax: (650) 854-8540

  Menlo Entrepreneurs Fund VII, L.P.
  Attn: Doug Carlisle                            2,474
  3000 Sand Hill Road M
  Building 4 Suite 100
  Menlo Park, CA  94026
  Fax: (650) 854-8540
</TABLE>

<PAGE>   31

<TABLE>
<CAPTION>
                                         NO. OF SHARES OF      NO. OF SHARES OF
                                             SERIES C             SERIES C-1
        NAME/ADDRESS/FAX NO.             PREFERRED STOCK        PREFERRED STOCK
        --------------------            ------------------     -----------------
<S>                                     <C>                    <C>
  Iain Mickle
  c/o Orrick, Herrington & Sutcliffe               862
  LLP
  400 Capitol Mall, Suite 3000
  Sacramento, CA  95814
  Fax: (916) 329-4900

  Olympic Venture Partners III, L.P.
  Attn: George Clute                            30,337
  2420 Carillon Point
  Kirkland, WA  98033
  Fax: (425) 889-0153

  OVP III Entrepreneurs Fund
  Attn: George Clute                             1,426
  2420 Carillon Point
  Kirkland, WA  98033
  Fax: (425) 889-0153

  Orrick, Herrington & Sutcliffe LLP
  Old Federal Reserve Bank Building             13,000
  400 Sansome Street
  San Francisco, CA  94111-3143
  Fax: (415) 773-5759

  TOTAL                                        1,765,082              150,000
</TABLE><PAGE>   1
                                                                   EXHIBIT 10.14

                          AGREEMENT AND PLAN OF MERGER

                                  BY AND AMONG

                                 PRINTCAFE, INC.

                             PRINTCAFE SYSTEMS, INC.

                               HAGEN SYSTEMS, INC.

                                       AND

                                  STOCKHOLDERS

                             OF HAGEN SYSTEMS, INC.

                                FEBRUARY 22, 2000

<PAGE>   2
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
SECTION                                                                                                       PAGE
-------                                                                                                       ----
<S>     <C>                                                                                                   <C>
1.      THE MERGER...........................................................................................    1
         1.1      The Merger.................................................................................    1
         1.2      Closing; Effective Time....................................................................    2
         1.3      Effect of the Merger.......................................................................    2
         1.4      Certificate of Incorporation; Bylaws.......................................................    2
         1.5      Directors and Officers.....................................................................    2
         1.6      Effect on Capital Stock....................................................................    2
         1.7      Surrender of Certificates..................................................................    4
         1.8      No Further Ownership Rights in Target Capital Stock........................................    5
         1.9      Tax and Accounting Consequences............................................................    5
         1.10     Taking of Necessary Action; Further Action.................................................    6
         1.11     Withholding................................................................................    6
         1.12     Lost, Stolen or Destroyed Certificates.....................................................    6

2.      REPRESENTATIONS AND WARRANTIES OF TARGET AND TARGET STOCKHOLDERS.....................................    6
         2.1      Organization; Subsidiaries.................................................................    7
         2.2      Articles of Incorporation; Bylaws..........................................................    7
         2.3      Capital Structure..........................................................................    7
         2.4      Authority..................................................................................    8
         2.5      No Conflicts; Required Filings and Consents................................................    8
         2.6      Financial Statements.......................................................................    9
         2.7      Absence of Undisclosed Liabilities.........................................................    9
         2.8      Absence of Certain Changes.................................................................    9
         2.9      Litigation.................................................................................   11
         2.10     Restrictions on Business Activities........................................................   11
         2.11     Permits; Company Products; Regulation......................................................   12
         2.12     Title to Property..........................................................................   13
         2.13     Intellectual Property......................................................................   13
         2.14     Environmental Matters......................................................................   15
         2.15     Taxes......................................................................................   16
         2.16     Employee Benefit Plans.....................................................................   19
         2.17     Certain Agreements Affected by the Merger..................................................   21
         2.18     Employee Matters...........................................................................   21
         2.19     Material Contracts.........................................................................   22
         2.20     Interested Party Transactions..............................................................   23
         2.21     Insurance..................................................................................   23
         2.22     Compliance With Laws.......................................................................   24
         2.23     Minute Books...............................................................................   24
         2.24     Brokers' and Finders' Fees.................................................................   24
         2.25     Vote Required..............................................................................   24
</TABLE>

                                       i
<PAGE>   3
                               TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
SECTION                                                                                                       PAGE
-------                                                                                                       ----
<S>     <C>                                                                                                   <C>
         2.26     Board Approval.............................................................................   24
         2.27     Accounts Receivable........................................................................   24
         2.28     Customers and Suppliers....................................................................   25
         2.29     Third Party Consents.......................................................................   25
         2.30     No Commitments Regarding Future Products...................................................   25
         2.31     Representations Complete...................................................................   25

3.      REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB............................................   26
         3.1      Organization, Standing and Power...........................................................   26
         3.2      Capital Structure..........................................................................   26
         3.3      Authority..................................................................................   27
         3.4      No Conflict; Required Filings and Consents.................................................   28
         3.5      Absence of Undisclosed Liabilities.........................................................   28
         3.6      Absence of Certain Changes.................................................................   28
         3.7      Litigation.................................................................................   28
         3.8      Governmental Authorization.................................................................   29
         3.9      Compliance With Laws.......................................................................   29
         3.10     Broker's and Finders' Fees.................................................................   29
         3.11     Accounting and Tax Matters.................................................................   29
         3.12     Hart-Scott-Rodino Exemption................................................................   29
         3.13     Securities Laws............................................................................   29
         3.14     Representations Complete...................................................................   29

4.      CONDUCT PRIOR TO THE EFFECTIVE TIME..................................................................   30
         4.1      Conduct of Business of Target and Acquiror.................................................   30
         4.2      Conduct of Business of Target..............................................................   31
         4.3      No Solicitation............................................................................   33

5.      ADDITIONAL AGREEMENTS................................................................................   33
         5.1      Best Efforts and Further Assurances........................................................   33
         5.2      Consents; Cooperation......................................................................   33
         5.3      Access to Information......................................................................   34
         5.4      Confidentiality............................................................................   35
         5.5      Public Disclosure..........................................................................   35
         5.6      FIRPTA.....................................................................................   35
         5.7      State Statutes.............................................................................   35
         5.8      Blue Sky Laws..............................................................................   35
         5.9      Stockholder's Representation Agreements....................................................   35
         5.10     Maintenance of Target Indemnification Obligations..........................................   36
         5.11     Non-Competition Agreements.................................................................   36
         5.12     Certain Tax Matters........................................................................   36
</TABLE>

                                       ii
<PAGE>   4
                               TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
SECTION                                                                                                       PAGE
-------                                                                                                       ----
<S>     <C>                                                                                                   <C>
         5.13     401(k) Plan................................................................................   37
         5.14     Waiver of Dissenter's Rights...............................................................   37
         5.15     Stock Option Agreements....................................................................   37

6.      CONDITIONS TO THE MERGER.............................................................................   37
         6.1      Conditions to Obligations of Each Party to Effect the Merger...............................   37
         6.2      Additional Conditions to Obligations of Target.............................................   38
         6.3      Additional Conditions to the Obligations of Acquiror and Merger Sub........................   40

7.      TERMINATION, AMENDMENT AND WAIVER....................................................................   42
         7.1      Termination................................................................................   42
         7.2      Effect of Termination......................................................................   43
         7.3      Expenses...................................................................................   43
         7.4      Amendment..................................................................................   43
         7.5      Extension; Waiver..........................................................................   43

8.      ESCROW AND INDEMNIFICATION...........................................................................   43
         8.1      Survival of Representations and Warranties.................................................   43
         8.2      Escrow Fund................................................................................   44
         8.3      Indemnification by Target and Target Shareholders..........................................   44
         8.4      Damages Threshold..........................................................................   45
         8.5      Escrow Period..............................................................................   45
         8.6      Method of Asserting Claims.................................................................   45
         8.7      Representative of the Stockholders; Power of Attorney......................................   45
         8.8      Indemnification by Acquiror................................................................   46
         8.9      Damages Threshold..........................................................................   46

9.      GENERAL PROVISIONS...................................................................................   46
         9.1      Notices....................................................................................   46
         9.2      Interpretation.............................................................................   47
         9.3      Counterparts...............................................................................   48
         9.4      Entire Agreement; Nonassignability; Parties in Interest....................................   48
         9.5      Severability...............................................................................   48
         9.6      Remedies Cumulative........................................................................   48
         9.7      Governing Law..............................................................................   48
         9.8      Rules of Construction......................................................................   48
         9.9      Amendments and Waivers.....................................................................   48
</TABLE>

                                      iii
<PAGE>   5
                                    EXHIBITS

Exhibit A - Delaware Certificate of Merger
Exhibit B - Minnesota Certificate of Merger
Exhibit C - Exchange Ratio
Exhibit D - FIRPTA Certificate
Exhibit E - Stockholder's Representation Agreement
Exhibit F - Non-Competition Agreement
Exhibit G - Employment Agreements
Exhibit H - Legal Opinion from Acquiror's Counsel
Exhibit I - Legal Opinion from Target's Counsel

                                       iv
<PAGE>   6
                          AGREEMENT AND PLAN OF MERGER

      This Agreement and Plan of Merger (the "Agreement") is made and entered
into as of February 22, 2000 by and among printCafe, Inc., a Delaware
corporation ("Acquiror"), printCafe Systems, Inc., a Delaware corporation and
wholly a owned subsidiary of Acquiror ("Merger Sub"), Hagen Systems, Inc., a
Minnesota corporation ("Target"), and Richard J. Hagen, Steven R. Peterson and
Patricia J. Peterson (each a "Target Stockholder" and, collectively, the "Target
Stockholders").

                                    RECITALS

      A. The Boards of Directors of Target, Acquiror and Merger Sub and the
Target Stockholders believe it is in the best interests of their respective
companies and the stockholders of their respective companies that Target and
Merger Sub combine into a single company through the merger of Merger Sub and
Target (the "Merger") and, in furtherance thereof, have approved the Merger.
Pursuant to the Merger, among other things, the outstanding shares of capital
stock of Target (the "Target Capital Stock") shall be converted into shares of
the Class A Common Stock, par value $0.0001 per share, of Acquiror (the
"Acquiror Common Stock"), at the rates set forth herein and the right to receive
cash and subordinated promissory notes at the rates set forth herein.

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

      C. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code.

                                    AGREEMENT

      In consideration of the premises and the mutual representations,
warranties and covenants set forth below, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:

                                   SECTION ONE

      1.    THE MERGER.

            1.1 THE MERGER. At the Effective Time (as defined in Section 1.2)
and subject to and upon the terms and conditions of this Agreement, the
certificate of merger to be filed with the Secretary of State of the State of
Delaware attached hereto as Exhibit A (the "Delaware Certificate of Merger") the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
the certificate of merger to be filed with the Secretary of State of the State
of Minnesota attached hereto at Exhibit B (the "Minnesota Certificate of
Merger"), the applicable provisions of the Minnesota Business Corporation Act
("Minnesota Law"), Target shall be merged with and into Merger Sub, the separate
corporate existence of

                                       1
<PAGE>   7
Target shall cease and Merger Sub shall continue as the surviving corporation of
the Merger. Merger Sub as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."

            1.2 CLOSING; EFFECTIVE TIME. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable, (and in no event later than 5 business days after the satisfaction
or waiver of each of the conditions set forth in Section 4 below) or at such
other time as the parties agree (the "Closing Date"). In connection with the
Closing, the parties shall cause the Merger to be consummated by filing the
Certificate of Merger, with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time of such filing
being the "Effective Time") and shall file the Minnesota Certificate of Merger
with the Secretary of State of the State of Minnesota, in accordance with the
relevant provisions of Minnesota Law. The Closing shall take place at the
offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New
York, or at such other location as the parties agree.

            1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Delaware Certificate of
Merger, the applicable provisions of Delaware Law, the Minnesota Certificate of
Merger and the applicable provisions of Minnesota Law. At the Effective Time,
all the property, rights, privileges, powers and franchises of Target and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Target and Merger Sub shall become the debts, liabilities and duties
of the Surviving Corporation.

            1.4 CERTIFICATE OF INCORPORATION; BYLAWS.

                  (a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation.

                  (b) At the Effective time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.

            1.5 DIRECTORS AND OFFICERS. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, and the officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.

            1.6 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of Merger Sub, Target or any of their respective
stockholders, the following shall occur at the Effective Time:

                  (a) CONVERSION OF TARGET CAPITAL STOCK. All of the issued and
outstanding shares of Common Stock, par value $0.01 per share, of Target (the
"Target Common

                                       2
<PAGE>   8
Stock") issued and outstanding immediately prior to the Effective Time (other
than shares to be cancelled pursuant to Section 1.6(b) and shares, if any, held
by persons who have not voted such shares for approval of the Merger and with
respect to which such persons shall become entitled to exercise dissenters'
rights in accordance with Section 302A.471 of Minnesota Law ("Dissenting
Shares")) shall be converted and exchanged for (i) that number of shares of
Acquiror Common Stock as shall be determined in accordance with the calculation
set forth with respect to the Target Common Stock set forth on Exhibit C
attached hereto (the "Exchange Ratio"), (ii) $34.60582 per share in cash, plus
an amount per share in cash equal to interest thereon at the rate of 8.75% per
annum from February 9, 2000 to the Closing Date (the "Cash Consideration") and
(iii) $51.90872 per share in Subordinated Promissory Notes of Acquiror (the
"Notes Consideration" and, together with the shares to be received under clause
(i) and the Cash Consideration to be received under clause (ii), the "Merger
Consideration"). All shares of Target Common Stock, when so converted, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
Target Common Stock shall cease to have any rights with respect thereto, except
the right to receive the Merger Consideration therefor upon the surrender of
such certificate in accordance with Section 1.7, without interest.

                  (b) CANCELLATION OF TARGET CAPITAL STOCK OWNED BY ACQUIROR OR
TARGET. At the Effective Time, all shares of Target Capital Stock that are owned
by Target as treasury stock, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror or of
Target immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof.

                  (c) CAPITAL STOCK OF MERGER SUB. At the Effective Time, each
stock certificate of Merger Sub evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.

