-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VrnLMwAsvyInZCK6xOIe19E/DelMRXgPBaNa92p3fvU1lUFI6Li96NH760afpcCR MVdFa+Ido5qVGcRTcXwKVQ== 0000950117-00-000017.txt : 20000202 0000950117-00-000017.hdr.sgml : 20000202 ACCESSION NUMBER: 0000950117-00-000017 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991026 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DOUBLECLICK INC CENTRAL INDEX KEY: 0001049480 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 133870996 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23709 FILM NUMBER: 504741 BUSINESS ADDRESS: STREET 1: 41 MADISON AVE STREET 2: 32ND FL CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2126830001 MAIL ADDRESS: STREET 1: 41 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10010 8-K/A 1 DOUBLECLICK INC. 8-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 26, 1999 ----------------------------- DoubleClick Inc. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 000-23709 13-3870996 - ------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 450 W. 33rd Street, New York, New York 10001 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 683-0001 - ------------------------------------------------------------------------------- Not Applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) This Current Report on Form 8-K/A amends the Current Report on Form 8-K filed on November 10, 1999. Item 2. Acquisition or Disposition of Assets On October 26, 1999, DoubleClick Inc. (the "Company") completed the acquisition of NetGravity, Inc. ("NetGravity") pursuant to the terms of the previously reported Agreement and Plan of Merger and Reorganization, dated as of July 12, 1999 (the "Agreement"), among the Company, NetGravity and NJ Merger Corporation, a wholly owned subsidiary of the Company ("Merger Sub"). Merger Sub merged with and into NetGravity, with NetGravity surviving the merger as a wholly owned subsidiary of the Company (the "Merger"). In the Merger, each share of NetGravity common stock was converted into the right to receive 0.28 shares of Company common stock. The Company also assumed outstanding options to acquire NetGravity common stock and converted these into options to acquire Company common stock at the same exchange ratio used in the Merger for the outstanding NetGravity common stock. The terms of the Merger were determined through arms-length negotiations between the Company and NetGravity. The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code of 1986, as amended, and is intended to be accounted for as a pooling of interests. Following the Merger, the Company caused NetGravity to merge with and into the Company. Copies of the Company's press release announcing the effectiveness of the Merger and the Company's intended plans for NetGravity to be included in the DoubleClick Technology Solutions division of DoubleClick Inc. are incorporated herein by reference and included as Exhibit 99.1 hereto. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Information The following appear as Exhibit 99.2 to this Current Report on Form 8-K/A and are incorporated into this document by reference: (i) Independent Auditors Report; (ii) NetGravity, Inc. Consolidated Balance Sheets as of December 31, 1997 and 1998; (iii) NetGravity, Inc. Consolidated Statements of Operations for the three years ended December 31, 1998; (iv) NetGravity, Inc. Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended December 31, 1998; (v) NetGravity, Inc. Consolidated Statements of Cash Flows for the three years ended December 31, 1998; and (vi) Notes to Consolidated Financial Statements. The following appear as Exhibit 99.3 to this Current Report on Form 8-K/A and are incorporated into this document by reference: (i) NetGravity, Inc. Unaudited Condensed Consolidated Balance Sheets as of June 30, 1999 and 1998; (ii) NetGravity, Inc. Unaudited Condensed Consolidated Statements of Operations for the six and three months ended June 30, 1999 and 1998; (iii) NetGravity, Inc. Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998; and (vi) Notes to Unaudited Condensed Consolidated Financial Statements. (b) Pro Forma Financial Information The following appear as Exhibit 99.4 to this Current Report on Form 8-K/A and are incorporated into this document by reference: (i) DoubleClick Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1999; (ii) DoubleClick Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months ended June 30, 1999; (iii) DoubleClick Unaudited Pro Forma Condensed Combined Statement of Operations for the Six Months ended June 30, 1998; (iv) DoubleClick Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 1998; (v) DoubleClick Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 1997; (vi) DoubleClick Unaudited Pro Forma Condensed Combined Statement of Operations for the Year ended December 31, 1996; and (vii) Notes to Unaudited Pro Forma Condensed Combined Financial Statements. (c) Exhibits 2.1 Agreement and Plan of Merger and Reorganization, dated as of July 12, 1999, among DoubleClick Inc., NJ Merger Corporation and NetGravity, Inc. 23.1 Consent of Independent Accountants 99.1 Press release issued by the Company on October 26, 1999 announcing the completion of the Company's acquisition of NetGravity, Inc. 99.2 NetGravity, Inc. Audited Financial Statements for the period ended December 31, 1998. 99.3 NetGravity, Inc. Unaudited Financial Statements for the period ended June 30, 1999. 99.4 Unaudited Pro Forma Condensed Combined Financial Statements of the Company for the years ended December 31, 1998, 1997 and 1996, and as of and for the six months ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DOUBLECLICK INC. /s/ Stephen R. Collins --------------------------- January 7, 2000 Stephen R. Collins --------------------------- --------------------------- Date Chief Financial Officer EXHIBIT INDEX Exhibits 2.1 Agreement and Plan of Merger and Reorganization, dated as of July 12, 1999, among DoubleClick Inc., NJ Merger Corporation and NetGravity, Inc. 23.1 Consent of Independent Accountants 99.1 Press release issued by the Company on October 26, 1999 announcing the completion of the Company's acquisition of NetGravity, Inc. 99.2 NetGravity, Inc. Audited Financial Statements for the period ended December 31, 1998. 99.3 NetGravity, Inc. Unaudited Financial Statements for the period ended June 30, 1999. 99.4 Unaudited Pro Forma Condensed Combined Financial Statements of the Company for the years ended December 31, 1998, 1997 and 1996, and as of and for the six months ended June 30, 1999. EX-2 2 EXHIBIT 2.1 APPENDIX A AGREEMENT AND PLAN OF MERGER AND REORGANIZATION among DOUBLECLICK INC., NJ MERGER CORPORATION and NETGRAVITY, INC. Dated as of July 12, 1999 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS. A-1 SECTION 1.01 Certain Defined Terms.............................................................................. A-1 ARTICLE II THE MERGER. A-4 SECTION 2.01 The Merger......................................................................................... A-4 SECTION 2.02 Closing............................................................................................ A-4 SECTION 2.03 Effective Time..................................................................................... A-5 SECTION 2.04 Effect of the Merger............................................................................... A-5 SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers of Surviving Corporation.............. A-5 ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES A-5 SECTION 3.01 Conversion of Shares............................................................................... A-5 SECTION 3.02 Exchange of Shares Other than Treasury Shares...................................................... A-6 SECTION 3.03 Stock Transfer Books............................................................................... A-7 SECTION 3.04 No Fractonal Share Certificates.................................................................... A-8 SECTION 3.05 Options to Purchase Company Common Stock........................................................... A-8 SECTION 3.06 Unvested Stock..................................................................................... A-9 SECTION 3.07 Employee Stock Purchase Plan....................................................................... A-9 SECTION 3.08 Certain Adjustments................................................................................ A-9 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY A-10 SECTION 4.01 Organization and Qualification; Subsidiaries....................................................... A-10 SECTION 4.02 Certificate of Incorporation and Bylaws............................................................ A-10 SECTION 4.03 Capitalization..................................................................................... A-10 SECTION 4.04 Authority Relative to This Agreement............................................................... A-11 SECTION 4.05 No Conflict; Required Filings and Consents......................................................... A-11 SECTION 4.06 Permits; Compliance with Laws...................................................................... A-12 SECTION 4.07 SEC Filings; Financial Statements.................................................................. A-12 SECTION 4.08 Absence of Certain Changes or Events............................................................... A-13 SECTION 4.09 Employee Benefit Plans; Labor Matters.............................................................. A-13 SECTION 4.10 Pooling; Certain Tax Matters....................................................................... A-15 SECTION 4.11 Contracts.......................................................................................... A-16 SECTION 4.12 Litigation......................................................................................... A-16 SECTION 4.13 Environmental Matters.............................................................................. A-16 SECTION 4.14 Intellectual Property.............................................................................. A-16 SECTION 4.15 Taxes.............................................................................................. A-18 SECTION 4.16 Insurance.......................................................................................... A-19 SECTION 4.17 Properties......................................................................................... A-19 SECTION 4.18 Affiliates......................................................................................... A-20 SECTION 4.19 Opinion of Financial Advisor....................................................................... A-20 SECTION 4.20 Brokers............................................................................................ A-20 SECTION 4.21 Certain Business Practices......................................................................... A-20 SECTION 4.22 Section 203 of the DGCL Not Applicable............................................................. A-20 SECTION 4.23 Business Activity Restriction...................................................................... A-20 ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT A-21 SECTION 5.01 Organization and Qualification; Subsidiaries....................................................... A-21 SECTION 5.02 Certificate of Incorporation and Bylaws............................................................ A-21 SECTION 5.03 Capitalization..................................................................................... A-21 SECTION 5.04 Authority Relative to this Agreement............................................................... A-22 SECTION 5.05 No Conflict; Required Filings and Consents......................................................... A-22