                  (d) ADJUSTMENTS; MAXIMUM CONSIDERATION. The Exchange Ratio
shall be adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities convertible
into Acquiror Common Stock or Target Capital Stock), reorganization,
recapitalization or other like change with respect to Acquiror Common Stock or
Target Capital Stock occurring after the date of this Agreement and prior to the
Effective Time. The Cash Consideration and Note Consideration shall also be
adjusted to reflect the effect of any of the events described in the immediately
preceding sentence with respect to Target occurring after the date of this
Agreement and prior to the Effective Time. In exchange for the acquisition by
Merger Sub of all outstanding Target Capital Stock, the maximum number of shares
of Acquiror Common Stock to be issued shall be 2,305,084.7 shares, adjusted in
accordance with the preceding sentence and Exhibit C attached hereto and reduced
as a result of any Dissenting Shares, the maximum aggregate Cash Consideration
shall be $8,000,000 and the maximum aggregate amount of the Notes Consideration
shall be $12,000,000. No adjustment shall be made in the Merger Consideration as
a result of any increase or decrease in the market price of Acquiror Common
Stock prior to the Effective Time.

            (e) DISSENTERS' RIGHTS. Any Dissenting Shares shall not be converted
into the right to receive the Merger Consideration but shall instead be
converted into the right to

                                       3
<PAGE>   9
receive such consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to applicable law. Target agrees that, except with
the prior written consent of Acquiror, or as required under applicable law, it
will not voluntarily make any payment with respect to, or settle or offer to
settle, any such purchase demand. Each holder of Dissenting Shares who, pursuant
to the provisions of applicable law, becomes entitled to payment of the fair
value for shares of Target Capital Stock shall receive payment therefor (but
only after such value shall have been agreed upon or finally determined pursuant
to such provisions). If, after the Effective Time, any Dissenting Shares shall
lose their status as Dissenting Shares, Acquiror shall issue and deliver, upon
surrender by such holder of certificate or certificates representing shares of
Target Capital Stock and the Merger Consideration to which such holder would
otherwise be entitled under this Section 1.6.

                  (f) FRACTIONAL SHARES. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock who would otherwise be entitled to a fraction of a share of
Acquiror Common Stock (after aggregating all fractional shares of Acquiror
Common Stock to be received by such holder) shall receive from Acquiror an
amount of cash (rounded to the nearest whole cent) equal to the product of (i)
such fraction, multiplied by (ii) the fair market value of a share of Acquiror
Common Stock immediately prior to the Effective Time, as determined in good
faith by Acquiror's Board of Directors.

            1.7 SURRENDER OF CERTIFICATES.

                  (a) EXCHANGE AGENT. Orrick, Herrington & Sutcliffe LLP shall
act as exchange agent (the "Exchange Agent") in the Merger.

                  (b) ACQUIROR TO PROVIDE COMMON STOCK, CASH AND NOTES. Promptly
after the Effective Time, Acquiror shall make available to the Exchange Agent
for exchange in accordance with this Section 1, through such reasonable
procedures as Acquiror may adopt, (i) the shares of Acquiror Common Stock
issuable pursuant to Section 1.6(a), (ii) cash in an amount sufficient to permit
payment of the Cash Consideration, together with cash in lieu of fractional
shares pursuant to Section 1.6(g) and (iii) Subordinated Promissory Notes
issuable pursuant to Section 1.6(a) less the notes to be deposited into the
Escrow Fund pursuant to the requirements of Section 8.

                  (c) EXCHANGE PROCEDURES. Promptly after the Effective Time,
the Exchange Agent shall, subject to the satisfaction of the conditions set
forth in Section 6.3(m), deliver or cause to be delivered to each Target
Stockholder (i) a certificate representing the number of whole shares of
Acquiror Common Stock to which such holder is entitled as calculated in
accordance with the Exchange Ratio (ii) cash in the amount of the Cash
Consideration to which such holder is entitled as provided in Section 1.6(a)
plus payment in lieu of fractional shares which such holder has the right to
receive pursuant to Section 1.6 and (iii) a Subordinated Promissory Note in the
amount of the Notes Consideration to which such holder is entitled as provided
in Section 1.6(a), less the notes to be deposited in the Escrow Fund on such
holder's behalf pursuant to Section 8 below, and the Certificate so surrendered
shall forthwith be cancelled. Until so surrendered, each Certificate will be
deemed from and after the Effective Time, for all corporate purposes, to
evidence the right to receive the Merger Consideration.

                                       4
<PAGE>   10
                  (d) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.

                  (e) DISSENTING SHARES. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the Merger Consideration to which such
holder is entitled pursuant to Section 1.6 hereof.

                  (f) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of any such dividends or other distributions with a record date after the
Effective Time payable (but for the provisions of this Section 1.7(f)) with
respect to such shares of Acquiror Common Stock.

                  (g) TRANSFERS OF OWNERSHIP. If any certificate for shares of
Acquiror Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of such issuance that the Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.

            1.8 NO FURTHER OWNERSHIP RIGHTS IN TARGET CAPITAL STOCK. All shares
of Acquiror Common Stock and all Subordinated Promissory Notes of the Acquiror
issued upon the surrender for exchange of shares of Target Capital Stock in
accordance with the terms hereof (including any cash paid in lieu of fractional
shares) shall be deemed to have been issued, and all cash in the amount of the
Cash Consideration shall be deemed to have been paid, in full satisfaction of
all rights pertaining to such shares of Target Capital Stock, and there shall be
no further registration of transfers on the records of the Surviving Corporation
of shares of Target Capital Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be cancelled and exchanged
as provided in this Section 1.

            1.9 TAX AND ACCOUNTING CONSEQUENCES. It is intended by the parties
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code.

                                       5
<PAGE>   11
            1.10 TAKING OF NECESSARY ACTION; FURTHER ACTION. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of Target and Merger Sub, the officers and directors of
Target and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.

            1.11 WITHHOLDING. Each of the Exchange Agent, Acquiror, and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Target Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or any provision of state,
local or foreign tax law or under any other applicable legal requirement. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the person to whom
such amounts would otherwise have been paid.

            1.12 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such Merger Consideration as may
be required pursuant to Section 1.6; provided, however, that Acquiror may, in
its discretion and as a condition precedent to such exchange, require the owner
of such lost, stolen or destroyed Certificates to deliver a bond in such sum as
Acquiror may reasonably direct as indemnity against any claim that may be made
against Acquiror, the Surviving Corporation or the Exchange Agent with respect
to the Certificates alleged to have been lost, stolen or destroyed.

                              SECTION TWO

      2. REPRESENTATIONS AND WARRANTIES OF TARGET AND TARGET STOCKHOLDERS.

            In this Agreement, any reference to a "Material Adverse Effect" with
respect to any entity or group of entities means any event, change or effect
that, when taken individually or together with all other adverse changes and
effects, is or is reasonably likely to be materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business, operations,
results of operations or prospects of such entity and its subsidiaries, taken as
a whole, or to prevent or materially delay consummation of the Merger or
otherwise to prevent such entity and its subsidiaries from performing their
obligations under this Agreement.

            In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after due and diligent inquiry of officers, directors
and other employees of such party reasonably believed to have knowledge of the
matter in questions.

            Except as disclosed in a document dated as of the date of this
Agreement and delivered by Target to Acquiror prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Target Disclosure

                                       6
<PAGE>   12
Schedule"), Target and Target Stockholders represent and warrant to Acquiror and
Merger Sub as follows:

            2.1 ORGANIZATION; SUBSIDIARIES. Each of Target and each subsidiary
of Target (each a "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Target and each Subsidiary has the requisite corporate
power and authority and all necessary government approvals to own, lease and
operate its properties and to carry on its business as now being conducted and
as proposed to be conducted, except where the failure to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect on Target. Each of Target and each
Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect on Target. Section 2.1 of Target
Disclosure Schedule sets forth each jurisdiction where Target and each
Subsidiary is qualified to do business. A true and complete list of all the
Subsidiaries, together with the jurisdiction of incorporation of each
Subsidiary, is set forth in Section 2.1 of the Target Disclosure Schedule.
Target is the owner of all outstanding shares of capital stock of each
Subsidiary and all such shares are duly authorized, validly issued, fully paid
and nonassessable. All of the outstanding shares of capital stock of each
Subsidiary are owned by Target free and clear of all liens, charges, claims,
encumbrances or rights of others. There are no outstanding subscriptions,
options, warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any Subsidiary, or otherwise
obligating Target or any Subsidiary to issue, transfer, sell, purchase, redeem
or otherwise acquire any such securities. Except as set forth in Section 2.1 of
the Target Disclosure Schedule, Target does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity

            2.2 ARTICLES OF INCORPORATION; BYLAWS. Target has delivered a true
and correct copy of the Articles of Incorporation and Bylaws or other charter
documents, as applicable, of Target and each Subsidiary, each as amended to
date, to Acquiror. Neither Target nor any Subsidiary is in violation of any of
the provisions of its Articles of Incorporation or Bylaws or equivalent
organizational documents.

            2.3 CAPITAL STRUCTURE. The authorized capital stock of Target
consists of 1,250,000 shares of voting Common Stock, par value $0.01 per share
and 1,250,000 shares of non-voting Common Stock, par value $0.01 per share, and
no shares of Preferred Stock, of which there were issued and outstanding as of
the date hereof 111,175 shares of voting Common Stock and 120,000 shares of
non-voting Common Stock. There are no other outstanding shares of capital stock
or voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities after the date hereof or any other rights or
securities granted or issued to any person to cause Target to issue, sell,
redeem or repurchase any shares of capital stock of Target. There does not exist
nor is there outstanding any right, option, warrant, convertible obligation or
other security or agreement entered into or granted by any Target

                                       7
<PAGE>   13
Stockholder with respect to any shares of Target Common Stock. All outstanding
shares of Target Capital Stock are duly authorized, validly issued, fully paid
and non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and are
not subject to preemptive rights or rights of first refusal created by statute,
the Articles of Incorporation or Bylaws of Target or any agreement to which
Target or any Target Stockholder is a party or by which it is bound. Each Target
Stockholder is the lawful record and beneficial owner of that number of shares
of Target Common Stock set forth next to each Target Stockholder's name on
Section 2.3 of the Target Disclosure Schedule, free and clear of all liens,
encumbrances or claims of any kind. There does not exist nor is there
outstanding any right, option, warrant, convertible obligation or other security
or agreement entered into or granted by any Target Stockholder with respect to
any shares of Target Common Stock. Except (i) for the rights created pursuant to
this Agreement and (ii) as set forth in this Section 2.3, there are no options,
warrants, calls, rights, commitments, agreements or arrangements of any
character to which Target or any Subsidiary is a party or by which Target or any
Subsidiary is bound relating to the issued or unissued capital stock of Target
or any Subsidiary or obligating Target or any Subsidiary to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of capital stock of Target or any Subsidiary or
obligating Target or any Subsidiary to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Target's capital stock (i)
between or among Target and any of the Target Stockholders or (ii) entered into
by or on behalf of any of the Target Stockholders.

            2.4 AUTHORITY. (a) Target has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Target. Target's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by Target and assuming due authorization,
execution and delivery by Acquiror and Merger Sub, constitutes the valid and
binding obligation of Target and each Target Stockholder enforceable against
Target and each Target Stockholder in accordance with its terms.

                  (a) Each Target Stockholder has the requisite capacity to
enter into this Agreement and to consummate the transaction contemplated hereby.
This Agreement has been duly executed and delivered by each Target Stockholder
and constitutes a valid and binding obligation enforceable against him or her in
accordance with its terms.

            2.5 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.

                  (a) The execution and delivery of this Agreement by Target and
each Target Stockholder does not, and the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Target or any of its Subsidiaries, or (ii) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment,

                                       8
<PAGE>   14
order, decree, statute, law, ordinance, rule or regulation applicable to Target,
any Target Stockholder, or any Subsidiary or any of his, hers or its properties
or assets.

                  (b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative agency or
commission or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Target, any Target Stockholder or any
Subsidiary in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby, except for (i) the
filing of the Certificate of Merger, together with the required officers'
certificates, as provided in Section 1.2, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), applicable state
securities laws and the securities laws of any foreign country; and (iii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Target and
would not prevent, or materially alter or delay any of the transactions
contemplated by this Agreement.

            2.6 FINANCIAL STATEMENTS. Section 2.6 of the Target Disclosure
Schedule includes a true, correct and complete copy of Target's audited balance
sheet, income statement and statement of cash flows for each of the fiscal years
ended December 31,1998 and December 31, 1999, respectively (collectively, the
"Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each. The Financial Statements
accurately set out and describe the financial condition and operating results of
Target and its consolidated Subsidiaries as of the dates, and for the periods,
indicated therein. Target maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.

            2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Target nor any
Subsidiary has material obligations or liabilities of any nature (matured or
unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the Balance Sheet for the period ended December 31, 1999 (the
"Target Balance Sheet"), (ii) those incurred in the ordinary course of business
and not required to be set forth in the Target Balance Sheet under generally
accepted accounting principles, (iii) those incurred in the ordinary course of
business since the date of the Target Balance Sheet and consistent with past
practice, and (iv) those incurred in connection with the execution of this
Agreement.

            2.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 2.8
of the Target Disclosure Schedule, since date of the Target Balance Sheet (the
"Target Balance Sheet Date") there has not been, occurred or arisen any:

                  (a) transaction by Target or any Subsidiary except in the
ordinary course of business as conducted on that date and consistent with past
practices;

                  (b) amendments or changes to the Articles of Incorporation or
Bylaws of Target;

                                       9
<PAGE>   15
                  (c) capital expenditure or commitment by Target or any
Subsidiary, in any individual amount exceeding $5,000, or in the aggregate,
exceeding $20,000;

                  (d) destruction of, damage to, or loss of any assets
(including, without limitation, intangible assets), business or customer of
Target or any Subsidiary (whether or not covered by insurance) which would
constitute a Material Adverse Effect;

                  (e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;

                  (f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals, or any change in capitalization of software
development costs) by Target or any revaluation by Target of any of its or any
of its Subsidiaries' assets;

                  (g) revaluation by the Company or any Subsidiary of any of
their respective assets;

                  (h) declaration, setting aside, or payment of a dividend or
other distribution in respect to the capital stock of Target, or any direct or
indirect redemption, purchase or other acquisition by Target of any of its
capital stock, except repurchases of Target Common Stock from terminated Target
employees at the original per share purchase price of such shares;

                  (i) increase in the salary or other compensation payable or to
become payable by Target to any officers, directors, employees or advisors of
Target or any Subsidiary, except in the ordinary course of business consistent
with past practice, or the declaration, payment, or commitment or obligation of
any kind for the payment by Target of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement, or other than as set forth in Section 2.16 below, the establishment
of any bonus, insurance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation, the granting of stock
options, stock appreciation rights, performance awards), stock purchase or other
employee benefit plan;

                  (j) sale, lease, license of other disposition of any of the
assets or properties of Target or any Subsidiary, except in the ordinary course
of business and not in excess of $20,000 in the aggregate;

                  (k) termination or material amendment of any material
contract, agreement or license (including any distribution agreement) to which
Target or any Subsidiary is a party or by which it is bound;

                  (l) loan by Target or any Subsidiary to any person or entity,
or guaranty by Target or any Subsidiary of any loan, except for (x) travel or
similar advances made to employees in connection with their employment duties in
the ordinary course of business, consistent with past practices and (y) trade
payables not in excess of $200,000 in the aggregate and in the ordinary course
of business, consistent with past practices;

                                       10
<PAGE>   16

                  (m) waiver or release of any right or claim of Target or any
Subsidiary, including any write-off or other compromise of any account
receivable of Target or any Subsidiary, in excess of $20,000 in the aggregate;

                  (n) the commencement or notice or threat of commencement of
any lawsuit or proceeding against or, to the Target's or and it Subsidiaries
knowledge, investigation of Target or any Subsidiary or their respective
affairs;

                  (o) notice of any claim of ownership by a third party of
Target's or any Subsidiary's Intellectual Property (as defined in Section 2.13
below) or of infringement by Target or any Subsidiary of any third party's
Intellectual Property rights;

                  (p) issuance or sale by Target or any Subsidiary of any of its
shares of capital stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;

                  (q) change in pricing or royalties set or charged by Target or
any Subsidiary to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Intellectual Property to Target or any
Subsidiary;

                  (r)   event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company; or

                  (s) agreement by Target, any Subsidiary or any officer or
employee of either on behalf of such entity to do any of the things described in
the preceding clauses (a) through (r) (other than negotiations with Acquiror and
its representatives regarding the transactions contemplated by this Agreement).

            2.9 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target or any
Subsidiary, threatened against Target or any Subsidiary or any of their
respective properties or any of their respective officers or directors (in their
capacities as such) that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on Target or any Subsidiary. There is
no judgment, decree or order against Target or any Subsidiary or, to the best
knowledge of Target and its Subsidiaries, any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin, or
materially alter or delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Target. All litigation to which Target or any Subsidiary is a party
(or, to the knowledge of Target, threatened to become a party) is disclosed in
the Target Disclosure Schedule.

            2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement,
judgment, injunction, order or decree binding upon Target or any Subsidiary
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any current or future business practice of Target or any
Subsidiary, any acquisition of property by Target or any Subsidiary or the
overall conduct of business by Target or any Subsidiary as currently conducted
or as proposed to be conducted by Target or by any Subsidiary. Neither Target
nor any Subsidiary has entered into any agreement under which Target or any
Subsidiary is restricted

                                       11
<PAGE>   17
from selling, licensing or otherwise distributing any of its products to any
class of customers, in any geographic area, during any period of time or in any
segment of the market.

            2.11 PERMITS; COMPANY PRODUCTS; REGULATION.

                  (a) Each of Target and each Subsidiary is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders necessary for Target or
that Subsidiary, to own, lease and operate its properties or to carry on its
business as it is now being conducted (the "Target Authorizations") and no
suspension or cancellation of any Target Authorization is pending or, to the
best of Target's knowledge, threatened, except where the failure to have, or the
suspension or cancellation of, any Target Authorization would not have a
Material Adverse Effect on Target. Neither Target nor any Subsidiary is in
conflict with, or in default or violation of, (i) any laws applicable to Target
or any Subsidiary or by which any property or asset of Target or any Subsidiary
is bound or affected, (ii) any Target Authorization, or (iii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Target or any Subsidiary is a party or
by which Target or any Subsidiary or any property or asset of Target or any
Subsidiary is bound or affected, except for any such conflict, default or
violation that would not, individually or in the aggregate, have a Material
Adverse Effect on Target or any Subsidiary.

                  (b) Except as would not have a Material Adverse Effect on
Target, there have been no written notices, citations or decisions by any
governmental or regulatory body that any product produced, manufactured,
marketed or distributed at any time by Target or any Subsidiary (the "Products")
is defective or fails to meet any applicable standards promulgated by any such
governmental or regulatory body. To the best knowledge of Target, Target and
each Subsidiary has complied in all material respects with the laws,
regulations, policies, procedures and specifications with respect to the design,
manufacture, labeling, testing and inspection of the Products. Except as
disclosed in Section 2.11(b) of the Target Disclosure Schedule, there have been
no recalls, field notifications or seizures ordered or, to Target's knowledge,
threatened by any such governmental or regulatory body with respect to any of
the Products.

                  (c) Target has obtained, in all countries where either Target
or a Subsidiary is marketing or has marketed its Products, all applicable
licenses, registrations, approvals, clearances and authorizations required by
local, state or federal agencies in such countries regulating the safety,
effectiveness and market clearance of the Products currently or previously
marketed by Target or any Subsidiary in such countries, except for any such
failures as would not, individually or in the aggregate, have a Material Adverse
Effect on Target. Target has identified and made available for examination by
Acquiror all information relating to regulation of its Products, including
licenses, registrations, approvals and permits. Target has identified in writing
to Acquiror all international locations where regulatory information and
documents are kept.

                                       12
<PAGE>   18
            2.12 TITLE TO PROPERTY.

                  (a) Target and each Subsidiary has good and marketable title
to all of its respective properties, interests in properties and assets, real
and personal, reflected in the Target Balance Sheet or acquired after the Target
Balance Sheet Date (except properties, interests in properties and assets sold
or otherwise disposed of since the Target Balance Sheet Date in the ordinary
course of business), or with respect to leased properties and assets, valid
leasehold interests in, free and clear of all mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) the lien of current taxes
not yet due and payable, (ii) such imperfections of title, liens and easements
as do not and will not materially detract from or interfere with the use of the
properties subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, and (iii) liens securing debt
which is reflected on the Target Balance Sheet. The plants, property and
equipment of Target and Subsidiaries that are used in the operations of their
businesses are in good operating condition and repair. All properties used in
the operations of Target and its Subsidiaries are reflected in the Target
Balance Sheet to the extent United States generally accepted accounting
principles require the same to be reflected. Section 2.12(a) of the Target
Disclosure Schedule sets forth a true, correct and complete list of all real
property owned or leased by Target and by each Subsidiary, the name of the
lessor, the date of the lease and each amendment thereto and the aggregate
annual rental and other fees payable under such lease. Such leases are in good
standing, are valid and effective in accordance with their respective terms, and
there is not under any such leases any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default).

                  (b) Section 2.12(b) of the Target Disclosure Schedule also
sets forth a true, correct and complete list of all equipment (the "Equipment")
owned or leased by Target and its Subsidiaries, and such Equipment is, taken as
a whole, (i) adequate for the conduct of Target's business, consistent with its
past practice, and (ii) in good operating condition (except for ordinary wear
and tear).

            2.13 INTELLECTUAL PROPERTY.

                  (a) Target and each of its Subsidiaries own, or are licensed
or otherwise possess legally enforceable rights to use all patents, patent
rights, trademarks, trademark rights, trade names, trade name rights, service
marks, copyrights, and any applications for any of the foregoing, maskworks, net
lists, schematics, industrial models, inventions, technology, know-how, trade
secrets, inventory, ideas, algorithms, processes, computer software programs or
applications (in both source code and object code form), and tangible or
intangible proprietary information or material ("Intellectual Property") that
are used or proposed to be used in the business of Target or any Subsidiary as
currently conducted or as proposed to be conducted by Target or any Subsidiary,
except to the extent that the failure to have such rights have not had and could
not reasonably be expected to have a Material Adverse Effect on Target or any
Subsidiary.

                  (b) Section 2.13 of the Target Disclosure Schedule lists (i)
all patents and patent applications and all registered and unregistered
trademarks, trade names and service marks, registered and unregistered
copyrights, and maskworks, included in the Intellectual

                                       13
<PAGE>   19
Property, including the jurisdictions in which each such Intellectual Property
right has been issued or registered or in which any application for such
issuance and registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which Target or any Subsidiary is a party and pursuant to
which any person is authorized to use any Intellectual Property, and (iii) all
licenses, sublicenses and other agreements as to which Target or any Subsidiary
is a party and pursuant to which Target or any Subsidiary is authorized to use
any third party patents, trademarks or copyrights, including software ("Third
Party Intellectual Property Rights") which are incorporated in, are, or form a
part of any Target product that is material to its business. Neither Target nor
any Subsidiary is in violation of any license, sublicense or agreement described
in Section 2.13 of the Target Disclosure Schedule. The execution and delivery of
this Agreement by Target and the consummation of the transactions contemplated
hereby, will neither cause Target or any Subsidiary to be in violation or
default under any such license, sublicense or agreement, nor entitle any other
party to any such license, sublicense or agreement to terminate or modify such
license, sublicense or agreement. Except as set forth in Section 2.13 of the
Target Disclosure Schedule, Target is the sole and exclusive owner or licensee
of, with all right, title and interest in and to (free and clear of any liens),
the Intellectual Property, and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect of which Intellectual Property is being
used.

                  (c) There is no material unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of Target
or any Subsidiary, any trade secret material to Target or any Subsidiary or any
Intellectual Property right of any third party to the extent licensed by or
through Target or any Subsidiary, by any third party, including any employee or
former employee of Target or any Subsidiary. Neither Target nor any Subsidiary
has entered into any agreement to indemnify any other person against any charge
of infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders arising in the ordinary course of
business.

                  (d) Neither Target nor any Subsidiary is or will be as a
result of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or other
agreement relating to the Intellectual Property or Third Party Intellectual
Property Rights, the breach of which would have a Material Adverse Effect on
Target.

                  (e) All patents, registered trademarks, service marks and
copyrights held by Target or any Subsidiary are valid and existing and there is
no assertion or claim (or basis therefor) challenging the validity of any
Intellectual Property of Target or any Subsidiary. Target has not been sued in
any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party. Neither the conduct of the
business of Target and each Subsidiary as currently conducted or contemplated
nor the manufacture, sale, licensing or use of any of the products of Target or
any Subsidiary as now manufactured, sold or licensed or used, nor the use in any
way of the Intellectual Property in the manufacture, use, sale or licensing by
Target or any Subsidiary of any products currently proposed, infringes on or
will infringe or conflict with, in any way, any license, trademark, trademark
right, trade name, trade name right, patent, patent right, industrial model,
invention, service mark or copyright of any

                                       14
<PAGE>   20
third party that, individually or in the aggregate, is reasonably likely to have
a Material Adverse Effect on Target. All registered trademarks, service marks
and copyrights held by Target are valid and existing. To Target's knowledge, no
third party is challenging the ownership by Target or any Subsidiary, or the
validity or effectiveness of, any of the Intellectual Property. Neither Target
nor any Subsidiary has brought any action, suit or proceeding for infringement
of Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party. There are no pending, or to the
best of Target's knowledge, threatened interference, re-examinations,
oppositions or nullities involving any patents, patent rights or applications
therefor of Target or any Subsidiary, except such as may have been commenced by
Target or any Subsidiary. There is no breach or violation of or threatened or
actual loss of rights under any license agreement to which Target is a party.

                  (f) Target has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that Target does not
already own by operation of law.

                  (g) Target has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property not
otherwise protected by patents, patent applications or copyright ("Confidential
Information"). Each of Target and its respective Subsidiaries has a policy
requiring each employee, consultant and independent contractor to execute
proprietary information and confidentiality agreements substantially in Target's
standard forms and all current and former employees, consultant and independent
contractors of Target and each Subsidiary have executed such an agreement. All
use, disclosure or appropriation of Confidential Information owned by Target or
a Subsidiary by or to a third party has been pursuant to the terms of a written
agreement between Target or the applicable Subsidiary and such third party. All
use, disclosure or appropriation of Confidential Information not owned by Target
or a Subsidiary has been pursuant to the terms of a written agreement between
Target or a Subsidiary and the owner of such Confidential Information, or is
otherwise lawful.

            2.14 ENVIRONMENTAL MATTERS.

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

                        (i) "Environmental and Safety Laws" shall mean any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders, as each may be amended from time to time, that are intended to
assure the protection of the environment, or that classify, regulate, call for
the remediation of, require reporting with respect to, or list or define air,
water, groundwater, solid waste, hazardous or toxic substances, materials,
wastes, pollutants or contaminants; which regulate the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Materials or
materials containing Hazardous Materials; or which are intended to assure the
protection, safety and good health of employees, workers or other persons,
including the public.

                        (ii) "Hazardous Materials" shall mean any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including without limitation,
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws; petroleum and petroleum

                                       15
<PAGE>   21
products including crude oil and any fractions thereof; natural gas, synthetic
gas, and any mixtures thereof; radon; asbestos; and any other pollutant or
contaminant.

                        (iii) "Property" shall mean all real property leased
or owned by Target or its Subsidiaries either currently or in the past.

                        (iv) "Facilities" shall mean all buildings and
improvements on the Property of Target or its Subsidiaries.