PAGE SECTION 5.06 SEC Filings; Financial Statements.................................................................. A-23 SECTION 5.07 Pooling; Certain Tax Matters....................................................................... A-23 SECTION 5.08 Opinion of Financial Advisor....................................................................... A-23 SECTION 5.09 Brokers............................................................................................ A-24 SECTION 5.10 Affiliates......................................................................................... A-24 ARTICLE VI COVENANTS.. A-24 SECTION 6.01 Conduct of Business by Company Pending the Closing................................................. A-24 SECTION 6.02 Notices of Certain Events.......................................................................... A-26 SECTION 6.03 Access to Information; Confidentiality............................................................. A-26 SECTION 6.04 No Solicitation of Transactions.................................................................... A-27 SECTION 6.05 Tax-Free Transaction; Pooling...................................................................... A-27 SECTION 6.06 Control of Operations.............................................................................. A-27 SECTION 6.07 Further Action; Consents; Filings.................................................................. A-28 SECTION 6.08 Additional Reports................................................................................. A-28 SECTION 6.09 Tax Information.................................................................................... A-28 SECTION 6.10 Conduct of Business by Parent...................................................................... A-29 ARTICLE VII ADDITIONAL AGREEMENTS A-29 SECTION 7.01 Registration Statement; Proxy Statement............................................................ A-29 SECTION 7.02 Stockholders' Meeting.............................................................................. A-30 SECTION 7.03 Affiliates......................................................................................... A-31 SECTION 7.04 Directors' and Officers' Indemnification and Insurance............................................. A-31 SECTION 7.05 No Shelf Registration.............................................................................. A-32 SECTION 7.06 Public Announcements............................................................................... A-32 SECTION 7.07 NNM Listing........................................................................................ A-32 SECTION 7.08 Blue Sky........................................................................................... A-32 SECTION 7.09 Employee Benefit Matters........................................................................... A-32 SECTION 7.10 Registration Statement Form S-8.................................................................... A-32 ARTICLE VIII CONDITIONS TO THE MERGER A-33 SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger............................... A-33 SECTION 8.02 Conditions to the Obligations of Company........................................................... A-33 SECTION 8.03 Conditions to the Obligations of Parent............................................................ A-34 ARTICLE IX TERMINATION, AMENDMENT AND WAIVER A-35 SECTION 9.01 Termination........................................................................................ A-35 SECTION 9.02 Effect of Termination.............................................................................. A-36 SECTION 9.03 Amendment.......................................................................................... A-36 SECTION 9.04 Waiver............................................................................................. A-36 SECTION 9.05 Termination Fee; Expenses.......................................................................... A-36 ARTICLE X GENERAL PROVISIONS A-37 SECTION 10.01 Non-Survival of Representations and Warranties..................................................... A-37 SECTION 10.02 Notices............................................................................................ A-37 SECTION 10.03 Severability....................................................................................... A-38 SECTION 10.04 Assignment; Binding Effect; Benefit................................................................ A-38 SECTION 10.05 Incorporation of Exhibits.......................................................................... A-38 SECTION 10.06 Governing Law...................................................................................... A-39 SECTION 10.07 Waiver of Jury Trial............................................................................... A-39 SECTION 10.08 Headings; Interpretation........................................................................... A-39 SECTION 10.09 Counterparts....................................................................................... A-39 SECTION 10.10 Entire Agreement................................................................................... A-39
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of July 12, 1999 (as amended, supplemented or otherwise modified from time to time, this "AGREEMENT"), among DOUBLECLICK INC., a Delaware corporation ("PARENT"), NETGRAVITY, INC., a Delaware corporation ("COMPANY"), and NJ MERGER CORPORATION, a Delaware corporation and a direct wholly owned subsidiary of Parent ("MERGER SUB"): W I T N E S S E T H: WHEREAS, the boards of directors of Parent and Company have determined that it is advisable and in the best interests of their respective companies and stockholders to enter into a business combination by means of the merger of Merger Sub with and into Company (the "MERGER") and have approved and adopted this Agreement; WHEREAS, concurrently with the execution of this Agreement and as an inducement to Parent to enter into this Agreement, certain stockholders of Company have entered into a stockholder agreement (each, a "STOCKHOLDER AGREEMENT") in the form attached hereto as Annex A; WHEREAS, upon the terms and subject to the conditions of this Agreement and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), Parent will acquire all of the common stock of Company through the merger of Merger Sub with and into Company; WHEREAS, for financial reporting purposes, it is intended that the Merger be accounted for as a "pooling of interests" under United States generally accepted accounting principles ("U.S. GAAP") and the accounting standards of the United States Securities and Exchange Commission (the "SEC"); and WHEREAS, for United States Federal income tax purposes, it is intended that the Merger shall qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the "CODE"), and that this Agreement shall be, and hereby is, adopted as a plan of reorganization for purposes of Section 368 of the Code; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.01 Certain Defined Terms Unless the context otherwise requires, the following terms, when used in this Agreement, shall have the respective meanings specified below (such meanings to be equally applicable to the singular and plural forms of the terms defined): "AFFILIATE" shall mean, with respect to any person, any other person that controls, is controlled by or is under common control with the first person. "BLUE SKY LAWS" shall mean state securities or "blue sky" laws. "BUSINESS DAY" shall mean any day on which the principal offices of the SEC in Washington, D.C. are open to accept filings, or, in the case of determining a date when any payment is due, any day on which banks are not required or authorized by law or executive order to close in New York. "COMPANY DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered by Company to Parent prior to the execution of this Agreement and forming a part hereof. "COMPANY MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the business of Company and the Company Subsidiaries that, individually or in the aggregate (taking into account all other such changes or effects), is, or is reasonably likely to be, materially adverse to the business, liabilities, financial condition or results of operations of Company and the Company Subsidiaries, taken as a whole, except to the extent any such change or effect results from or is attributable to (i) changes in general economic conditions or changes affecting the industry generally in which Company operates (provided that such changes do not affect Company in a materially disproportionate manner), or (ii) any litigation or loss of current or prospective customers, employees or revenues that Company successfully bears the burden of proving arose from Company entering into this Agreement or (iii) any matter described in Section 1.01 of the Company Disclosure Schedule; provided, however, that in no event shall a decrease in the trading price of Company Common Stock or litigation relating thereto be considered a Company Material Adverse Effect. "COMPANY STOCK PLANS" shall mean Company's 1995 Stock Option Plan, 1998 Stock Plan, Company Stock Purchase Plan and 1998 Director Option Plan. "COMPANY STOCK PURCHASE PLAN" shall mean Company's 1998 Employee Stock Purchase Plan. "COMPETING TRANSACTION" shall mean any of the following involving Company (other than the Merger): (i) any merger, consolidation, share exchange, business combination or other similar transaction (other than, for the purpose of Section 9.05(b)(ii)(B) and 9.05(c), such a transaction in which Company acquires another Person and the shares of Company Common Stock issued to the equityholders of such other Person constitute less than 50% of the capital stock of the successor company in such transaction); (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20% or more of the assets (excluding, for the purpose of Section 9.05(b)(ii)(B) and 9.05(c), cash or cash equivalents) of Company and its subsidiaries, taken as a whole, in a single transaction or series of related transactions; (iii) any tender offer or exchange offer for 20% or more of the outstanding voting securities of Company or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any person having acquired beneficial ownership or the right to acquire beneficial ownership of, or any "group" (as such term is defined under Section 13(d) of the Exchange Act) having been formed that beneficially owns or has the right to acquire beneficial ownership of, 20% or more of the outstanding voting securities of Company; (v) other than for the purpose of Section 9.05(b)(ii)(B) and 9.05(c), any solicitation in opposition to the approval of this Agreement by the stockholders of Company; or (vi) other than for the purpose of Section 9.05(b)(ii)(B) and 9.05(c), any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing. "CONFIDENTIALITY AGREEMENT" shall mean the confidentiality agreement, dated as of July 6, 1999 between Parent and Company. "$" shall mean United States Dollars. "ENVIRONMENTAL LAW" shall mean any Law and any enforceable judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, relating to pollution or protection of the environment or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Material, as in effect as of the date hereof. "ENVIRONMENTAL PERMIT" shall mean any permit, approval, identification number, license or other authorization required under or issued pursuant to any applicable Environmental Law. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder. "EXPENSES" shall mean, with respect to any party hereto, all out-of-pocket expenses (including, without limitation, all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party hereto and its affiliates) incurred by such party or on its behalf in connection with or related to the authorization, preparation, negotiation, execution and performance of its obligations pursuant to this Agreement and the consummation of the Merger, the preparation, printing, filing and mailing of the Registration Statement and the Proxy Statement, the solicitation of stockholder approvals, the filing of HSR Act notice, if any, and all other matters related to the transactions contemplated hereby and the closing of the Merger. "GOVERNMENTAL ENTITY" shall mean any United States Federal, state or local or any foreign governmental, regulatory or administrative authority, agency or commission or any court, tribunal or arbitral body. "GOVERNMENTAL ORDER" shall mean any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity. "HAZARDOUS MATERIAL" shall mean (i) any petroleum, petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical, material or substance defined or regulated as toxic or hazardous or as a pollutant or contaminant or waste under any applicable Environmental Law. "HSR ACT" shall mean Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, together with the rules and regulations promulgated thereunder. "IRS" shall mean the United States Internal Revenue Service. "LAW" shall mean any Federal, state, foreign or local statute, law, ordinance, regulation, rule, code, order, judgment, decree, other requirement or rule of law of the United States or any other jurisdiction, and any other similar act or law. "PARENT DISCLOSURE SCHEDULE" shall mean the disclosure schedule delivered by Parent to Company prior to the execution of this Agreement and forming a part hereof. "PARENT MATERIAL ADVERSE EFFECT" shall mean any change in or effect on the business of Parent and the Parent Subsidiaries that, individually or in the aggregate (taking into account all other such changes or effects), is, or is reasonably likely to be, materially adverse to the business, liabilities, financial condition or results of operations of Parent and the Parent Subsidiaries, taken as a whole, except to the extent any such change or effect results from or is attributable to (i) changes in general economic conditions or changes affecting the industry generally in which Parent operates (provided that such changes do not affect Parent in a materially disproportionate manner) or (ii) any litigation or loss of current or prospective customers, employees or revenues that Parent successfully bears the burden of proving arose from Parent entering into this Agreement; provided, however, that in no event shall a decrease in the trading price of Parent Common Stock or litigation relating thereto be considered a Parent Material Adverse Effect. "PARENT STOCK PLANS" shall mean Parent's 1997 Stock Incentive Plan and 1996 Stock Option Plan. "PERSON" shall mean an individual, corporation, partnership, limited partnership, limited liability company, limited liability partnership, syndicate, person (including, without limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act), trust, association, entity or government or political subdivision, agency or instrumentality of a government. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. "SUBSIDIARY" shall mean, with respect to any person, any corporation, partnership, limited partnership, limited liability company, limited liability partnership, joint venture or other legal entity of which such person (either alone or through or together with any other subsidiary of such person) owns, directly or indirectly, a majority of the stock or other equity interests, the holders of which are generally entitled to vote for the election of the board of directors or other governing body of such corporation or other legal entity. "TAX" shall mean (i) any and all taxes, fees, levies, duties, tariffs, imposts and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Governmental Entity or taxing authority, including, without limitation, taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes; license, registration and documentation fees; and customers' duties, tariffs and similar charges; (ii) any liability for the payment of any amounts of the type described in (i) as a result of being a member of an affiliated, combined, consolidated or unitary group for any Taxable period; and (iii) any liability for the payment of amounts of the type described in (i) or (ii) as a result of being a transferee of, or a successor in interest to, any person or as a result of an express or implied obligation to indemnify any person. "TAX RETURN" shall mean any return, statement or form (including, without limitation, any estimated tax reports or return, withholding tax reports or return and information report or return) required to be filed with respect to any Taxes. ARTICLE II THE MERGER SECTION 2.01 The Merger Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time (as defined in Section 2.03), Merger Sub shall be merged with and into Company. As a result of the Merger, the separate corporate existence of Merger Sub shall cease and Company shall continue as the surviving corporation of the Merger as a wholly owned subsidiary of Parent (the "SURVIVING CORPORATION"). SECTION 2.02 Closing Unless this Agreement shall have been terminated and the Merger herein contemplated shall have been abandoned pursuant to Section 9.01 and subject to the satisfaction or waiver of the conditions set forth in Article VIII, the consummation of the Merger shall take place as promptly as practicable (and in any event within three business days) after satisfaction or waiver of the conditions set forth in Article VIII, at a closing (the "CLOSING") to be held at the offices of Brobeck, Phleger & Harrison LLP, Spear Street Tower, One Market, San Francisco, California 94105 unless another date, time or place is agreed to by Parent and Company. SECTION 2.03 Effective Time At and after the time of the Closing, the parties shall cause the Merger to be consummated by filing a certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State of Delaware in such form as required by, and executed in accordance with the relevant provisions of, the DGCL (the date and time of such filing, or such later date and time as may be set forth therein, being the "EFFECTIVE TIME"). SECTION 2.04 Effect of the Merger At the Effective Time, the effect of the Merger shall be as provided in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, except as otherwise provided herein, all the property, rights, privileges, powers and franchises of Company and Merger Sub shall vest in Company as the Surviving Corporation, and all debts, liabilities and duties of Company and Merger Sub shall become the debts, liabilities and duties of Company as the Surviving Corporation. SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers of Surviving Corporation Unless otherwise agreed by Parent and Company before the Effective Time, at the Effective Time: (a) the Certificate of Incorporation and the Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation and the Bylaws of the Surviving Corporation, until thereafter amended as provided by Law and such Certificate of Incorporation or Bylaws; provided, however, that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is NetGravity, Inc."; (b) the officers of Merger Sub immediately prior to the Effective Time shall serve in their respective offices of the Surviving Corporation from and after the Effective Time, in each case until their successors are elected or appointed and qualified or until their resignation or removal; and (c) the directors of Merger Sub immediately prior to the Effective Time shall serve as the directors of the Surviving Corporation from and after the Effective Time, in each case until their successors are elected or appointed and qualified or until their resignation or removal. ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES SECTION 3.01 Conversion of Shares At the Effective time, by virtue of the Merger, and without any action on the part of Parent, Merger Sub, Company or the holders of any of the following securities: (a) each share of Common Stock, $.001 par value, of Company ("COMPANY COMMON STOCK") issued and outstanding immediately before the Effective Time (excluding those held in the treasury of Company and those owned by any wholly owned subsidiary of Company) and all rights in respect thereof, shall, forthwith cease to exist and be converted into and become exchangeable for .28 shares (the "EXCHANGE RATIO") of common stock, $.001 par value, of Parent ("PARENT COMMON STOCK"); (b) each share of Company Common Stock held in the treasury of Company or owned by any wholly owned subsidiary of Company immediately prior to the Effective Time shall be canceled and retired and no shares of stock or other securities of Parent, the Surviving Corporation or any other corporation shall be issuable, and no payment of other consideration shall be made, with respect thereto; and (c) each issued and outstanding share of capital stock of Merger Sub shall be converted into and become one fully paid and nonassessable share of common stock of the Surviving Corporation. SECTION 3.02 Exchange of Shares Other than Treasury Shares (a) Exchange Agent. As of the Effective Time, Parent shall enter into an agreement with a bank or trust company to act as exchange agent for the Merger (the "EXCHANGE AGENT") as may be designated by Parent and shall be reasonably acceptable to Company. (b) Parent to Provide Common Stock and Cash. Promptly after the Effective Time, Parent shall make available to the Exchange Agent for the benefit of the holder of Company Common Stock: (i) Certificates of Parent Common Stock ("PARENT CERTIFICATES") representing the number of whole shares of Parent Common Stock issuable pursuant to Section 3.01(a) in exchange for shares of Company Common Stock outstanding immediately prior to the Effective Time; and (ii) sufficient funds to permit payment in lieu of fractional shares pursuant to Section 3.04. (c) Exchange Procedures. The Exchange Agent shall mail to each holder of record of certificates of Company Common Stock ("COMPANY CERTIFICATES"), whose shares were converted into the right to receive shares of Parent Common Stock (and cash in lieu of fractional shares) pursuant to Section 3.04) promptly after the Effective Time (and in any event no later than three business days after the later to occur of the Effective Time and receipt by Parent of a complete list from Company of the names and addresses of its holders of record): (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Certificates shall pass, only upon receipt of the Company Certificates by the Exchange Agent, and shall be in such form and have such other provisions as Parent may reasonably specify); and (ii) instructions for use in effecting the surrender of the Company Certificates in exchange for Parent Certificates (and cash in lieu of fractional shares). Upon surrender of a Company Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed, and such other documents as may be reasonably required by the Exchange Agent, the holder of such Company Certificate shall be entitled to receive in exchange therefor a Parent Certificate representing the number of whole shares of Parent Common Stock that such holder has the right to receive pursuant to this Article III and payment of cash in lieu of fractional shares which such holder has the right to receive pursuant to Section 3.04, and the Company Certificate so surrendered shall forthwith be canceled. Until so surrendered, each outstanding Company Certificate that, prior to the Effective Time, represented shares of Company Common Stock will be deemed from and after the Effective Time, for all corporate purposes other than the payment of dividends and distributions, to evidence the ownership of the number of full shares of Parent Common Stock into which such shares of Company Common Stock shall have been so converted and the right to receive an amount in cash in lieu of the issuance of any fractional shares in accordance with Section 3.04. Notwithstanding any other provision of this Agreement, no interest will be paid or will accrue on any cash payable to holders of Company Certificates pursuant to the provisions of this Article III. (d) Distributions With Respect to Unexchanged Shares. No dividends or other distributions with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Company Certificate with respect to the shares of Parent Common Stock represented thereby until the holder of record of such Company Certificate shall surrender such Company Certificate. Subject to the effect of applicable escheat or similar laws, following surrender of any such Company Certificate, there shall be paid to the record holder of the Parent Certificates 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 theretofore payable (but for the provisions of this Section 3.02(d) with respect to such shares of Parent Common Stock. (e) Transfer of Ownership. If any Parent Certificate is to be issued in a name other than that in which the Company Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Company 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 Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a Parent Certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Company Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (f) Termination of Exchange Agent Funding. Any portion of funds (including any interest earned thereon) or Parent Certificates held by the Exchange Agent which have not been delivered to holders of Company Certificates pursuant to this Article III within six months after the Effective Time shall promptly be paid or delivered, as appropriate, to Parent, and thereafter holders of Company Certificates who have not theretofore complied with the exchange procedures outlined in and contemplated by this Section 3.02 shall thereafter look only to Parent (subject to abandoned property, escheat and similar laws) only as general creditors thereof for their claim for shares of Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions (with a record date after the Effective Time) with respect to Parent Common Stock to which they are entitled. (g) No Liability. Notwithstanding anything to the contrary in this Section 3.02, none of the Exchange Agent, the Surviving Corporation or any party hereto shall be liable to any person in respect of any shares of Parent Common Stock or cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. (h) Lost, Stolen or Destroyed Company Certificates. In the event any Company Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Company Certificates, upon the making of an affidavit of that fact by the holder thereof, a Parent Certificate representing such shares of Parent Common Stock (and cash in lieu of fractional shares) as may be required pursuant to this Article III; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed Company Certificates to indemnify Parent against any claim that may be made against Parent, the Surviving Corporation or the Exchange Agent with respect to the Company Certificates alleged to have been lost, stolen or destroyed. SECTION 3.03 Stock Transfer Books At the Effective Time, the stock transfer books of Company shall each be closed, and there shall be no further registration of transfers of shares of Company Common Stock thereafter on the records of any such stock transfer books. In the event of a transfer of ownership of shares of Company Common Stock that is not registered in the stock transfer records of Company at the Effective Time, a certificate or certificates representing the number of full shares of Parent Common Stock into which such shares of Company Common Stock shall have been converted shall be issued to the transferee together with a cash payment in lieu of fractional shares, if any, in accordance with Section 3.04 hereof, and a cash payment in the amount of dividends, if any, in accordance with Section 3.02(d) hereof, if the certificate or certificates representing such shares of Company Common Stock is or are surrendered as provided in Section 3.02(c) hereof, accompanied by all documents required to evidence and effect such transfer and by evidence of payment of any applicable stock transfer tax. SECTION 3.04 No Fractional Share Certificates No scrip or fractional share Parent Certificate shall be issued upon the surrender for exchange of Company Certificates, and an outstanding fractional share interest shall not entitle the owner thereof to vote, to receive dividends or to any rights of a stockholder of Parent or of Surviving Corporation with respect to such fractional share interest. As promptly as practicable following the Effective Time, Parent shall deposit with the Exchange Agent an amount in cash sufficient for the Exchange Agent to pay each holder of Company Common Stock an amount in cash equal to the product obtained by multiplying (i) the fractional share interest to which such holder would otherwise be entitled (after taking into account all shares of Company Common Stock held at the Effective Time by such holder) by (ii) the closing price for a share of Parent Common Stock on the Nasdaq National Market (the "NNM") on the first business day immediately following the Effective Time. As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Company Common Stock with respect to any fractional share interests, the Exchange Agent shall make available such amounts, net of any required withholding Taxes, to such holders of Company Common Stock, subject to and in accordance with the terms of Section 3.02 hereof. SECTION 3.05 Options to Purchase Company Common Stock At the Effective Time, each option or warrant granted by Company to purchase shares of Company Common Stock ("COMPANY STOCK OPTIONS"), which is outstanding and unexercised immediately prior to the Effective Time, and the Company Stock Plans shall be assumed by Parent, and the Company Stock Options shall be converted into an option or warrant, as the case may be, to purchase shares of Parent Common Stock in such number and at such exercise price as provided below and otherwise having the same terms and conditions as in effect immediately prior to the Effective Time (except to the extent that such terms, conditions and restrictions may be altered in accordance with their terms as a result of the Merger contemplated hereby and except that all references in each such Company Stock Option to Company shall be deemed to refer to Parent): (a) the number of shares of Parent Common Stock to be subject to the new option or warrant, as the case may be, shall be equal to the product of (x) the number of shares of Company Common Stock subject to the original Company Stock Option immediately prior to the Effective Time and (y) the Exchange Ratio; (b) the exercise price per share of Parent Common Stock under the new option or warrant shall be equal to (x) the exercise price per share of Company Common Stock in effect under the original Company Stock Option immediately prior to the Effective Time divided by (y) the Exchange Ratio; and (c) in effecting such assumption and conversion, the aggregate number of shares of Parent Common Stock to be subject to each assumed Company Stock Option will be rounded down, if necessary, to the next whole share and the aggregate exercise price shall be rounded up, if necessary, to the next whole cent while preserving the aggregate intrinsic value. The adjustments provided herein with respect to any options that are "incentive stock options" (as defined in Section 422 of the Code) shall be effected in a manner consistent with the requirements of Section 424(a) of the Code so as to retain their character as incentive stock options. The assumption of the outstanding Company Stock Options in the Merger and their conversion into options for Parent Common Stock will not result in any accelerated vesting of those options or the shares purchasable thereunder other than as contemplated in currently existing agreements to which Company is a party, copies of which agreements have been provided to Parent, and the vesting schedule in effect for each Company Stock Option immediately prior to the Effective Time shall remain in full force after the assumption thereof by Parent. SECTION 3.06 Unvested Stock At the Effective Time, any unvested shares of Company Common Stock awarded to employees, directors or consultants pursuant to any of the Company's plans or arrangements and outstanding immediately prior to the Effective Time shall be converted into unvested shares of Parent Common Stock in accordance with the Exchange Ratio and shall remain subject to the same terms, restrictions and vesting schedule as in effect immediately prior to the Effective Time, except to the extent by their terms such unvested shares of Company Common Stock vest at the Effective Time and copies of the relevant agreements governing such vesting have been provided to Parent. All outstanding rights which Company may hold immediately prior to the Effective Time to repurchase unvested shares of Company Common Stock shall be assigned to the Parent in the Merger and shall thereafter be exercisable by Parent upon the same terms and conditions in effect immediately prior to the Effective Time, except that the shares purchasable pursuant to such rights and the purchase price payable per share shall be adjusted to reflect the Exchange Ratio. SECTION 3.07 Employee Stock Purchase Plan At the Effective Time, the Company Stock Purchase Plan and each outstanding purchase right under the Company Stock Purchase Plan shall be assumed by Parent. Within five business days of the date hereof, Company shall deliver a schedule that sets forth a true and complete list as of the date hereof of all holders of outstanding purchase rights under the Company Stock Purchase Plan, including the payroll deduction amount elected by each holder and the price per share of Company Common Stock at the start of the current purchase periods. On the Closing Date, Company shall deliver to Parent an updated version of such schedule, current as of such date. Each such purchase right so assumed by Parent under this Agreement shall continue to have, and be subject to, the terms and conditions set forth in the Company Stock Purchase Plan and the documents governing the outstanding purchase rights under the Company Stock Purchase Plan immediately prior to the Effective Time, except that the purchase price of shares of Parent Common Stock and the number of shares of Parent Common Stock to be issued upon the exercise of each such purchase right shall be adjusted in accordance with the Exchange Ratio (with the number of shares rounded down to the nearest whole share and the purchase price rounded up to the nearest whole cent). The assumed outstanding purchase rights under the Company Stock Purchase Plan shall be exercised at such times following the Effective Time as set forth in the Company Stock Purchase Plan, and each participant shall, accordingly, be issued shares of Parent Common Stock at such times. The Company Stock Purchase Plan, and all outstanding purchase rights thereunder, shall terminate with the exercise of the last assumed purchase right, and no additional purchase rights shall be granted under the Company Stock Purchase Plan following the Effective Time. SECTION 3.08 Certain Adjustments If between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock or Company Common Stock shall be changed into a different number of shares by reason of any reclassification, recapitalization, split-up, combination or exchange of shares, or any dividend payable in stock or other securities shall be declared thereon with a record date within such period, or the number of shares of Company Common Stock on a fully diluted basis is in excess of that specified in Section 4.03 and disclosed in Section 4.03 of the Company Disclosure Schedule (regardless of whether such excess is a result of an additional issuance of capital stock or a correction to such Sections), then the Exchange Ratio established pursuant to the provisions of Section 3.01 shall be adjusted accordingly to provide to Parent the same economic effect as contemplated by this Agreement prior to such reclassification, recapitalization, split-up, combination, exchange, dividend or increase. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY Company hereby represents and warrants to Parent, subject to the exceptions specifically disclosed in writing in the Company Disclosure Schedule, all such exceptions to be referenced to a specific representation set forth in this Article IV or to otherwise be clearly applicable to representations hereof not specifically referenced, that: SECTION 4.01 Organization and Qualification; Subsidiaries (a) Company and each directly and indirectly owned subsidiary of Company (the "COMPANY SUBSIDIARIES") has been duly organized and is validly existing and in good standing (to the extent applicable) under the laws of the jurisdiction of its incorporation or organization, as the case may be, and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted. Company and each Company Subsidiary is duly qualified or licensed to do business, and is in good standing (to the extent applicable), 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 could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. (b) Section 4.01 of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a true and complete list of each Company Subsidiary, together with (i) the jurisdiction of incorporation or organization of each Company Subsidiary and the percentage of each Company Subsidiary's outstanding capital stock or other equity interests owned by Company or another Company Subsidiary and (ii) an indication of whether each Company Subsidiary is a "Significant Subsidiary" as defined in Regulation S-X under the Exchange Act. Except as set forth in Section 4.01 of the Company Disclosure Schedule, neither Company nor any Company Subsidiary owns an equity interest in any partnership or joint venture arrangement or other business entity. SECTION 4.02 Certificate of Incorporation and Bylaws The copies of Company's certificate of incorporation and bylaws previously provided to Parent by Company are true, complete and correct copies thereof. Such certificate of incorporation and bylaws are in full force and effect. Company is not in violation of any of the provisions of its certificate of incorporation or bylaws. SECTION 4.03 Capitalization The authorized capital stock of Company consists of 50,000,000 shares of Company Common Stock and 5,000,000 shares of preferred stock ("COMPANY PREFERRED STOCK"). As of the date hereof, (i) 17,822,448 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) no shares of Company Common Stock are held in the treasury of Company, (iii) no shares of Company Common Stock are held by Company Subsidiaries, (iv) 4,586,903 shares of Company Common Stock are reserved for future issuance pursuant to Company Stock Options, of which 3,489,904 shares of Company Common Stock are reserved for future issuance pursuant to unvested, outstanding and vested, outstanding, unexercised Company Stock Options (excluding