                  (b) Target represents and warrants as follows: (i) no
methylene chloride or asbestos is contained in or has been used at or released
from the Facilities; (ii) all Hazardous Materials and wastes have been disposed
of in accordance with all Environmental and Safety Laws; (iii) Target and its
Subsidiaries have received no notice (verbal or written) of any noncompliance of
the Facilities or of its past or present operations with Environmental and
Safety Laws; (iv) no notices, administrative actions or suits are pending or
threatened relating to Hazardous Materials or a violation of any Environmental
and Safety Laws; (v) neither Target nor its Subsidiaries are a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), or any state analog statute, arising
out of events occurring prior to the Closing Date; (vi) there has not been in
the past, and are not now, any contamination, disposal, spilling, dumping,
incineration, discharge, storage, treatment or handling of Hazardous Materials
on, under or migrating to or from the Facilities or Property (including without
limitation, soils and surface and ground waters); (vii) there have not been in
the past, and are not now, any underground tanks or underground improvements at,
on or under the Property including without limitation, treatment or storage
tanks, sumps, or water, gas or oil wells; (viii) there are no polychlorinated
biphenyls ("PCBs") deposited, stored, disposed of or located on the Property or
Facilities or any equipment on the Property containing PCBs at levels in excess
of 50 parts per million; (ix) there is no formaldehyde on the Property or in the
Facilities, nor any insulating material containing urea formaldehyde in the
Facilities; (x) the Facilities and Target's and its Subsidiaries uses and
activities therein have at all times complied with all Environmental and Safety
Laws; (xi) Target and its Subsidiaries have all the permits and licenses
required to be issued and are in full compliance with the terms and conditions
of those permits; and (xii) neither Target nor any of its Subsidiaries is liable
for any off-site contamination nor under any Environmental and Safety Laws.

            2.15  TAXES.

                  (a) For purposes of this Section 2.15 and other provisions of
this Agreement relating to Taxes, the following definitions shall apply:

                        (i) The term "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profits taxes (including but not limited to,
federal, state and foreign income taxes), payroll and employee withholding
taxes, unemployment insurance contributions, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes,

                                       16
<PAGE>   22
franchise taxes, gross receipts taxes, withholding taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in (A) as a result of being a member of any
affiliated, consolidated, combined or unitary group, or (C) any liability for
amounts referred to in (A) or (B) as a result of any obligations to indemnify
another person.

                        (ii) The term "Returns" shall mean all reports,
estimates, declarations of estimated tax, information statements and returns
required to be filed in connection with any Taxes, including information returns
with respect to backup withholding and other payments to third parties.

                  (b) All Returns required to be filed by or on behalf of Target
or any Subsidiary have been duly filed on a timely basis, except where the
failure to timely file such Return will not have a Material Adverse Effect on
Target, and each such Return is true, complete and correct in all material
respects. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Target or any Subsidiary under Section 6655 of the
Code or comparable provisions of state, local or foreign law, have been paid in
full on a timely basis, and no other material Taxes are payable by Target or any
Subsidiary with respect to items or periods covered by such Returns (whether or
not shown on or reportable on such Returns). Target and each Subsidiary have
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of Target or any
Subsidiary with respect to Taxes, other than liens for Taxes not yet due and
payable or for Taxes that Target or that Subsidiary is contesting in good faith
through appropriate proceedings. Neither Target nor any Subsidiary has been at
any time a member of an affiliated group of corporations filing consolidated,
combined or unitary income or franchise tax returns for a period for which the
statute of limitations for any Tax potentially applicable as a result of such
membership has not expired.

                  (c) The amount of Target's and any Subsidiary's liabilities
for unpaid Taxes for all periods through the date of the Financial Statements do
not, in the aggregate, materially exceed the amount of the current liability
accruals for Taxes reflected on the Financial Statements, and the Financial
Statements properly accrue in accordance with generally accepted accounting
principles ("GAAP") all liabilities for Taxes of Target and its Subsidiaries
payable after the date of the Financial Statements attributable to transactions
and events occurring prior to such date. No liability for Taxes of Target or any
Subsidiary has been incurred (or prior to Closing will be incurred) since such
date other than in the ordinary course of business.

            (d) Acquiror has been furnished by Target true and complete copies
of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Target or
any Subsidiary relating to Taxes, and (ii) all federal, state and foreign income
or franchise tax Returns for or including Target and its

                                       17
<PAGE>   23
Subsidiaries for all periods since the later of Target's and such Subsidiaries'
inception, or 3 full years preceding the date of this Agreement.

                  (e) No audit of the Returns of or including Target and its
Subsidiaries by a government or taxing authority is in process, threatened or,
to Target's knowledge, pending (either in writing or orally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
orally, formally or informally and not resolved) or are expected to be asserted
with respect to Taxes of Target or any of its Subsidiaries, and Target has not
received notice (either in writing or orally, formally or informally) nor does
it expect to receive notice that it or any Subsidiary has not filed a Return or
paid Taxes required to be filed or paid. Neither Target nor any Subsidiary is a
party to any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or orally, formally or
informally) against Target, any Subsidiary or any of their respective assets. No
waiver or extension of any statute of limitations is in effect with respect to
Taxes or Returns of Target or any Subsidiary. Target and each Subsidiary have
disclosed on their federal and state income and franchise tax returns all
positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.

                  (f) Target and its Subsidiaries are not (nor have they ever
been) parties to any tax sharing agreement. Since April 16, 1997, neither Target
nor any of its Subsidiaries has been a distributing corporation or a controlled
corporation in a transaction described in Section 355(a) of the Code.

                  (g) Target is not, nor has it been, a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Neither Target nor any Subsidiary has entered into any compensatory agreements
with respect to the performance of services which payment thereunder would
result in a nondeductible expense to Target or to such Subsidiary pursuant to
Section 280G of the Code or an excise tax to the recipient of such payment
pursuant to Section 4999 of the Code. Neither Target nor any Subsidiary has
agreed to, nor is it required to make, other than by reason of the Merger, any
adjustment under Code Section 481(a) by reason of, a change in accounting
method, and Target and each Subsidiary will not otherwise have any income
reportable for a period ending after the Closing Date attributable to a
transaction or other event (e.g., an installment sale) occurring prior to the
Closing Date with respect to which Target or such Subsidiary received the
economic benefit prior to the Closing Date. Neither Target nor any Subsidiary
is, nor has it been, a "reporting corporation" subject to the information
reporting and record maintenance requirements of Section 6038A and the
regulations thereunder.

                  (h) The Target Disclosure Schedule contains accurate and
complete information regarding Target's and its Subsidiaries' net operating
losses for federal and each state tax purposes. Target and its Subsidiaries have
no net operating losses and credit carryovers or other tax attributes currently
subject to limitation under Sections 382, 383, or 384 of the Code, not taking
into account any such limitation resulting from the Merger.

                                       18
<PAGE>   24
                  (i) Target has made a valid election under the Code to be
treated as an S corporation effective for all taxable years of Target since its
taxable year that began on January 1, 1997, and Target's status as an S
corporation for federal income tax purposes has not been terminated for any
reason and has remained valid during the period since such date to and including
the Closing Date.

            2.16 EMPLOYEE BENEFIT PLANS.

                  (a) Schedule 2.16 lists, with respect to Target, each
Subsidiary of Target and any trade or business (whether or not incorporated)
which is treated as a single employer with Target (an "ERISA Affiliate") within
the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), (ii) each loan to a non-officer
employee, loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
contracts and agreements relating to employment and all severance agreements,
with any of the directors, officers or employees of Target or its Subsidiaries
(other than, in each case, any such contract or agreement that is terminable by
the Company or its Subsidiary at will or without penalty or other adverse
consequence), (iv) all bonus, pension, profit sharing, savings, deferred
compensation or incentive plans, programs or arrangements, (v) other fringe or
employee benefit plans, programs or arrangements that apply to senior management
of Target or any Subsidiary and that do not generally apply to all employees,
and (vi) any current or former employment or executive compensation or severance
agreements, written or otherwise, as to which unsatisfied obligations of Target
or any Subsidiary remain for the benefit of, or relating to, any present or
former employee, consultant or director of Target or any Subsidiary (together,
the "Target Employee Plans").

            (b) Target has furnished to Acquiror a copy of each of the Target
Employee Plans and related plan documents (including trust documents, insurance
policies or contracts, employee booklets, summary plan descriptions and other
authorizing documents, and, to the extent still in its possession, any material
employee communications relating thereto) and has, with respect to each Target
Employee Plan which is subject to ERISA reporting requirements, provided copies
of the Form 5500 reports filed for the last three plan years. Any Target
Employee Plan intended to be qualified under Section 401(a) of the Code has
either obtained from the Internal Revenue Service a favorable determination
letter as to its qualified status under the Code, including all amendments to
the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or
has applied to the Internal Revenue Service for such a determination letter
prior to the expiration of the requisite period under applicable Treasury
Regulations or Internal Revenue Service pronouncements in which to apply for
such determination letter and to make any amendments necessary to obtain a
favorable determination with the exception of any amendments required by such
subsequent legislation for which the period during which a determination letter
may be requested from the Internal Revenue Service has not yet expired under
such applicable Treasury regulation or Internal Revenue Service pronouncements.
Target has also furnished Acquiror with the most recent Internal Revenue Service
determination letter issued with respect to each such Target Employee Plan, and
nothing

                                       19
<PAGE>   25
has occurred since the issuance of each such letter which could reasonably be
expected to cause the loss of the tax-qualified status of any Target Employee
Plan subject to Code Section 401(a) except as has been disclosed to Acquiror or
its counsel.

                  (c) Except as set forth in Section 2.16(c) of the Target
Disclosure Schedule, (i) none of the Target Employee Plans promises or provides
retiree medical or other retiree welfare or life insurance benefits to any
person; (ii) there has been no "prohibited transaction," as such term is defined
in Section 406 of ERISA and Section 4975 of the Code, with respect to any Target
Employee Plan, which could reasonably be expected to have, in the aggregate, a
Material Adverse Effect; (iii) each Target Employee Plan has been administered
in accordance with its terms and in compliance with the requirements prescribed
by any and all statutes, rules and regulations (including ERISA and the Code),
except as would not have, in the aggregate, a Material Adverse Effect, and
Target and each Subsidiary or ERISA Affiliate have performed all obligations
required to be performed by them under, are not in any material respect in
default under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Target Employee Plans; (iv) neither
Target nor any Subsidiary or ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Target Employee Plans; (v) all material contributions
required to be made by Target or any Subsidiary or ERISA Affiliate to any Target
Employee Plan have been made on or before their due dates and a reasonable
amount has been accrued for contributions to each Target Employee Plan for the
current plan years; (vi) with respect to each Target Employee Plan, no
"reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Target Employee Plan
is covered by, and neither Target nor any Subsidiary or ERISA Affiliate has
incurred or expects to incur any direct or indirect liability under, arising out
of or by operation of Title IV of ERISA in connection with the termination of,
or an employee's withdrawal from, any Target Employee Plan or other retirement
plan or arrangement, and no fact or event exists that could give rise to any
such liability, or under Section 412 of the Code; (viii) Target and the
Subsidiaries have not incurred any liability under, and have complied in all
respects with, the Worker Adjustment Retraining Notification Act, (the "WARN
Act")and no fact or event exists that could give rise to liability under such
act; and (ix) no compensation paid or payable to any employee of Target or any
Subsidiary has been, or will be, non-deductible by reason of application of
Section 162(m) of the Code. With respect to each Target Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2) of
ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed to the
best of Targets' knowledge) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed, distributed or
posted with respect to each such Target Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the best
knowledge of Target is threatened, against or with respect to any such Target
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. Neither Target nor any Subsidiary or other ERISA Affiliate
is a party to, or has made any contribution to or otherwise incurred any
obligation under, any "multiemployer plan" as defined in Section 3(37) of ERISA.

                                       20
<PAGE>   26
                  (d) With respect to each Target Employee Plan, Target and each
of its United States Subsidiaries have complied with (i) the applicable health
care continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the proposed regulations thereunder and
(ii) the applicable requirements of the Family Leave Act of 1993 and the
regulations thereunder, except to the extent that such failure to comply would
not, in the aggregate, have a Material Adverse Effect.

                  (e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target, any Subsidiary or any other ERISA Affiliate to severance
benefits or any other payment (including, without limitation, unemployment
compensation, golden parachute or bonus), except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting of any such
benefits (except to the extent of any vesting required as a result of the
termination of the plan described in Section 5.13), or increase the amount of
compensation due any such employee or service provider.

                  (f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target, any Subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any Target
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Target's financial statements.

            2.17 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including,
without limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of Target or any of
its Subsidiaries, (ii) materially increase any benefits otherwise payable by
Target, or (iii) result in the acceleration of the time of payment or vesting of
any such benefits.

            2.18 EMPLOYEE MATTERS. Target and each of its Subsidiaries are in
compliance in all material respects with all currently applicable federal,
state, local and foreign laws and regulations respecting employment,
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, and is not engaged
in any unfair labor practice. There are no pending claims against Target or any
of its Subsidiaries under any workers compensation plan or policy or for long
term disability. Neither Target nor any of its Subsidiaries has any material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no controversies pending or, to the
knowledge of Target or any of its Subsidiaries, threatened, between Target or
any of its Subsidiaries and any of their respective employees, which
controversies have or could reasonably be expected to have a Material Adverse
Effect on Target. Neither Target nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor unions contract nor does Target
or any of its Subsidiaries know of any activities or proceedings of any labor
union or other group to organize any such employees.

                                       21
<PAGE>   27
            2.19 MATERIAL CONTRACTS.

                  (a) Subsections (i) through (ix) of Section 2.19(a) of the
Target Disclosure Schedule contain a list of all contracts and agreements to
which Target or any Subsidiary is a party and that are material to the business,
results of operations, or condition (financial or otherwise), of Target and the
Subsidiaries taken as a whole (such contracts, agreements and arrangements as
are required to be set forth in Section 2.19(a) of the Target Disclosure
Schedule being referred to herein collectively as the "Material Contracts").
Material Contracts shall include, without limitation, the following and shall be
categorized in the Target Disclosure Schedule as follows:

                        (i) each contract and agreement (other than routine
purchase orders and pricing quotes in the ordinary course of business covering a
period of less than 1 year) for the purchase of inventory, spare parts, other
materials or personal property with any supplier or for the furnishing of
services to Target or any Subsidiary under the terms of which Target or any
Subsidiary: (A) paid or otherwise gave consideration of more than $5,000 in the
aggregate during the calendar year ended December 31, 1999 , (B) is likely to
pay or otherwise give consideration of more than $5,000 in the aggregate during
the calendar year ended December 31, 2000, (C) is likely to pay or otherwise
give consideration of more than $5,000 in the aggregate over the remaining term
of such contract, or (D) cannot be cancelled by Target or such Subsidiary
without penalty or further payment of less than $5,000;

                        (ii) each customer contract and agreement (other than
routine purchase orders, pricing quotes with open acceptance and other tender
bids, in each case, entered into in the ordinary course of business and covering
a period of less than one year) to which Target or any Subsidiary is a party
which (A) involved consideration of more than $5,000 in the aggregate during the
calendar year ended December 31, 1999, (B) is likely to involve consideration of
more than $5,000 in the aggregate during the calendar year ended December 31,
2000, (C) is likely to involve consideration of more than $5,000 in the
aggregate over the remaining term of the contract, or (D) cannot be cancelled by
Target or such Subsidiary without penalty or further payment of less than
$5,000;

                        (iii) (A) all distributor, manufacturer's
representative, broker, franchise, agency and dealer contracts and agreements to
which Target or any Subsidiary is a party (specifying on a matrix, in the case
of distributor agreements, the name of the distributor, product, territory,
termination date and exclusivity provisions) and (B) all sales promotion, market
research, marketing and advertising contracts and agreements to which Target or
any Subsidiary is a party which: (1) involved consideration of more than $5,000
in the aggregate during the calendar year ended December 31, 1999, (2) are
likely to involve consideration of more than $5,000 in the aggregate during the
calendar year ended December 31, 2000, or (3) are likely to involve
consideration of more than $5,000 in the aggregate over the remaining term of
the contract;

                        (iv) all management contracts with independent
contractors or consultants (or similar arrangements) to which Target or any
Subsidiary is a party and which (A) involved consideration or more than $5,000
in the aggregate during the calendar year ended December 31, 1999, (B) are
likely to involve consideration of more than $5,000 in the aggregate

                                       22
<PAGE>   28
during the calendar year ended December 31, 2000, or (C) are likely to involve
consideration of more than $5,000 in the aggregate over the remaining term of
the contract;

                        (v) all contracts and agreements (excluding routine
checking account overdraft agreements involving petty cash amounts) under which
Target or any Subsidiary has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness or under which Target or any
Subsidiary has imposed (or may impose) a security interest or lien on any of
their respective assets, whether tangible or intangible, to secure indebtedness;

                        (vi) all contracts and agreements that limit the ability
of Target or any Subsidiary or, after the Effective Time, Acquiror or any of its
affiliates, to compete in any line of business or with any person or in any
geographic area or during any period of time, or to solicit any customer or
client;

                        (vii) all contracts and agreements between or among
Target or any Subsidiary, on the one hand, and any affiliate of Target (other
than a wholly owned subsidiary), on the other hand:

                        (viii) all contracts and agreements to which Target or
any Subsidiary is a party under which it has agreed to supply products to a
customer at specified prices, whether directly or through a specific
distributor, manufacturer's representative or dealer; and

                        (ix) all other contracts or agreements (A) which are
material to Target and its Subsidiaries or the conduct of their respective
businesses, (B) the absence of which would have a Material Adverse Effect on
Target, or (C) which are believed by Target to be of unique value even though
not material to the business of Target.

                  (b) Except as would not, individually or in the aggregate,
have a Material Adverse Effect on Target, each Target license, each Material
Contract and each other material contract or agreement of Target or any
Subsidiary which would not have been required to be disclosed in Section 2.19(a)
of the Target Disclosure Schedule had such contract or agreement been entered
into prior to the date of this Agreement, is a legal, valid and binding
agreement, and none of the Target licenses or Material Contracts is in default
by its terms or has been cancelled by the other party; Target and the
Subsidiaries are not in receipt of any claim of default under any such
agreement; and none of Target or any of the Subsidiaries anticipates any
termination or change to, or receipt of a proposal with respect to, any such
agreement as a result of the Merger or otherwise. Target has furnished Acquiror
with true and complete copies of all such agreements together with all
amendments, waivers or other changes thereto.

            2.20 INTERESTED PARTY TRANSACTIONS. Neither Target nor any
Subsidiary is indebted to any director, officer, employee or agent of Target or
any Subsidiary (except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to Target or
any Subsidiary.

            2.21 INSURANCE. Target and each of its Subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or

                                       23
<PAGE>   29
owning assets similar to those of Target and its Subsidiaries. There is no
material claim pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and Target and its Subsidiaries are otherwise in compliance with the terms
of such policies and bonds. Target has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.

            2.22 COMPLIANCE WITH LAWS. Each of Target and its Subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not reasonably be expected to have a Material Adverse Effect on Target.

            2.23 MINUTE BOOKS. The minute books of Target and its Subsidiaries
made available to Acquiror contain a complete summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Target and the respective Subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes accurately
in all material respects.

            2.24 BROKERS' AND FINDERS' FEES. Target has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.

            2.25 VOTE REQUIRED. Except for shareholder approval which has been
duly obtained, the signature by the Target Stockholders on this Agreement is the
only action of the holders of any of Target's capital stock necessary to approve
this Agreement and the transactions contemplated hereby.

            2.26 BOARD APPROVAL. The Board of Directors of Target has
unanimously (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the stockholders of Target and is on terms
that are fair to such stockholders and (iii) recommended that the stockholders
of Target approve this Agreement and the Merger.

            2.27 ACCOUNTS RECEIVABLE.

                  (a) Target has made available to Acquiror a list of all
accounts receivable of Target and each Subsidiary reflected on the Financial
Statements ("Accounts Receivable") along with a range of days elapsed since
invoice.

                  (b) All Accounts Receivable of Target and its Subsidiaries
arose in the ordinary course of business and are carried at values determined in
accordance with GAAP consistently applied. No person has any lien on any of such
Accounts Receivable and no request or agreement for deduction or discount has
been made with respect to any of such Accounts Receivable.

                  (c) All of the inventories of Target and each Subsidiary
reflected in the Financial Statements and Target's books and records on the date
hereof were purchased,

                                       24
<PAGE>   30
acquired or produced in the ordinary and regular course of business and in a
manner consistent with Target's regular inventory practices and are set forth on
Target's books and records in accordance with the practices and principles of
Target consistent with the method of treating said items in prior periods. None
of the inventory of Target or any Subsidiary reflected on the Financial
Statements or on Target's books and records as of the date hereof (in either
case net of the reserve therefor) is obsolete, defective or in excess of the
needs of the business of Target reasonably anticipated for the normal operation
of the business consistent with past practices and outstanding customer
contracts. The presentation of inventory on the Financial Statements conforms to
GAAP and such inventory is stated at the lower of cost or net realizable value.

            2.28 CUSTOMERS AND SUPPLIERS. As of the date hereof, no customer
which individually accounted for more than 5% of Target's gross revenues during
the 12-month period preceding the date hereof, and no supplier of Target, has
cancelled or otherwise terminated, or made any written threat to Target to
cancel or otherwise terminate its relationship with Target, or has at any time
on or after the Target Balance Sheet Date decreased materially its services or
supplies to Target in the case of any such supplier, or its usage of the
services or products of Target in the case of such customer, and to Target's
knowledge, no such supplier or customer intends to cancel or otherwise terminate
its relationship with Target or to decrease materially its services or supplies
to Target or its usage of the services or products of Target, as the case may
be. From and after the date hereof, no customer which individually accounted for
more than 5% of Target's gross revenues during the 12 month period preceding the
Closing Date, has cancelled or otherwise terminated, or made any written threat
to Target to cancel or otherwise terminate, for any reason, including without
limitation the consummation of the transactions contemplated hereby, its
relationship with Target, and to Target's knowledge, no such customer intends to
cancel or otherwise terminate its relationship with Target or to decrease
materially its usage of the services or products of Target. Target has not
knowingly breached, so as to provide a benefit to Target that was not intended
by the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any customer or supplier of Target.

            2.29 THIRD PARTY CONSENTS. Except as set forth in Section 2.29 of
the Target Disclosure Schedule, no consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.

            2.30 NO COMMITMENTS REGARDING FUTURE PRODUCTS. Target has made no
sales to customers that are contingent upon providing future enhancements of
existing products, to add features not presently available on existing products
or to otherwise enhance the performance of its existing products (other than
beta or similar arrangements pursuant to which Target's customers from time to
time test or evaluate products). The products Target has delivered to customers
substantially comply with published specifications for such products and Target
has not received material complaints from customers about its products that
remain unresolved. Section 2.30 of the Target Disclosure Schedule accurately
sets forth a complete list of products in development (exclusive of mere
enhancements to and additional features for existing products).

            2.31 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Target herein or in any Schedule hereto, including the Target
Disclosure Schedule, or certificate furnished by Target pursuant to this
Agreement, when all such documents are read

                                       25
<PAGE>   31
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective Time
to state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.

                                  SECTION THREE

      3. REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB.

            Except as disclosed in a document dated as of the date of this
Agreement and delivered by Acquiror to Target prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "Acquiror Disclosure Schedule"), Acquiror and Merger Sub
hereby jointly and severally represent and warrant to Target as follows:

            3.1 ORGANIZATION, STANDING AND POWER. Each of Acquiror and Merger
Sub is a corporation duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization. Each of Acquiror and Merger Sub
has the corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be conducted and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquiror. Acquiror has delivered a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of Acquiror
and Merger Sub, each as amended to date, to Target. Neither Acquiror nor any of
its subsidiaries is in violation of any material provisions of its Certificate
of Incorporation or Bylaws or equivalent organizational documents.

            3.2 CAPITAL STRUCTURE.

                  (a) Except as disclosed in Section 3.2 of the Acquiror
Disclosure Schedule, the authorized capital stock of Acquiror consists of (i)
150,000,000 shares of Common Stock, $0.0001 par value, of which (A) 118,750,000
have been designated Class A Common Stock, 5,886,656 shares of which were issued
and outstanding as of the close of business on the day immediately preceding the
Closing Date (the "Capitalization Date"), and (B) 31,250,000 have been
designated Class B Common Stock, none of which were issued and outstanding as of
the close of business on the Capitalization Date and (ii) 46,165,082 shares of
Preferred Stock, $0.0001 par value, of which (A) 2,500,000 shares have been
designated Series A Preferred Stock, 2,455,798 of which were issued and
outstanding as of the closing of business on the Capitalization Date, (B)
10,250,000 shares have been designated Series A-1 Preferred Stock, 9,725,096 of
which were issued and outstanding as of the closing of business on the
Capitalization Date, (C) 31,250,000 have been designated Series B Preferred
Stock, 31,186,312 of which were issued and outstanding as of the closing of
business on the Capitalization Date, (D) 2,015,082 have been designated Series C
Preferred Stock, 1,765,082 which were issued and outstanding as of the closing
of business on the Capitalization Date, and (E) 150,000 have been designated
Series C-1 Preferred Stock, all of which were issued and outstanding as of the
closing of business on the Capitalization Date. As of the close of business on
the Capitalization Date, the Acquiror has reserved 382,215 shares of Class A
Common Stock and 516,976 shares of

                                       26
<PAGE>   32
Series A-1 Preferred Stock (collectively, "Option Stock") for issuance to
officers, directors, employees and consultants of the Acquiror pursuant to its
1999 Revised Stock Plan duly adopted by the Board of Directors and approved by
the Acquiror's stockholders (the "1999 Revised Stock Plan"), and the Acquiror
has reserved 2,500,000 shares of Common Stock for issuance to officers,
directors, employees and consultants of the Acquiror pursuant to its 2000
Incentive Stock Plan duly adopted by the Board of Directors and approved by the
Acquiror's stockholders (the "2000 Incentive Stock Plan" and, together with the
1999 Revised Stock Plan, the "Stock Plans"). Of such reserved shares of Option
Stock under the 1999 Revised Stock Plan, no shares have been issued pursuant to
restricted stock purchase agreements, options to purchase 382,215 shares of
Class A Common Stock and 516,976 shares of Series A-1 Preferred Stock have been
granted and are currently outstanding, and no shares of Class A Common Stock
remain available for issuance to officers, directors, employees and consultants
pursuant to the 1999 Revised Stock Plan. Of such reserved shares of Class A
Common Stock under the 2000 Incentive Stock Plan, no shares have been issued
pursuant to restricted stock purchase agreements, options to purchase 175,000
shares of Class A Common Stock have been granted and are currently outstanding,
and 2,325,000 shares of Class A Common Stock remain available for issuance to
officers, directors, employees and consultants pursuant to the 2000 Incentive
Stock Plan. Other than as contemplated under this Agreement or as set forth in
the Acquiror Disclosure Schedule, there are no other options, warrants, calls,
rights, commitments or agreements of any character to which Acquiror or Merger
Sub is a party or by which either of them is bound obligating Acquiror or Merger
Sub to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any shares of the capital stock of
Acquiror or obligating Acquiror or Merger Sub to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable.

                  (b) The authorized capital stock of Merger Sub consists of
1,000,000 shares of Common Stock, par value $0.0001 of which 100 are issued and
outstanding and are held by Acquiror. All outstanding shares of Acquiror and
Merger Sub have been duly authorized, validly issued, fully paid and are
nonassessable and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. There are no
options, warrants, calls, rights, commitments or agreements of any character to
which Acquiror or Merger Sub is a party or by which either of them is bound
obligating Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem,
or cause to be issued, delivered, sold, repurchased or redeemed, any shares of
the capital stock of Merger Sub or obligating Acquiror or Merger Sub to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement.

            3.3 AUTHORITY. Acquiror and Merger Sub have all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including but not
limited to the issuance of the Notes Consideration, have been duly authorized by
all necessary corporate action on the part of Acquiror and Merger Sub (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by Delaware Law). This Agreement has been duly
executed and delivered by Acquiror and Merger Sub and constitutes the valid and
binding obligations of Acquiror and Merger Sub.

                                       27
<PAGE>   33
            3.4 NO CONFLICT; REQUIRED FILINGS AND CONSENTS.

                  (a) The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Acquiror or Merger Sub, as
amended, or (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Acquiror or Merger Sub or their properties or assets.