the Company Stock Purchase Plan), (v) 665,224 shares of Company Common Stock are reserved for issuance under the Company Stock Purchase Plan and (vi) no shares of Company Preferred Stock are outstanding. The name of each holder of a company Stock Option as of the date hereof, the grant date of each Company Stock Option, and the number of shares of Company Common Stock for which each Company Stock Option is exercisable and the exercise price of each Company Stock Option are set forth in Section 4.03 of the Company Disclosure Schedule. Except for shares of Company Common Stock issuable pursuant to Company Stock Plans, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which Company is a party or by which Company is bound relating to the issued or unissued capital stock of Company or any Company Subsidiary or obligating Company or any Company Subsidiary to issue or sell any shares of capital stock of, or other equity interests in, Company or any Company Subsidiary. All shares of Company Common Stock subject to issuance as aforesaid, upon issuance prior to the Effective Time on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. There are no outstanding contractual obligations of Company or any Company Subsidiary to repurchase, redeem or otherwise acquire any shares of Company Common Stock or any capital stock of any Company Subsidiary. Each outstanding share of capital stock of each Company Subsidiary is duly authorized, validly issued, fully paid and nonassessable and each such share owned by Company or another Company Subsidiary is free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on Company's or such other Company Subsidiary's voting rights, charges and other encumbrances of any nature whatsoever. There are no material outstanding contractual obligations of Company or any Company Subsidiary to provide funds to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, any Company Subsidiary or any other person. SECTION 4.04 Authority Relative to This Agreement Company has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by Company and the consummation by Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Company are necessary to authorize this Agreement or to consummate the transactions contemplated hereby (other than, with respect to the Merger, the approval of this Agreement by the holders of a majority of the outstanding shares of Company Common Stock entitled to vote with respect thereto at the Company Stockholders' Meeting (as defined in Section 7.01), and the filing and recordation of the Certificate of Merger as required by the DGCL). This Agreement has been duly executed and delivered by Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes legal, valid and binding obligations of Company, enforceable against Company in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of remedies (whether in a proceeding at law or in equity). SECTION 4.05 No Conflict; Required Filings and Consents (a) The execution and delivery of this Agreement by Company do not, and the performance by Company of its obligations hereunder and the consummation of the Merger will not, (i) conflict with or violate any provision of the certificate of incorporation or bylaws of Company or any equivalent organizational documents of any Company Subsidiary, (ii) assuming that all filings and notifications described in Section 4.05(b) have been made, conflict with or violate any Law applicable to Company or any Company Subsidiary or by which any property or asset of Company or any Company Subsidiary is bound or affected or (iii) result in any material breach of or constitute a material default (or an event which with the giving of notice or lapse of time or both could reasonably be expected to become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any material property or asset of Company or any Company Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation. (b) The execution and delivery of this Agreement by Company do not, and the performance by Company of its obligations hereunder and the consummation of the Merger will not, require any consent, approval, authorization or permit of, or filing by Company with or notification by Company to, any Governmental Entity, except pursuant to applicable requirements of the Exchange Act, the Securities Act, Blue Sky Laws, the rules and regulations of the NNM, state takeover laws, the premerger notification requirements of the HSR Act, and the filing and recordation of the Certificate of Merger as required by the DGCL. SECTION 4.06 Permits; Compliance with Laws Company and the Company Subsidiaries are in possession of all material franchises, grants, authorizations, licenses, establishment registrations, product listings, permits, easements, variances, exceptions, consents, certificates, identification and registration numbers, approvals and orders of any Governmental Entity necessary for Company or any Company Subsidiary to carry on its business as it is now being conducted (collectively, the "Company Permits"), and, as of the date of this Agreement, none of the material Company Permits has been suspended or cancelled nor is any such suspension or cancellation pending or, to the knowledge of Company, threatened. Except with respect to Environmental Permits that are addressed in Section 4.13 hereof, neither Company nor any Company Subsidiary is in conflict in any material respect with, or in material default or violation of, (i) any Law applicable to Company or any Company Subsidiary or by which any property or asset of Company or any Company Subsidiary is bound or affected or (ii) any Company Permits. Section 4.06 of the Company Disclosure Schedule sets forth, as of the date of this Agreement, all actions, proceedings, investigations or surveys pending or, to the knowledge of Company, threatened against Company or any Company Subsidiary that could reasonably be expected to result in the suspension or cancellation of any other Company Permit. Since March 1, 1996, neither Company nor any Company Subsidiary has received from any Governmental Entity any written notification with respect to possible conflicts, defaults or violations of Laws. SECTION 4.07 SEC Filings; Financial Statements (a) Company has timely filed all forms, reports, statements and documents required to be filed by it (A) with the SEC since June 11, 1998 (collectively, together with any such forms, reports, statements and documents Company may file subsequent to the date hereof until the Closing, the "COMPANY REPORTS") and (B) with any other Governmental Entities. Each Company Report (i) was prepared in all material respects in accordance with the requirements of the Securities Act, the Exchange Act or the rules and regulations of the NNM, as the case may be, and (ii) did not at the time it was filed (or, in the case of registration statements filed under the Securities Act, at the time of effectiveness) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each material form, report, statement and document referred to in clause (B) of this paragraph was prepared in all material respects in accordance with the requirements of applicable Law. No Company Subsidiary is subject to the periodic reporting requirements of the Exchange Act or required to file any form, report or other document with the SEC, the NNM, any other stock exchange or any other comparable Governmental Entity. (b) Each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Company Reports was prepared in accordance with U.S. GAAP (except as may be permitted by Form 10-Q under the Exchange Act) applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and each presented fairly, in all material respects, the consolidated financial position of Company and the consolidated Company Subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring immaterial year-end adjustments). (c) Except as and to the extent set forth or reserved against on the consolidated balance sheet of Company and the Company Subsidiaries as reported in the Company Reports, including the notes thereto, none of Company or any Company Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with U.S. GAAP, except for immaterial liabilities or obligations incurred in the ordinary course of business consistent with past practice since December 31, 1998. SECTION 4.08 Absence of Certain Changes or Events Since December 31, 1998, Company and the Company Subsidiaries have conducted their businesses in all material respects only in the ordinary course consistent with past practice and, since such date, there has not been (i) any Company Material Adverse Effect, (ii) any event that could reasonably be expected to prevent or materially delay the performance of Company's obligations pursuant to this Agreement and the consummation of the Merger by Company, (iii) any material change by Company in its accounting methods, principles or practices, (iv) any declaration, setting aside or payment of any dividend or distribution in respect of the shares of Company Common Stock or any redemption, purchase or other acquisition of any of Company's securities, (v) except for changes in the ordinary course of business consistent with past practice that only affect non-officer employees of the Company, any increase in the compensation or benefits or establishment of any bonus, insurance, severance, deferred compensation, pension, retirement, profit sharing, stock option (including, without limitation, the granting of stock options, stock appreciation rights, performance awards or restricted stock awards), stock purchase or other employee benefit plan, or any other increase in the compensation payable or to become payable to any employees, officers, consultants or directors of Company or any Company Subsidiary, (vi) any issuance or sale of any stock, notes, bonds or other securities other than pursuant to offerings registered under the Securities Act or pursuant to the exercise of outstanding securities, or entering into any agreement with respect thereto, (vii) any amendment to the Company's certificate of incorporation or bylaws, (viii) other than in the ordinary course of business consistent with past practice, any (x) purchase, sale, assignment or transfer of any material assets, (y) mortgage, pledge or existence of any lien, encumbrance or charge on any material assets or properties, tangible or intangible, except for liens for Taxes not yet delinquent and such other liens, encumbrances or charges which do not, individually or in the aggregate, have a Company Material Adverse Effect, or (z) waiver of any rights of material value or cancellation or any material debts or claims, (ix) any incurrence of any material liability (absolute or contingent), except for current liabilities and obligations incurred in the ordinary course of business consistent with past practice, (x) any incurrence of any damage, destruction or similar loss, whether or not covered by insurance, materially affecting the business or properties of Company or any Company Subsidiary, or (xi) any entering into any transaction of a material nature other than in the ordinary course of business, consistent with past practice. SECTION 4.09 Employee Benefit Plans; Labor Matters (a) The Company Disclosure Schedule lists each employee benefit fund, plan, program, arrangement and contract (including, without limitation, any "pension" plan, fund or program, as defined in Section 3(2) of ERISA, and any "employee benefit plan," as defined in Section 3(3) of ERISA and any plan, program, arrangement or contract providing for severance; medical, dental or vision benefits; life insurance or death benefits; disability benefits, sick pay or other wage replacement; vacation, holiday or sabbatical; pension or profit- sharing benefits; stock options or other equity compensation; bonus or incentive pay or other material fringe benefits), whether written or not ("BENEFIT PLANS"), maintained, sponsored or contributed to or required to be contributed to by Company or any Company Subsidiary (the "COMPANY BENEFIT PLANS"). With respect to each Company Benefit Plan, Company has delivered or made available to Parent a true, complete and correct copy of (i) such Company Benefit Plan (of, if not written, a written summary of its material terms) and the most recent summary plan description, if any, related to such Company Benefit Plan, (ii) each trust agreement or other funding arrangement, if any, relating to such Company Benefit Plan, (iii) the most recent annual report (Form 5500), if any, filed with the IRS with respect to such Company Benefit Plan (and, if the most recent annual report is a Form 5500R, the most recent Form 5500C filed with respect to such Company Benefit Plan), (iv) the most recent actuarial report or