                  (b) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or Merger Sub in connection with the execution
and delivery of this Agreement by Acquiror and Merger Sub or the consummation by
Acquiror and Merger Sub of the transactions contemplated hereby, except for (i)
the filing of appropriate merger documents as required by Delaware Law and
Minnesota Law, (ii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country and (iii) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror and
would not prevent, materially alter or delay any the transactions contemplated
by this Agreement.

            3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Acquiror has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet heretofore provided to Target for the period ended December 31,
1999 (the "Acquiror Balance Sheet"), (ii) those incurred in the ordinary course
of business and not required to be set forth in the Acquiror Balance Sheet under
United States generally accepted accounting principles, and (iii) those incurred
in the ordinary course of business since the Acquiror Balance Sheet Date and
consistent with past practice.

            3.6 ABSENCE OF CERTAIN CHANGES. Except as set forth in Section 3.6
of the Acquiror Disclosure Schedule, since the date of the Acquiror Balance
Sheet (the "Acquiror Balance Sheet Date"), Acquiror has conducted its business
in the ordinary course in a manner consistent with past practice and there has
not occurred: (i) any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to result in, a
Material Adverse Effect to Acquiror; (ii) any declaration, setting aside, or
payment of a dividend or other distribution with respect to the shares of
Acquiror, or any direct or indirect redemption, purchase or other acquisition by
Acquiror of any of its shares of capital stock; (iii) any material amendment or
change to Acquiror's Certificate of Incorporation or Bylaws; or (iv) any
negotiation or agreement by Acquiror to do any of the things described in the
preceding clauses (i) through (iii) (other than negotiations with Target and its
representatives regarding the transactions contemplated by this Agreement).

            3.7 LITIGATION. Except as set forth in Section 3.7 of the Acquiror
Disclosure Schedule, there is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its

                                       28
<PAGE>   34
subsidiaries or any of their respective properties or any of their respective
officers or directors (in their capacities as such) that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on
Acquiror. There is no judgment, decree or order against Acquiror or any of its
subsidiaries or, to the knowledge of Acquiror or any of its subsidiaries, any of
their respective directors or officers (in their capacities as such) that could
prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on Acquiror.

            3.8 GOVERNMENTAL AUTHORIZATION. Except as set forth in Section 3.8
of the Acquiror Disclosure Schedule, each of Acquiror and its subsidiaries has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of Acquiror's or any of its subsidiaries' business
("Acquiror Authorizations"), and all of such Acquiror Authorizations are in full
force and effect, except where the failure to obtain or have any of such
Acquiror Authorizations could not reasonably be expected to have a Material
Adverse Effect on Acquiror.

            3.9 COMPLIANCE WITH LAWS. Each of Acquiror and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not reasonably be expected to have a Material Adverse Effect on Acquiror.

            3.10 BROKER'S AND FINDERS' FEES. Acquiror has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.

            3.11 ACCOUNTING AND TAX MATTERS. Neither Acquiror nor any of its
subsidiaries nor, to the knowledge of Acquiror, any of their respective
affiliates or agents is aware of any agreement, plan or other circumstance that
would prevent the Merger from constituting a transaction under Section 368(a) of
the Code.

            3.12 HART-SCOTT-RODINO EXEMPTION. Neither the Acquiror not any
person that is an "ultimate parent entity" of Acquiror (as defined in the
regulations promulgated by the Federal trade Commission under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act")) has annual net sales or total assets (each as determined pursuant to the
regulations promulgated by the Federal Trade Commission under the HSR Act) of
$100,000,000 or more.

            3.13 SECURITIES LAWS. All outstanding shares of capital stock of
Acquiror were issued, and the shares of Acquiror Common Stock to be issued
pursuant to the Merger will be issued, in compliance with all applicable federal
and state securities laws.

            3.14 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Acquiror and Merger Sub herein or in any Schedule hereto, or
certificate furnished by Acquiror or Merger Sub pursuant to this Agreement, when
all such documents are read together in their entirety, contains or will contain
at the Effective Time any untrue statement of a material

                                       29
<PAGE>   35
fact, or omits or will omit at the Effective Time to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.

                                  SECTION FOUR

      4. CONDUCT PRIOR TO THE EFFECTIVE TIME.

            4.1 CONDUCT OF BUSINESS OF TARGET AND ACQUIROR. During the period
from the date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, each of Target and Acquiror
agrees (except to the extent expressly contemplated by this Agreement or as
consented to in writing by the other), to carry on its and its subsidiaries'
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay and to cause its subsidiaries to pay
debts and Taxes when due subject in the case of Taxes of Target or any of its
Subsidiaries, to Acquiror's consent to the filing of material Tax Returns if
applicable, to pay or perform other obligations when due, and to use all
reasonable efforts consistent with past practice and policies to preserve intact
its and its subsidiaries' present business organization, keep available the
services of its and its subsidiaries' present officers and key employees and
preserve its and its subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
or its subsidiaries, to the end that its and its subsidiaries' goodwill and
ongoing businesses shall be unimpaired at the Effective Time. Each of Target and
Acquiror agrees to promptly notify the other of any event or occurrence not in
the ordinary course of its or its subsidiaries' business, and of any event which
could have a Material Adverse Effect. Without limiting the foregoing, except as
expressly contemplated by this Agreement, Target shall not do, cause or permit
any of the following, or allow, cause or permit any of its Subsidiaries to do,
cause or permit any of the following, without the prior written consent of
Acquiror:

                  (a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Articles of Incorporation or Bylaws;

                  (b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its Subsidiaries;

                  (c) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or other
rights granted under any of such plans; or

                  (d) OTHER. Take, or agree in writing or otherwise to take, any
of the actions described in Sections 4.1(a) through (c) above, or any action
which would make any of

                                       30
<PAGE>   36
its representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its covenants
hereunder.

            4.2 CONDUCT OF BUSINESS OF TARGET. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following, or allow,
cause or permit any of its Subsidiaries to do, cause or permit any of the
following, without the prior written consent of Acquiror:

                  (a) MATERIAL CONTRACTS. Enter into any Material Contract or
commitment, or violate, amend or otherwise modify or waive any of the terms of
any of its Material Contracts, other than in the ordinary course of business
consistent with past practice;

                  (b) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement; provided, however, that Target
may, in the ordinary course of business consistent with past practice, grant
options for the purchase of Target Common Stock under the Target Stock Option
Plan;

                  (c) INTELLECTUAL PROPERTY. Transfer to any person or entity
any rights to its Intellectual Property;

                  (d) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or other
exclusive rights of any type or scope with respect to any of its products or
technology;

                  (e) DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its and its Subsidiaries' business, taken as a whole,
except in the ordinary course of business consistent with past practice;

                  (f) INDEBTEDNESS. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;

                  (g) LEASES. Enter into operating lease;

                  (h) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $5,000 in any one case or $20,000 in the aggregate, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected or
reserved against in the Target Financial Statements;

                                       31
<PAGE>   37
                  (i) CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course of
business and consistent with past practice;

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

                  (k) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value, other than in the ordinary course of business;

                  (l) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or
amend any employee benefit or stock purchase or option plan, or hire any new
director level or officer level employee (except that it may hire a replacement
for any current director level or officer level employee if it first provides
Acquiror advance notice regarding such hiring decision), pay any special bonus
or special remuneration to any employee or director, or increase the salaries or
wage rates of its employees;

                  (m) SEVERANCE ARRANGEMENT. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except payments
made pursuant to standard written agreements outstanding on the date of this
Agreement;

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

                  (o) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its and its Subsidiaries' business, taken as a whole;

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

                  (q) NOTICES. Target shall give all notices and other
information required to be given to the employees of Target, any collective
bargaining unit representing any group of employees of Target, and any
applicable government authority under the National Labor Relations Act, the
Internal Revenue Code, COBRA, and other applicable law in connection with the
transactions provided for in this Agreement;

                  (r) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; or

                                       32
<PAGE>   38
                  (s) OTHER. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (r) above, or any action
which would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not to
perform its covenants hereunder.

            4.3 NO SOLICITATION. Target and its Subsidiaries and the officers,
directors, employees or other agents of Target and its Subsidiaries and the
Target Stockholders will not, directly or indirectly, (i) take any action to
solicit, initiate, encourage or approve any Takeover Proposal (as defined below)
or (ii) engage in negotiations with, or disclose any nonpublic information
relating to Target or any of it Subsidiaries to, or afford access to the
properties, books or records of Target or any of its Subsidiaries to, any person
that has advised Target that it may be considering making, or that has made, a
Takeover Proposal. For purposes of this Agreement, "Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Target or any of its Subsidiaries or the
acquisition of any significant equity interest in, or a significant portion of
the assets of, Target or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.

                                  SECTION FIVE

      5. ADDITIONAL AGREEMENTS.

            5.1 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.

            5.2 CONSENTS; COOPERATION.

                  (a) Each of Acquiror and Target shall use its reasonable best
efforts to promptly (i) obtain from any Governmental Entity any consents,
licenses, permits, waivers, approvals, authorizations or orders required to be
obtained or made by Acquiror or Target or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereunder and (ii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under the Securities Act and
the Exchange Act and any other applicable federal, state or foreign securities
laws.

                  (b) From the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, each party shall promptly
notify the other party in writing of any pending or, to the knowledge of such
party, threatened action, proceeding or investigation by any Governmental Entity
or any other person (i) challenging or seeking material damages in connection
with this Agreement or the transactions contemplated hereunder or (ii) seeking
to restrain or prohibit the consummation of the Merger or the transactions
contemplated

                                       33
<PAGE>   39
hereunder or otherwise limit the right of Acquiror or its subsidiaries to own or
operate all or any portion of the businesses or assets of Target or its
subsidiaries.

                  (c) Each of Acquiror and Target shall give or cause to be
given any required notices to third parties, and use its reasonable best efforts
to obtain all consents, waivers and approvals from third parties (i) necessary,
proper or advisable to consummate the transactions contemplated hereunder, (ii)
disclosed or required to be disclosed in the Target Disclosure Schedule or the
Acquiror Disclosure Schedule, or (iii) required to prevent a Material Adverse
Effect on Target or Acquiror from occurring prior or after the Effective Time.
In the event that Acquiror or Target shall fail to obtain any third party
consent, waiver or approval described in this Section 5.2(c), it shall use its
reasonable best efforts, and shall take any such actions reasonably requested by
the other party, to minimize any adverse effect upon Acquiror and Target, their
respective subsidiaries and their respective businesses resulting (or which
could reasonably be expected to result after the Effective Time) from the
failure to obtain such consent, waiver or approval.

                  (d) Each of Acquiror and Target will, and will cause their
respective subsidiaries to, take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on them with respect
to the consummation of the transactions contemplated by this Agreement and will
promptly cooperate with and furnish information to any party hereto necessary in
connection with any such requirements imposed upon such other party in
connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.

            5.3 ACCESS TO INFORMATION.

                  (a) Target shall afford Acquiror and its accountants, counsel
and other representatives reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's and its
Subsidiaries' properties, books, contracts, commitments and records, and (ii)
all other information concerning the business, properties and personnel of
Target and its Subsidiaries as Acquiror may reasonably request. Target agrees to
provide to Acquiror and its accountants, counsel and other representatives
copies of internal financial statements promptly upon request. Acquiror shall
afford Target and its accountants, counsel and other representatives reasonable
access during normal business hours during the period prior to the Effective
Time to (i) all of Acquiror's and its subsidiaries' properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Acquiror and its subsidiaries as
Target may reasonably request. Acquiror agrees to provide to Target and its
accountants, counsel and other representatives copies of internal financial
statements promptly upon request.

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

                                       34
<PAGE>   40
                  (c) No information or knowledge obtained in any investigation
pursuant to this Section 5.3 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.

            5.4 CONFIDENTIALITY. Any information concerning any party hereto
disclosed to any other party hereto or any party's affiliates or representatives
in connection with this Agreement or the transactions contemplated hereby, which
has not been publicly disclosed, shall be kept strictly confidential by such
party, its affiliates and/or representatives. Each party hereto shall keep, and
shall cause its affiliates and/or representatives to keep, such confidential
information in strict confidence.

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

            5.6 FIRPTA. Each Target Stockholder shall, prior to the Closing
Date, provide Acquiror with a properly executed certificate with respect to the
Foreign Investment and Real Property Tax Act of 1980 ("FIRPTA") in the form
attached hereto as Exhibit D ("FIRPTA Certificate").

            5.7 STATE STATUTES. If any state takeover law shall become
applicable to the transactions contemplated by this Agreement, Acquiror and its
Board of Directors or Target and its Board of Directors, as the case may be,
shall use their reasonable best efforts to grant such approvals and take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effects of such state takeover law on
the transactions contemplated by this Agreement.

            5.8 BLUE SKY LAWS. Acquiror shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.

            5.9 STOCKHOLDER'S REPRESENTATION AGREEMENTS. The Target Stockholders
will each execute and deliver to Acquiror a Stockholder's Representation
Agreement substantially in the form attached hereto as Exhibit E (the
"Stockholder's Representation Agreement") which imposes certain restrictions
regarding the resale of Acquiror Common Stock received in the Merger.

                                       35
<PAGE>   41
            5.10 MAINTENANCE OF TARGET INDEMNIFICATION OBLIGATIONS.

                  (a) Subject to and following the Effective Time, the Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation to,
indemnify and hold harmless the Indemnified Target Parties (as defined below) to
the extent provided in the Bylaws or Articles of Incorporation of Target, in
each case as in effect as of the date of this Agreement. The Surviving
Corporation shall, and Acquiror shall cause the Surviving Corporation to, keep
in effect such provisions, which shall not be amended except as required by
applicable law or to make changes permitted by applicable law that would enlarge
the rights to indemnification available to the Indemnified Target Parties and
changes to provide for exculpation of director and officer liability to the
fullest extent permitted by applicable law. For purposes of this Section 5.10,
"Indemnified Target Parties" shall mean the individuals who were officers,
directors, employees and agents of Target on or prior to the Effective Time.

                  (b) Subject to and following the Effective Time, Acquiror and
the Surviving Corporation shall be jointly and severally obligated to pay the
reasonable expenses, including reasonable attorney's fees, that may be incurred
by any Indemnified Target Party in enforcing the rights provided in this Section
5.10 and shall make any advances of such expenses to the Indemnified Target
Party that would be available under the Bylaws or Articles of Incorporation of
Target (in each case as in effect as of the date of this Agreement) with regard
to the advancement of indemnifiable expenses, subject to the undertaking of such
party to repay such advances in the event that it is ultimately determined that
such party is not entitled to indemnification.