financial statement, if any, relating to such Company Benefit Plan and (v) the most recent determination, notification, advisory or opinion letter, issued by the IRS with respect to such Company Benefit Plan and any pending request for such a determination letter. Neither Company nor any Company Subsidiary nor, to the knowledge of Company, any other person or entity, has any express or implied commitment, whether legally enforceable or not, to modify, change or terminate any Company Benefit Plan, other than with respect to a modification, change or termination required by ERISA or the Code. (b) Each Company Benefit Plan has been administered in all material respects in accordance with its terms and all applicable laws, including ERISA and the Code, and all material contributions required to be made under the terms of any of the Company Benefit Plans as of the date of this Agreement have been timely made or, if not yet due, have been properly reflected on the most recent consolidated balance sheet filed or incorporated by reference in the Company Reports prior to the date of this Agreement. With respect to the Company Benefit Plans, no event has occurred and, to the knowledge of Company, there exists no condition or set of circumstances in connection with which Company or any Company Subsidiary could be subject to any material liability (other than for routine benefit liabilities) under the terms of, or with respect to, such Company Benefit Plans, ERISA, the Code or any other applicable Law. (c) Company on behalf of itself and each Company ERISA Affiliate (as defined below) hereby represents that: (i) each Company Benefit Plan which is intended to qualify under Section 401(a), Section 401(k), Section 401(m) or Section 4975(e)(6) of the Code has received a favorable determination, notification, advisory or opinion letter from the IRS as to its qualified status, and each trust established in connection with any Company which is intended to be exempt from federal income taxation under Section 501(a) of the Code has received a determination letter from the IRS that it is so exempt, and to Company's knowledge no fact or event has occurred that is reasonably likely to adversely affect the qualified status of any such Company Benefit Plan or the exempt status of any such trust; (ii) to Company's knowledge there has been no prohibited transaction (within the meaning of Section 406 of ERISA or Section 4975 of the Code and other than a transaction that is exempt under a statutory or administrative exemption) with respect to any Company Plan that could result in liability to the Company or a Company Subsidiary and (iii) each Company Benefit Plan can be amended, terminated or otherwise discontinued after the Effective Time in accordance with its terms, without liability (other than (A) liability for ordinary administrative expenses typically incurred in a termination event or (B) if the Company Benefit Plan is pension benefit plan subject to Part 2 of Title I of ERISA, liability for the accrued benefits as of the date of such termination (if and to the extent required by ERISA) to the extent that either there are sufficient assets set aside in a trust or insurance contract to satisfy such liability or such liability is reflected on the most recent consolidated balance sheet filed or incorporated by reference in the Company Reports prior to the date of this Agreement. No suit, administrative proceeding, action or other litigation has been brought, or to the knowledge of Company is threatened, against or with respect to any such Company Benefit Plan, including any audit or inquiry by the IRS or United States Department of Labor (other than routine benefits claims). (d) No Company Benefit Plan is a multiemployer pension plan (as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV of Part 3 of Title I of ERISA or Section 412 of the Code and neither the Company, any Company Subsidiary nor any other trade or business (whether or not incorporated) that is under "common control" with Company or a Company Subsidiary (within the meaning of ERISA Section 4001) or with respect to which Company or any Company Subsidiary could otherwise incur liability under Title IV of ERISA (a "COMPANY ERISA AFFILIATE") has sponsored or contributed to or been required to contribute to a multiemployer pension plan or other pension plan subject to Title IV of ERISA. No material liability under Title IV of ERISA has been incurred by Company, any Company Subsidiary or any Company ERISA Affiliate that has not been satisfied in full, and no condition exists that presents a material risk to Company or any Company Subsidiary of incurring or being subject (whether primarily, jointly or secondarily) to a material liability thereunder. None of the assets of Company or any Company Subsidiary is, or may reasonably be expected to become, the subject of any lien arising under ERISA or Section 412(n) of the Code. (e) Company has made available to Parent copies of (i) all employment agreements with officers and all consulting agreements of Company and each Company Subsidiary providing for annual compensation in excess of $100,000, (ii) all severance plans, agreements, programs and policies of Company and each Company Subsidiary with or relating to their respective employees, directors or consultants, and (iii) all plans, programs, agreements and other arrangements of Company and each Company Subsidiary with or relating to their respective employees, directors or consultants which contain "change of control" provisions. No payment or benefit which may be required to be made by Company or any Company Subsidiary or which otherwise may be required to be made under the terms of any Company Benefit Plan or other arrangement will constitute a parachute payment under Code Section 280(G)(1), and the consummation of the transactions contemplated by this Agreement will not, alone or in conjunction with any other possible event (including termination of employment), (i) entitle any current or former employee or other service provider of Company or any Company Subsidiary to severance benefits or any other payment, compensation or benefit (including forgiveness of indebtedness), except as expressly provided by this Agreement, or (ii) accelerate the time of payment or vesting, or increase the amount of compensation or benefit due any such employee or service provider. (f) Neither Company nor any Company Subsidiary is a party to, or has any obligations under or with respect to, any collective bargaining or other labor union contract applicable to persons employed by Company or any Company Subsidiary and no collective bargaining agreement is being negotiated by Company or any Company Subsidiary or any person or entity that may obligate the Company or any Company Subsidiary thereunder. As of the date of this Agreement, there is no labor dispute, strike or work stoppage against Company or any Company Subsidiary pending or, to the knowledge of Company, threatened which may materially interfere with the respective business activities of Company or any Company Subsidiary. As of the date of this Agreement, to the knowledge of Company, none of Company, any Company Subsidiary, or any of their respective representatives or employees has committed any unfair labor practice in connection with the operation of the respective businesses of Company or any Company Subsidiary, and there is no charge or complaint against Company or any Company Subsidiary by the National Labor Relations Board or any comparable Governmental Entity pending or threatened in writing. (g) Except as required by Law, no Company Benefit Plan provides any of the following retiree or post-employment benefits to any person: medical, disability or life insurance benefits. To Company's knowledge, Company and the Company ERISA Affiliates are in compliance in all material respects with (i) the requirements of the applicable health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and the regulations (including proposed regulations) thereunder and (ii) the applicable requirements of the Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations (including the proposed regulations) thereunder. SECTION 4.10 Pooling; Certain Tax Matters Neither Company nor, to the knowledge of Company, any of its affiliates has taken or agreed to take any action (other than actions contemplated by this Agreement) that could be expected to prevent (a) the Merger from being treated for accounting purposes as a "pooling of interests" in accordance with U.S. GAAP and the accounting standards of the SEC or (b) the Merger from constituting a "reorganization" under Section 368 of the Code. Company is not aware of any agreement or plan to which Company or any of its affiliates is a party or other circumstances relating to Company or any of its affiliates that could reasonably be expected to prevent the Merger from being so treated as a "pooling of interests" or from so qualifying as a reorganization under Section 368 of the Code. SECTION 4.11 Contracts Section 4.11 of the Company Disclosure Schedule sets forth a list of each contract or agreement that is material to the business, assets, liabilities, financial condition or results of operations of Company and Company Subsidiaries, taken as a whole (each, a "MATERIAL CONTRACT"). Neither Company nor any Company Subsidiary is in material violation of or in material default under (nor does there exist any condition which with the passage of time or the giving of notice could reasonably be expected to cause such a material violation of or material default under) any Material Contract. Each Material Contract is in full force and effect and is a legal, valid and binding obligation of Company or a Company Subsidiary and, to the knowledge of Company, each of the other parties thereto, enforceable in accordance with its terms. SECTION 4.12 Litigation There is no suit, claim, action, proceeding or investigation pending or, to the knowledge of Company, threatened against Company or any Company Subsidiary that could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or materially interfere with Company's ability to consummate the transactions contemplated hereby, and, to the knowledge of Company, there are no existing facts or circumstances that could reasonably be expected to result in such a suit, claim, action, proceeding or investigation. Company is not aware of any facts or circumstances which could reasonably be expected to result in the denial of insurance coverage under policies issued to Company and Company Subsidiaries in respect of such suits, claims, actions, proceedings and investigations, except in any case as could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect. Neither Company nor any Company Subsidiary is subject to any outstanding order, writ, injunction or decree which could reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect or materially interfere with Company's ability to consummate the transactions contemplated hereby. SECTION 4.13 Environmental Matters Except as could not reasonably be expected to have, individually or in the aggregate, a Company Material Adverse Effect, (i) Company and the Company Subsidiaries are in compliance with all applicable Environmental Laws and all Environmental Permits; (ii) all past noncompliance of Company or any Company Subsidiary with Environmental Laws or Environmental Permits has been resolved without any pending, ongoing or future obligation, cost or liability; and (iii) neither Company nor any Company Subsidiary has released a Hazardous Material at, or transported a Hazardous Material to or from, any real property currently or formerly owned, leased or occupied by Company or any Company Subsidiary, in violation of any Environmental Law. SECTION 4.14 Intellectual Property (a) All patents, trademarks, trade names, service marks, trade dress, Internet domain names, copyrights and any renewal rights therefor, technology, supplier lists, trade secrets, know-how, computer software programs or applications in both source and object code form, technical documentation of such software programs ("TECHNICAL DOCUMENTATION"), databases, data, registrations and applications for any of the foregoing and all other tangible or intangible proprietary information or materials that are or have been used (including without limitation in the development of) Company's business and/or in any product, technology or process (i) currently being or formerly manufactured, published or marketed by Company or (ii) previously or currently under development for possible future manufacturing, publication, marketing or other use by Company are hereinafter referred to as the "COMPANY INTELLECTUAL PROPERTY." (b) Section 