                  (c) The provisions of this Section 5.10 shall be in addition
to any other rights available to the Indemnified Target Parties, shall survive
the Effective Time of the Merger, and are expressly intended for the benefit of
the Indemnified Target Parties.

            5.11 NON-COMPETITION AGREEMENTS. Prior to the Closing, the Target
Stockholders will each execute and deliver to Acquiror Non-Competition
Agreements substantially in the form of Exhibit F attached hereto (the
"Non-Competition Agreements").

            5.12 CERTAIN TAX MATTERS.

                  (a) Merger Sub shall cause to be prepared by Target's current
auditors and file or cause to be prepared and filed all income and franchise Tax
Returns for the Target and its Subsidiaries for all periods ending on or prior
to the Closing Date that are filed after the Closing Date in a manner consistent
with the prior Tax Returns of Target and it Subsidiaries; provided, however,
that Merger Sub shall not be required to take any position that it reasonably
believes could subject it to penalty. Merger Sub shall permit Target
Stockholders to review and comment upon each Tax Return prior to filing and
shall make such revisions to such Tax Returns as are reasonably requested by a
majority of the Target Stockholders. All parties hereto agree to cooperate with
each other and with each other's agents, including accounting firms and legal
counsel, in connection with the preparation and filing of Tax Returns pursuant
to this Section 5.12(a).

                                       36
<PAGE>   42
                  (b) Neither Acquiror nor Merger Sub shall file any amended
returns for Target for tax period ending on or prior to the Closing Date without
the consent of a majority in interest of the Target Stockholders.

                  (c) Neither Acquiror nor Merger Sub shall take any action,
either before or after the Merger, that would cause the Merger to fail to
constitute a "reorganization" within the meaning of Section 368(a) of the Code.

            5.13 401(k) PLAN. Prior to the Closing, Target shall terminate the
Hagen Systems, Inc. 401(k) Plan. For purposes of the 401(k) plan sponsored by
Acquiror and/or its affiliates, (a) service with Target credited under the Hagen
Systems, Inc. 401(k) Plan as of the Closing shall be credited under the 401(k)
plan sponsored by Acquiror and/or its affiliates and (b) individuals who are
Target employees immediately prior to the Closing shall be considered to be
members of a class eligible for the 401(k) plan sponsored by Acquiror and/or its
affiliates.

            5.14 WAIVER OF DISSENTER'S RIGHTS. Each Target Stockholder
acknowledges that such Target Stockholder has received from Target an adequate
disclosure and notice as required under Minnesota Law that such Target
Stockholder is entitled under the provisions of Section 302A.471 of the
Minnesota Law to dissent from the Merger and receive the fair market value of
his or her shares of Target Common Stock in accordance with the terms,
conditions and procedures set forth in Section 302A.471 of the Minnesota Law.
Each Target Stockholder hereby irrevocably and unconditionally waives any and
all rights which such Target Stockholder has or may have to dissent from the
Merger under or by reason of Section 302A.471 of the Minnesota Law and agrees
with the Acquiror, Merger Sub, Target and each other Target Stockholder that the
fair market value of each share of Target Common Stock for purposes of such
Section 302A.471 is not greater than the per share Merger Consideration and
agrees that he or she shall not exercise or attempt to exercise any rights of
dissent with respect to the Merger provided for in such Section 302A.471.

            5.15 STOCK OPTION AGREEMENTS. Promptly after the Closing Date,
Acquiror shall enter into stock option agreements with those new employees of
Merger Sub listed on the Employees Stock Options List (dated 2-17-2000) provided
by Target on February 16, 2000, granting to each such employee options to
acquire the number of shares of Acquiror's Common Stock listed opposite such
employee's name at a purchase price equal to the share price used to calculate
the Exchange Ratio at Closing, such option to be subject to Acquiror's normal
terms and conditions, including vesting restrictions.

                                   SECTION SIX

      6. CONDITIONS TO THE MERGER.

            6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to this Agreement to consummate and
effect this Agreement and the transactions contemplated hereby shall be subject
to the satisfaction on or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:

                                       37
<PAGE>   43
                  (a) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.

                  (b) GOVERNMENTAL APPROVAL. Acquiror, Target and Merger Sub and
their respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for consummation
of or in connection with the Merger and the several transactions contemplated
hereby, including, without limitation, such approvals, waivers and consents as
may be required under the Securities Act and under any state securities laws.

                  (c) TAX OPINION. Acquiror and Target shall have received
written opinions of Acquiror's legal counsel and Target's legal counsel,
respectively, dated on or about the Closing Date, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code, and such opinions shall not have been withdrawn. In rendering such
opinions, counsel shall be entitled to rely upon, among other things, reasonable
assumptions as well as representations of Acquiror, Merger Sub and Target and
Target Stockholders.

                  (d) Merger Sub shall have entered into employee agreements
with Richard J. Hagen and Steven R. Peterson, substantially in the form of
Exhibit G hereto, and shall have entered into an employment agreement with
Robert Bierwagen upon mutually agreeable terms.

            6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TARGET. The obligations
of Target to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by Target:

                  (a) REPRESENTATIONS, WARRANTIES AND COVENANTS (i) Each of the
representations and warranties of Acquiror and Merger Sub in this Agreement that
is expressly qualified by a reference to materiality shall be true in all
respects as so qualified, and each of the representations and warranties of
Acquiror and Merger Sub in this Agreement that is not so qualified shall be true
and correct in all material respects, on and as of the Effective Time as though
such representation or warranty had been made on and as of such time (except
that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date), and (ii)
Acquiror and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective Time.

                                       38
<PAGE>   44
                  (b) Certificates of Acquiror.

                        (i) COMPLIANCE CERTIFICATE OF ACQUIROR. Target shall
have been provided with a certificate executed on behalf of Acquiror by its
President or its Chief Financial Officer to the effect that, as of the Effective
Time, each of the conditions set forth in Sections 6.1(a) has been satisfied
with respect to Acquiror.

                        (ii) CERTIFICATE OF SECRETARY OF ACQUIROR. Target shall
have been provided with a certificate executed by the Secretary or Assistant
Secretary of Acquiror certifying:

                              (A) Resolutions duly adopted by the Board of
Directors and the stockholders of Acquiror authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and

                              (B) the incumbency of the officers of
Acquiror executing this Agreement and all agreements and documents contemplated
hereby.

                  (c) Certificates of Merger Sub.

                        (i) COMPLIANCE CERTIFICATE OF MERGER SUB. Target shall
have been provided with a certificate executed on behalf of Merger Sub by its
President or its Chief Financial Officer to the effect that, as of the Effective
Time, each of the conditions set forth in Section 6.1(a) has been satisfied with
respect to Merger Sub.

                        (ii) CERTIFICATE OF SECRETARY OF MERGER SUB. Target
shall have been provided with a certificate executed by the Secretary or
Assistant Secretary of Merger Sub certifying:

                              (A) Resolutions duly adopted by the Board of
Directors and the sole stockholder of Merger Sub authorizing the execution of
this Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby; and

                              (B) the incumbency of the officers of Merger Sub
executing this Agreement and all agreements and documents contemplated hereby.

                  (d) LEGAL OPINION. Target shall have received a legal opinion
from Acquiror's legal counsel substantially in the form of Exhibit H hereto.

                  (e) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its subsidiaries,
taken as a whole since the Acquiror Balance Sheet Date (it being understood that
none of the following shall be deemed, in and of itself, to constitute a
material adverse change in the financial condition, assets, liabilities,
operations or financial performance of the Acquiror since the Acquiror Balance
Sheet Date: (a) a change that results from conditions

                                       39
<PAGE>   45
generally affecting the U.S. economy or the world economy, (b) a change that
results from conditions generally affecting the Acquiror's industry, (c) a
change that results from the announcement or pendency of the transactions
contemplated hereby and (d) a change that results from the taking of any action
required by this Agreement).

                  (f) GOOD STANDING. Target shall have received a certificate or
certificates of the Secretary of State of the State of Delaware and any
applicable franchise tax authority of such state, certifying as of a date no
more than 5 business days prior to the Effective Time that each of Acquiror and
Merger Sub has filed all required reports, paid all required fees and taxes and
is, as of such date, in good standing and authorized to transact business as a
domestic corporation.

                  (g) CLOSING OF RELATED TRANSACTIONS. Acquiror shall have
closed its Series D Preferred Stock financing.

            6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND MERGER
SUB. The obligations of Acquiror and Merger Sub to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Acquiror:

                  (a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) Each of the
representations and warranties of Target in this Agreement that is expressly
qualified by a reference to materiality shall be true in all respects as so
qualified, and each of the representations and warranties of Target in this
Agreement that is not so qualified shall be true and correct in all material
respects, on and as of the Effective Time as though such representation or
warranty had been made on and as of such time (except that those representations
and warranties which address matters only as of a particular date shall remain
true and correct as of such date), and (ii) Target shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Effective Time.

                  (b) NO MATERIAL ADVERSE CHANGES. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Target and its subsidiaries,
taken as a whole since the Target Balance Sheet Date (it being understood that
none of the following shall be deemed, in and of itself, to constitute a
material adverse change in the financial condition, assets, liabilities,
operations or financial performance of Target since the Target Balance Sheet
Date: (a) a change that results from conditions generally affecting the U.S.
economy or the world economy, (b) a change that results from conditions
generally affecting Target's industry, (c) a change that results from the
announcement or pendency of the transactions contemplated hereby and (d) a
change that results from the taking of any action required by this Agreement).

                                       40
<PAGE>   46
                  (c) Certificates of Target.

                        (i) COMPLIANCE CERTIFICATE OF TARGET. Acquiror and
Merger Sub shall have been provided with a certificate executed on behalf of
Target by its President or (see 6.2) its Chief Financial Officer to the effect
that, as of the Effective Time, each of the conditions set forth in Section
6.3(a) and (b) above has been satisfied.

                        (ii) CERTIFICATE OF SECRETARY OF TARGET. Acquiror and
Merger Sub shall have been provided with a certificate executed by the Secretary
of Target certifying:

                              (A) Resolutions duly adopted by the Board of
Directors and the stockholders of Target authorizing the execution of this
Agreement and the execution, performance and delivery of all agreements,
documents and transactions contemplated hereby;

                              (B) The Articles of Incorporation and Bylaws of
Target, as in effect immediately prior to the Effective Time, including all
amendments thereto; and

                              (C) the incumbency of the officers of Target
executing this Agreement and all agreements and documents contemplated hereby.

                  (d) THIRD PARTY CONSENTS. Acquiror shall have been furnished
with evidence satisfactory to it that Target has obtained those consents,
waivers, approvals or authorizations of those Governmental Entities and third
parties whose consent or approval are required in connection with the Merger.

                  (e) LEGAL OPINION. Acquiror shall have received a legal
opinion from Target's legal counsel, in substantially the form of Exhibit I.

                  (f) FIRPTA CERTIFICATES. Each Target Stockholder shall, prior
to the Closing Date, provide Acquiror with a properly executed FIRPTA
Certificate

                  (g) STOCKHOLDER'S REPRESENTATION AGREEMENTS. Acquiror shall
have received from the holders of the Target Capital Stock, outstanding
immediately prior to the Effective Time, duly executed and delivered the
Stockholder's Representation Agreements.

                  (h) NON-COMPETITION AGREEMENTS. Each of the Target
Stockholders shall have executed a Non-Competition Agreement.

                  (i) GOOD STANDING. Acquiror shall have received a certificate
or certificates of the Secretary of State of the State of Minnesota and any
applicable franchise tax authority of such state, certifying as of a date no
more than 5 business days prior to the Effective Time that Target and has filed
all required reports, paid all required fees and taxes and is, as of such date,
in good standing and authorized to transact business as a domestic corporation.

                  (j) RELEASE. Target shall deliver to Acquiror (i) a release
from each of Alvin H. Hagen and Jean A. Hagen (the "Secured Party") of all of
Target's obligations to the Secured Party under the Promissory Note in favor of
the Secured Party, dated July 1, 1994, in the principal amount of $619,255.80
and the Pledge Agreement of even date therewith and

                                       41
<PAGE>   47
(ii) evidence of termination, without cost to Target, of the Consulting
Agreement between Target and Al Hagen dated as of January 1, 1994.

                  (k) PLAN TERMINATION. Target, without liability to Acquiror,
shall have terminated the Hagen Systems, Inc. 401(K) Plan and delivered evidence
of such termination to Acquiror.

                  (l) TARGET COMMON STOCK CERTIFICATES. The Target Stockholders
shall deliver to Acquiror for cancellation the stock certificates, in form
suitable for transfer, evidencing all the issued and outstanding shares of
Target Common Stock, endorsed in blank or with an executed blank stock transfer
power attached thereto.

                  (m) VOTING AGREEMENT; CO-SALE AGREEMENT. Each of the Target
Stockholders shall have executed and delivered to Acquiror an Amended and
Restated Voting Agreement and an Amended and Restated Right of First Refusal and
Co-Sale Agreement, substantially in the forms of the Second Amended Voting
Agreement and the Second Amended and Restated Right of First Refusal and Co-Sale
Agreement, delivered to Target's counsel on February 17, 2000.

                                  SECTION SEVEN

      7. TERMINATION, AMENDMENT AND WAIVER.

            7.1 TERMINATION. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of Target, this Agreement may be terminated and the Merger
may be abandoned:

                  (a) by mutual consent duly authorized by the Boards of
Directors of each of Acquiror and Target;

                  (b) by either Acquiror or Target, if, without fault of the
terminating party;

                        (i) the Effective Time shall not have occurred on or
before March 1, 2000 (or such later date as may be agreed upon in writing by the
parties); or

                        (ii) there shall be any applicable federal or state law
that makes consummation of the Merger illegal or otherwise prohibited or if any
court of competent jurisdiction or Governmental Entity shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other action
shall have become final and nonappealable.