4.14 of the Company Disclosure Schedule contains a true and complete list of Company's patents, patent applications, trademarks, trademark applications, trade names, service marks, service mark applications, Internet domain names, Internet domain name applications and other filings and formal actions made or taken pursuant to Federal, state, local and foreign laws by Company to protect its interests in the Company Intellectual Property. (c) The Company Intellectual Property consists solely of items and rights which are: (i) owned by Company; (ii) in the public domain; or (iii) rightfully used by Company pursuant to a valid license (the "COMPANY LICENSED INTELLECTUAL PROPERTY"), the parties and date of each such license agreement (each, a "LICENSE AGREEMENT") being set forth on Section 4.14(c) of the Company Disclosure Schedule. Company has all rights in Company Intellectual Property necessary to carry out Company's current activities (and had all rights necessary to carry out its former activities at the time such activities were being conducted), including without limitation, to the extent required to carry out such activities, rights to make, use, reproduce, modify, adopt, create derivative works based on, translate, distribute (directly and indirectly), transmit, display and perform publicly, license, rent and lease and, other than with respect to the Company Licensed Intellectual Property, assign and sell, the Company Intellectual Property. (d) The reproduction, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any Company Intellectual Property, product, service, work, technology or process as now used or offered or proposed for use, licensing or sale by Company does not infringe on any copyright, trade secret, trademark, service mark, trade name, trade dress, firm name, Internet domain name, logo, trade dress, mask work or other proprietary or personal right of any person or, to the knowledge of Company, the patent of any person. Notwithstanding the foregoing, with respect to Company Licensed Intellectual Property that (i) has a license fee of less than $1,000 per copy used in Company's products and (ii) (x) is used on a stand alone basis or (y) causes Company Intellectual Property to be subject to a claim (for reasons other than that the combination of such Company Licensed Intellectual Property with other Company Intellectual Property is infringing), Company relies on the representations and warranties of non-infringement contained in the agreements pursuant to which Company is authorized to use such Company Licensed Intellectual Property. No claims (i) challenging the validity, effectiveness or, other than with respect to the Company Licensed Intellectual Property, ownership by Company of any of the Company Intellectual Property, or (ii) to the effect that the use, distribution, licensing, sublicensing, sale or any other exercise of rights in any product, service, work, technology or process as now used or offered or proposed for use, licensing, sublicensing or sale by Company infringes or will infringe on any intellectual property or other proprietary or personal right of any person have been asserted or, to the knowledge of Company, are threatened by any person, nor are there, to Company's knowledge, any valid grounds for any bona fide claim of any such kind. All registered, granted or issued patents, trademarks, Internet domain names and copyrights held by Company are subsisting and, to Company's knowledge, enforceable. To the knowledge of Company, there is no unauthorized use, infringement or misappropriation of any of the Company Intellectual Property by any third party, employee or former employee. (e) All personnel, including employees, agents, consultants and contractors, who have contributed to or participated in the conception and development of the Company Intellectual Property on behalf of Company, have executed nondisclosure agreements substantially in the form set forth on Appendix C to the Company Disclosure Schedule and either (i) have been a party to a "work-for-hire" arrangement or agreements with Company in accordance with applicable national and state law that has accorded Company full, effective, exclusive and original ownership of all tangible and intangible property thereby arising, or (ii) have executed appropriate instruments of assignment in favor or Company as assignee that have conveyed to Company effective and exclusive ownership of all tangible and intangible property thereby arising. (f) Company is not, nor as a result of the execution or delivery of this Agreement, or performance of Company's obligations hereunder, will Company be, in violation of any license, sublicense, agreement or instrument to which Company is a party or otherwise bound, nor will execution or delivery of this Agreement, or performance of Company's obligations hereunder, cause the diminution, termination or forfeiture of any Company Intellectual Property. (g) Section 4.14(g) of the Company Disclosure Schedule contains a true and complete list of all of Company's software programs commercialized by Company (the "COMPANY SOFTWARE PROGRAMS"). Except with respect to software or technology licensed by Company, Company owns full and unencumbered right and good, valid and marketable title to such Company Software Programs free and clear of all mortgages, pledges, liens, security interests, conditional sales agreements, encumbrances or charges of any kind other than licenses granted in the ordinary course of business. (h) The source code and system documentation relating to the Company Software Programs (i) have at all times been maintained in strict confidence, (ii) have been disclosed by Company only to employees who have a "need to know" the contents thereof in connection with the performance of their duties to Company and who have executed the nondisclosure agreements referred to in Section 4.14, and (iii) have not been disclosed to any third party except pursuant to nondisclosure agreements or in the ordinary course of business with respect to APIs and similar code disclosures to enhance marketability of Company Software Programs. (i) The Company Software Programs (i) have been designed to ensure year 2000 compatibility, which includes, but is not limited to, date data century recognition, and calculations that accommodate same century and multi- century formulas and date values; (ii) operate and will operate in accordance with their specifications prior to, during and after the calendar year 2000 AD; and (iii) shall not end abnormally or provide invalid or incorrect results as a result of date data, specifically including date data which represents or references different centuries or more than one century. SECTION 4.15 Taxes (a) Company and each of Company Subsidiaries, and any consolidated, combined, unitary or aggregate group for Tax purposes of which Company or any Company Subsidiary is or has been a member, have properly completed and timely filed all material Tax Returns required to be filed by them and have paid all Taxes shown thereon to be due. Company has provided adequate accruals in accordance with generally accepted accounting principles in its latest financial statements included in the Company Reports for any Taxes that have not been paid, whether or not shown as being due on any Tax Returns. Other than Taxes incurred in the ordinary course of business, Company and the Company Subsidiaries have no material liability for unpaid Taxes accruing after the date of the Company's latest financial statements included in the Company Reports. (b) There is (i) no material claim for Taxes that is a lien against the property of Company or any Company Subsidiary or is being asserted against Company or any Company Subsidiary other than liens for Taxes not yet due and payable, (ii) no audit of any Tax Return of Company or any Company Subsidiary being conducted by a Tax Authority; (iii) no extension of the statute of limitations on the assessment of any Taxes granted by Company or any Company Subsidiary and currently in effect, and (iv) no agreement, contract or arrangement to which Company or any Company Subsidiary is a party that may result in the payment of any amount that would not be deductible by reason of Section 280G or Section 404 of the Code. (c) Company and the Company Subsidiaries have not been and will not be required by reason of the Merger to include any material adjustment in Taxable income for any Tax period (or portion thereof) pursuant to Section 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Merger. (d) Neither Company nor any Company Subsidiary has filed or will file any consent to have the provisions of paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws) apply to Company or any Company Subsidiary. (e) Neither Company nor any Company Subsidiary is a party to any Tax sharing or Tax allocation agreement nor does Company or any Company Subsidiary have any liability or potential liability to another party under any such agreement. (f) Neither Company nor any Company Subsidiary has filed any disclosures under Section 6662 or comparable provisions of state, local or foreign law to prevent the imposition of penalties with respect to any Tax reporting position taken on any Tax Return. (g) Neither Company nor any Company Subsidiary has ever been a member of a consolidated, combined or unitary group of which Company was not the ultimate parent corporation. (h) Company and each Company Subsidiary has in its possession receipts for any Taxes paid to foreign Tax authorities. Neither Company nor any Company Subsidiary has ever been a "personal holding company" within the meaning of Section 542 of the Code or a "United States real property holding corporation" within the meaning of Section 897 of the Code. SECTION 4.16 Insurance Company and each Company Subsidiary is presently insured, and during each of the past three calendar years has been insured, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. The policies of fire, theft, liability and other insurance maintained with respect to the assets or businesses of Company and Company Subsidiaries provide adequate coverage against loss. Company has heretofore furnished to Parent a complete and correct list as of the date hereof of all insurance policies maintained by Company or the Company Subsidiaries, and has made available to Parent complete and correct copies of all such policies, together with all riders and amendments thereto. All such policies are in full force and effect and all premiums due thereon have been paid to the date hereof. Company and the Company Subsidiaries have complied in all material respects with the terms of such policies. SECTION 4.17 Properties Company and the Company Subsidiaries have good and marketable title, free and clear of all material mortgages, liens, pledges, charges or other encumbrances to all their material tangible properties and assets, real, personal or mixed, reflected in the Company's consolidated financial statements contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as being owned by Company and the Company Subsidiaries as of the date thereof, other than (i) any properties or assets that have been sold or otherwise disposed of in the ordinary course of business since the date of such financial statements, (ii) liens disclosed in the notes to such financial statements, (iii) liens arising in the ordinary course of business after the date of such financial statements and (iv) liens that are not material in amount or do not materially affect the value or operations of Company and the Company Subsidiaries. All buildings, and all fixtures, equipment and other property and assets that are material to its business on a consolidated basis, held under leases or sub-leases by Company or any Company Subsidiary are held under valid instruments enforceable in accordance with their respective terms, subject to applicable laws of bankruptcy, insolvency or similar laws relating to creditors' rights generally and to general principles of equity (whether applied in a proceeding in law or equity). Substantially all of Company's and the Company Subsidiaries' equipment in regular use which is material to the operation of Company or the Company Subsidiaries, has been reasonably maintained and is in serviceable condition, reasonable wear and tear excepted. SECTION 4.18 Affiliates Section 4.18 of the Company Disclosure Schedule sets forth the names and addresses of each person who is, in Company's reasonable judgment, an affiliate (as such term is used in Rule 145 under the Securities Act or under applicable SEC accounting releases with respect to pooling of interests accounting treatment) of Company. SECTION 4.19 Opinion of