                  (c) by Acquiror, if Target shall materially breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured within 2 business days of receipt by Target of written notice of
such breach, provided that Acquiror is not in material breach of any of its
representations, warranties or obligations

                                       42
<PAGE>   48
hereunder, and provided further, that no cure period shall be required for a
breach which by its nature cannot be cured;

                  (d) by Target, if Acquiror shall materially breach any of its
representations, warranties or obligations hereunder and such breach shall not
have been cured within 2 business days following receipt by Acquiror of written
notice of such breach, provided that Target is not in material breach of any of
its representations, warranties or obligations hereunder, and provided further,
that no cure period shall be required for a breach which by its nature cannot be
cured.

            7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror, Merger
Sub or Target or their respective officers, directors, stockholders or
affiliates, except to the extent that such termination results from the breach
by a party hereto of any of its representations, warranties or covenants set
forth in this Agreement; provided that, the provisions of Section 5.4
(Confidentiality), Section 7.3 (Expenses) and this Section 7.2 shall remain in
full force and effect and survive any termination of this Agreement.

            7.3 EXPENSES. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated including, without limitation, filing fees and the fees and
expenses of advisors, accountants, legal counsel and financial printers, shall
be paid by Acquiror.

            7.4 AMENDMENT. The boards of directors of the parties may cause this
Agreement to be amended at any time by execution of an instrument in writing
signed on behalf of each of the parties; provided that an amendment made
subsequent to adoption of the Agreement by the stockholders of Target or Merger
Sub shall not (i) alter or change the amount or kind of consideration to be
received on conversion of the Target Capital Stock, (ii) alter or change any
term of the Certificate of Incorporation of the Surviving Corporation to be
effected by the Merger, or (iii) alter or change any of the terms and conditions
of the Agreement if such alteration or change would adversely affect the
stockholders of Target or Merger Sub.

            7.5 EXTENSION; WAIVER. At any time prior to the Effective Time any
party may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties, (ii)
waive any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto, and (iii) waive
compliance with any of the agreements or conditions for the benefit of such
party contained herein. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.

                                  SECTION EIGHT

      8. ESCROW AND INDEMNIFICATION.

            8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement

                                       43
<PAGE>   49
or in any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and continue until the 12 month anniversary of the
Closing Date (the "Escrow Termination Date"), except for the representations and
warranties contained in Sections 2.3 and 2.15 which shall survive the Closing
Date until 30 days after the expiration of the applicable statue of limitations,
giving effect to any extension thereof (the "Tax Indemnity Termination Date");
provided that if any claims for indemnification have been asserted with respect
to any such representations and warranties prior to the Escrow Termination Date
or, with respect to the representations and warranties contained in Sections 2.3
and 2.15, the Tax Indemnity Termination Date, the representations and warranties
on which any such claims are based shall continue in effect until final
resolution of any claims. All covenants to be performed after the Effective Time
shall continue indefinitely.

            8.2 ESCROW FUND. At the Effective Time, Subordinated Promissory
Notes of the Acquiror in the amount of 10% of the aggregate Merger Consideration
shall, without any act of any stockholder of Target, be registered in the name
of, and be deposited with, Merger Sub as escrow agent (the "Escrow Agent"), such
deposit (together with principal paid thereon prior to the Escrow Termination
Date) to constitute the escrow fund (the "Escrow Fund"), to be governed by the
terms set forth herein. In the event that any Damages (as defined below) arise,
the Escrow Fund shall be available to compensate the Indemnified Persons
(defined below) pursuant to the indemnification obligations of the stockholders
of the Target pursuant to Section 8.3.

            8.3 INDEMNIFICATION BY TARGET AND TARGET SHAREHOLDERS.

                  (a) INDEMNIFIED DAMAGES. Subject to the limitations set forth
in this Section 8, from and after the Effective Time, Target (in the event that
Merger does not Close) and Target Stockholders shall jointly and severally
protect, defend, indemnify and hold harmless Acquiror and the Surviving
Corporation and their respective affiliates, officers, directors, employees,
representatives and agents (Acquiror, Surviving Corporation and each of the
foregoing persons or entities is hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all losses, costs, damages, liabilities, fees (including without
limitation attorneys' fees) and expenses (collectively, the "Damages"), that any
of the Indemnified Persons incurs by reason of or in connection with any claim,
demand, action or cause of action alleging misrepresentation, breach of, or
default in connection with, any of the representations, warranties, covenants or
agreements of Target contained in this Agreement, including any exhibits or
schedules attached hereto, and the Certificate of Merger, which becomes known to
Acquiror during the Escrow Period or, with respect to the representations and
warranties contained in Sections 2.3 and 2.15, the Tax Indemnity Termination
Date. Damages in each case shall be net of the amount of any insurance proceeds
and indemnity and contribution actually recovered by Acquiror or the Surviving
Corporation.

                  (b) EXCLUSIVE CONTRACTUAL REMEDY AND LIMITATIONS. Acquiror,
the former stockholders of Target and Target each acknowledge that Damages, if
any, would relate to unresolved contingencies existing at the Effective Time,
which if resolved at the Effective Time would have led to a reduction in the
total consideration Acquiror would have agreed to pay in connection with the
Merger. Resort to the Escrow Fund shall be the exclusive contractual remedy of
Acquiror and Surviving Corporation for any Damages if the Merger closes except
as

                                       44
<PAGE>   50
hereinafter provided. The maximum liability of any former holder of the Target
Capital Stock for any breach of a representation, warranty or covenant of the
Target shall be limited to the Escrow Fund in which such holder has an interest;
provided, however, that nothing herein shall limit the liability: (i) of Target
for any breach of representation, warranty or covenant if the Merger does not
close, (ii) of any Target Stockholder in connection with any breach by such
stockholder of the Stockholder Representation Agreement, (iii) of Target or
Target Stockholders in connection with any breach of any of the representations
and warranties contained in Sections 2.1, 2.3, 2.4 and 2.15 and (iv) of any
officer, director or Target Stockholder for such person's or entity's fraud or
intentional misrepresentation.

            8.4 DAMAGES THRESHOLD. Notwithstanding the foregoing, Acquiror may
not receive any amount from the Escrow Fund unless and until a certificate
signed by an officer of Acquiror (an "Officer's Certificate") identifying
Damages in the aggregate amount in excess of $100,000 has been delivered to the
Escrow Agent and such amount is determined pursuant to this Section 8 to be
payable, in which case Acquiror shall receive a proportional amount of escrowed
shares and escrowed cash from the Escrow Fund equal in value to the full amount
of such Damages without deduction. In determining the amount of any Damages
attributable to a breach, any materiality standard contained in any
representation, warranty or covenant of Target and Target Shareholders shall be
disregarded.

            8.5 ESCROW PERIOD. Subject to the following requirements, the Escrow
Fund shall remain in existence until the Escrow Termination Date (the "Escrow
Period"). Upon the expiration of the Escrow Period, the Escrow Fund shall
terminate; provided, however, that the amount of escrowed cash and escrowed
notes in the Escrow Fund, which, in the reasonable judgment of Acquiror, subject
to the objection of the Stockholders' Representative (as defined in Section 8.8
below) and the subsequent arbitration of the claim in the manner provided
herein, are necessary to satisfy any unsatisfied claims specified in any
Officer's Certificate delivered to the Escrow Agent prior to the expiration of
such Escrow Period with respect to facts and circumstances existing on or prior
to the Escrow Termination Date shall remain in the Escrow Fund (and the Escrow
Fund shall remain in existence) until such claims have been resolved. As soon as
all such claims have been resolved, the Escrow Agent shall deliver to Target
Stockholders all escrowed cash and escrowed notes remaining in the Escrow Fund
and not required to satisfy such claims. Deliveries of from the Escrow Fund to
Target Stockholders pursuant to this Section 8.5 shall be made in proportion to
their respective original contributions to the Escrow Fund.

            8.6 METHOD OF ASSERTING CLAIMS. All claims for indemnification by
the Surviving Corporation or any other Indemnified Person pursuant to this
Section 8 shall be made in accordance with the provisions of this Agreement.

            8.7 REPRESENTATIVE OF THE STOCKHOLDERS; POWER OF ATTORNEY. The
Target Stockholders hereby appoint Richard Hagen as agent and attorney-in-fact
(collectively, the "Stockholders' Representative") for each Target Stockholder
(except such stockholders, if any, as shall have perfected their appraisal
rights under Minnesota Law), for and on behalf of Target Stockholders, to give
and receive notices and communications on behalf of Target Stockholders, to
authorize delivery to Acquiror of escrowed subordinated Promissory Notes from
the Escrow Fund in satisfaction of claims by Acquiror or any other Indemnified
Person, to object to such

                                       45
<PAGE>   51
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Stockholders' Representative for the
accomplishment of the foregoing. The Stockholders' Representative shall act by
vote or written action or consent of a majority of the members of the Committee.

            8.8 INDEMNIFICATION BY ACQUIROR.

                  (a) INDEMNIFIED DAMAGES. Subject to the limitations set forth
in this Section 8, from and after the Effective Time, Acquiror shall protect,
defend, indemnify and hold harmless Target (in the event that Merger does not
Close) Target Stockholders and their respective affiliates, officers, directors,
employees, representatives and agents (Target, Target Stockholders and each of
the foregoing persons or entities is hereinafter referred to individually as an
"Indemnified Person" and collectively as "Indemnified Persons") from and against
any and all losses, costs, damages, liabilities, fees (including without
limitation attorneys' fees) and expenses (collectively, the "Damages"), that any
of the Indemnified Persons incurs by reason of or in connection with any claim,
demand, action or cause of action alleging misrepresentation, breach of, or
default in connection with, any of the representations, warranties, covenants or
agreements of Acquiror and Merger Sub contained in this Agreement, including any
exhibits or schedules attached hereto, and the Certificate of Merger, which
becomes known to Target or Target Shareholders during the Escrow Period. Damages
in each case shall be net of the amount of any insurance proceeds and indemnity
and contribution actually recovered by Target or Target Shareholders.

                  (b) LIMITATIONS. The maximum liability of Acquiror and Merger
Sub for any breach of a representation, warranty or covenant of Acquiror or
Merger Sub shall be limited to the amount of 10% of the aggregate Merger
Consideration; provided, however, that nothing herein shall limit the liability:
(i) of Acquiror for any breach of representation, warranty or covenant if the
Merger does not close, (ii) of Acquiror or Merger Sub in connection with any
breach of any of the representations and warranties contained in Sections 3.1,
3.2 and 3.3 and (iii) of any officer, director or Acquiror for such person's or
entity's fraud or intentional misrepresentation.

            8.9 DAMAGES THRESHOLD. Notwithstanding the foregoing, Acquiror and
Merger Sub shall have any liability for any breach of a representation, warranty
or covenant of Acquiror or Merger Sub unless Damages in the aggregate amount in
excess of $100,000 is determined pursuant to this Section 8 to be payable. In
determining the amount of any Damages attributable to a breach, any materiality
standard contained in a representation, warranty or covenant of Acquiror shall
be disregarded.

                                  SECTION NINE

      9. GENERAL PROVISIONS.

            9.1 NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile, or
48 hours after being deposited in the

                                       46
<PAGE>   52
regular mail as certified or registered mail (airmail if sent internationally)
with postage prepaid, if such notice is addressed to the party to be notified at
such party's address or facsimile number as set forth below, or as subsequently
modified by written notice,

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

                        printCafe, Inc.
                        Forty 24th Street, 5th Floor
                        Pittsburgh, PA 15222
                        Attention:  Chief Executive Officer
                        Facsimile No.:  (412) 456-1151
                        Telephone No.:  (412) 456-1141

                        with a copy to:

                        Orrick, Herrington & Sutcliffe LLP
                        666 Fifth Avenue
                        New York, New York 10103
                        Attention:  Daniel A. Mathews, Esq.
                        Facsimile No.:  (212) 506-5151
                        Telephone No.:  (212) 506-5050

                  (b)   if to Target, to:

                        6438 CityWest Parkway
                        Eden Prairie, MN 55344
                        Attention:  President
                        Facsimile No.: (612) 944-4729
                        Telephone No.: (612) 944-6865

                        with a copy to:

                        Gray, Plant, Mooty, Mooty & Bennett, P.A.
                        3400 City Center,
                        33 South Sixth Street,
                        Minneapolis, MN 55402
                        Attention: Jeffrey Anderson
                        Facsimile No.: (612) 333-0066
                        Telephone No.: (612) 343-3958

                  (c)   if to Target Shareholders, to:

                        the addresses set forth on the signature pages hereof

            9.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made

                                       47
<PAGE>   53
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date first set forth above. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.

            9.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

            9.4 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a)-(c) and (g), 1.7. 1.8, 1.12; and (c) shall not be assigned by operation
of law or otherwise except as otherwise specifically provided.

            9.5 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.

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

            9.7 GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law.

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

                                       48
<PAGE>   54
            9.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended or waived only with the written consent of the parties or their
respective successors and assigns. Any amendment or waiver effected in
accordance with this Section 9.9 shall be binding upon the parties and their
respective successors and assigns.

                            [Signature Page Follows]

                                       49
<PAGE>   55

      Acquiror, Merger Sub, Target and Target Stockholders have executed this
Agreement as of the date first written above.

                                       TARGET

                                       HAGEN SYSTEMS, INC.

                                       By:
                                                --------------------------------
                                       Name:
                                                --------------------------------
                                                             (Print)

                                       Title:
                                                --------------------------------
                                       Address:
                                                --------------------------------

                                       ACQUIROR

                                       PRINTCAFE, INC.

                                       By:
                                                --------------------------------
                                       Name:
                                                --------------------------------
                                                             (Print)

                                       Title:
                                                --------------------------------

                                       MERGER SUB:

                                       PRINTCAFE SYSTEMS, INC.

                                       By:
                                                --------------------------------
                                       Name:
                                                --------------------------------
                                                             (Print)

                                       Title:
                                                --------------------------------

                                       TARGET STOCKHOLDERS

                                       50
<PAGE>   56
                                       -----------------------------------------
                                       RICHARD J. HAGEN

                                       Address:

                                       -----------------------------------------
                                       STEVEN R. PETERSON

                                       Address:

                                       -----------------------------------------
                                       PATRICIA J. PETERSON

                                       Address:

                                       51

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