Financial Advisor BancBoston Robertson Stephens Inc. ("ROBERTSON STEPHENS") has delivered to the board of directors of Company its written opinion to the effect that, as of the date hereof, the Exchange Ratio is fair to the holders of shares of Company Common Stock from a financial point of view. SECTION 4.20 Brokers No broker, finder or investment banker (other than Robertson Stephens) is entitled to any brokerage, finder's or other fee or commission in connection with the Merger based upon arrangements made by or on behalf of Company. Company has heretofore made available to Parent true, complete and correct copies of all agreements between Company and Robertson Stephens pursuant to which such firm would be entitled to any payment relating to the Merger. SECTION 4.21 Certain Business Practices Neither Company nor any Company Subsidiary nor any directors, officers, agents or employees of Company or any Company Subsidiary (in their capacities as such) has (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other unlawful payment. SECTION 4.22 Section 203 of the DGCL Not Applicable The Board of Directors of Company has approved the Merger, this Agreement and the Stockholder Agreements, and such approval is sufficient to render inapplicable to the Merger, this Agreement and the Stockholder Agreements and the transactions contemplated by this Agreement and the Stockholder Agreements the provisions of Section 203 of the DGCL. To Company's knowledge, no other state takeover statute or similar statute or regulation applies or purports to apply to the Merger, this Agreement, the Stockholders Agreements or the transactions contemplated by this Agreement and the Stockholders Agreements. SECTION 4.23 Business Activity Restriction There is no non-competition or other similar agreement, commitment, judgment, injunction, order or decree to which Company or any subsidiary of Company is a party or subject to that has or could reasonably be expected to have the effect of prohibiting or impairing the conduct of business by Company in any material respect. Company has not entered into any agreement under which Company is restricted in any material respect from selling, licensing or otherwise distributing any of its technology or products to, or providing services to, customers or potential customers or any class of customers, in any geographic area, during any period of time or in any segment of the market or line of business. ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT Parent hereby represents and warrants to Company, subject to the exceptions specifically disclosed in the Parent Disclosure Schedule, all such exceptions to be referenced to a specific representation set forth in this Article V or to otherwise be clearly applicable to representations hereof not specifically referenced, that: SECTION 5.01 Organization and Qualification; Subsidiaries (a) Parent and each directly and indirectly owned subsidiary of Parent (the "PARENT SUBSIDIARIES") has been duly organized and is validly existing and in good standing (to the extent applicable) under the laws of the jurisdiction of its incorporation or organization, as the case may be, and has the requisite corporate power and authority and all necessary governmental approvals to own, lease and operate its properties and to carry on its business as it is now being conducted. Parent, and each Parent Subsidiary is duly qualified or licensed to do business, and is in good standing (to the extent applicable), 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 could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. (b) Section 5.01 of the Parent Disclosure Schedule sets forth, as of the date of this Agreement, a true and complete list of each Parent Subsidiary, together with (i) the jurisdiction of incorporation or organization of each Parent Subsidiary and the percentage of each Parent Subsidiary's outstanding capital stock or other equity interests owned by Parent or another Parent Subsidiary and (ii) an indication of whether each Parent Subsidiary is a "Significant Subsidiary" as defined in Regulation S-X under the Exchange Act. Neither Parent nor any Parent Subsidiary owns an equity interest in any partnership or joint venture arrangement or other business entity that is material to the business, assets, liabilities, financial condition or results of operations of Parent and the Parent Subsidiaries, taken as a whole. SECTION 5.02 Certificate of Incorporation and Bylaws The copies of each of Parent's and Merger Subs' certificate of incorporation and bylaws previously provided to Company by Parent are true, complete and correct copies thereof. Such certificates of incorporation and bylaws are in full force and effect. SECTION 5.03 Capitalization The authorized capital stock of Parent consists of 400,000,000 shares of Parent Common Stock and 5,000,000 shares of preferred stock. As of the date hereof (i) 39,763,603 shares of Parent Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) no shares of Parent Common Stock are held in the treasury of the Company, (iii) no shares of Parent Common Stock are held by the Parent Subsidiaries, (iv) 5,495,205 shares of Parent Common Stock are reserved for future issuance pursuant to outstanding options and warrants to purchase Parent Common Stock ("PARENT STOCK OPTION"), of which 4,195,377 and 1,299,828 shares of Parent Common Stock are reserved for future issuance pursuant to unvested, outstanding and vested, outstanding, unexercised Parent Stock Options, respectively, and (v) no shares of Parent preferred stock are issued and outstanding. Except for the shares of Parent Common Stock issuable pursuant to the Parent Stock Plans, there are no options, warrants or other rights, agreements, arrangements or commitments of any character to which Parent is a party or by which Parent is bound relating to the issued or unissued capital stock of Parent or any Parent Subsidiary or obligating Parent or any Parent Subsidiary to issue or sell any shares of capital stock of, or other equity interests in, Parent or any Parent Subsidiary. All shares of Parent Common Stock subject to issuance as aforesaid, upon issuance prior to the Effective Time on the terms and conditions specified in the instruments pursuant to which they are issuable, will be duly authorized, validly issued, fully paid and nonassessable. There are no outstanding contractual obligations of Parent or any Parent Subsidiary to repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any capital stock of any Parent Subsidiary. Each outstanding share of capital stock of each Parent Subsidiary is duly authorized, validly issued, fully paid and nonassessable and each such share owned by Parent or another Parent Subsidiary is free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, limitations on Parent's or such other Parent Subsidiary's voting rights, charges and other encumbrances of any nature whatsoever. There are no material outstanding contractual obligations of Parent or any Parent Subsidiary to provide funds to, or make any material investment (in the form of a loan, capital contribution or otherwise) in, any Parent Subsidiary or any other person. SECTION 5.04 Authority Relative to this Agreement Each of Parent and Merger Sub has all necessary corporate power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each of Parent and Merger Sub and the consummation by Parent and Merger Sub of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action, and no other corporate proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly executed and delivered by each of Parent and Merger Sub and, assuming the due authorization, execution and delivery by Company, constitutes a legal, valid and binding obligation of each of Parent and Merger Sub enforceable against Parent and Merger Sub in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of remedies (whether in a proceeding at law or in equity). SECTION 5.05 No Conflict; Required Filings and Consents (a) The execution and delivery of this Agreement by Parent and Merger Sub does not, and the performance by Parent and Merger Sub of their obligations hereunder and the consummation of the Merger will not, (i) conflict with or violate any provision of the articles of incorporation or bylaws of Parent or any equivalent organizational documents of any Parent Subsidiary, (ii) assuming that all consents, approvals, authorizations and permits described in Section 5.05(b) have been obtained and all filings and notifications described in Section 5.05(b) have been made, conflict with or violate any Law applicable to Parent or any other Parent Subsidiary or by which any property or asset of Parent or any Parent Subsidiary is bound or affected or (iii) result in any breach of or constitute a default (or an event which with the giving of notice or lapse of time or both could reasonably be expected to become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or other encumbrance on any property or asset of Parent or any Parent Subsidiary pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation. (b) The execution and delivery of this Agreement by Parent and Merger Sub does not, and the performance by Parent and Merger Sub of their obligations hereunder and the consummation of the Merger will not, require any consent, approval, authorization or permit of, or filing by Parent with or notification by Parent to, any Governmental Entity, except pursuant to applicable requirements of the Exchange Act, the Securities Act, Blue Sky Laws, the rules and regulations of the NNM, state takeover laws, the premerger notification requirements of the HSR Act, if any, and the filing and recordation of the Certificate of Merger as required by the DGCL. SECTION 5.06 SEC Filings; Financial Statements (a) Parent has timely filed all forms, reports, statements and documents required to be filed by it (A) with the SEC since March 1, 1998 (collectively, together with any such forms, reports, statements and documents Parent may file subsequent to the date hereof until the Closing, the "PARENT REPORTS") and (B) with any other Governmental Entities. Each Parent Report (i) was prepared in all material respects in accordance with the requirements of the Securities Act, the Exchange Act or the NNM, as the case may be, and (ii) did not at the time it was filed (or, in the case of registration statements filed under the Security Act, at the time of effectiveness) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each material form, report, statement and document referred to in clause (B) of this paragraph was prepared in all material respects in accordance with the requirements of applicable Law. No Parent Subsidiary is subject to the periodic reporting requirements of the Exchange Act or required to file any form, report or other document with the SEC, the NNM, any other stock exchange or any other comparable Governmental Entity. (b) Except as is provided in the Parent Reports, each of the consolidated financial statements (including, in each case, any notes thereto) contained in the Parent Reports was prepared in accordance with U.S. GAAP applied on a consistent basis throughout the periods indicated (except as may be indicated in the notes thereto) and each presented fairly, in all material respects, the consolidated financial position of Parent and the consolidated Parent Subsidiaries as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein (subject, in the case of unaudited statements, to normal and recurring immaterial year-end adjustments). (c) Except as and to the extent set forth or reserved against on the consolidated balance sheet of Parent and the Parent Subsidiaries as reported in the Parent Reports, including the notes thereto, none of Parent or any Parent Subsidiary has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) that would be required to be reflected on a balance sheet or in notes thereto prepared in accordance with U.S. GAAP, except for liabilities or obligations incurred in the ordinary course of business consistent with past practice since December 31, 1998 that have not had and could not reasonably be expected to have, individually or in the aggregate, a Parent Material Adverse Effect. SECTION 5.07 Pooling; Certain Tax Matters Neither Parent nor, to the knowledge of Parent, any of its affiliates has taken or agreed to take any action (other than actions contemplated by this Agreement) that could reasonably be expected to prevent (a) the Merger from being treated for accounting purposes as a "pooling of interests" in accordance with U.S. GAAP and the accounting standards of the SEC or (b) the Merger from constituting a "reorganization" under Section 368 of the Code. Parent is not aware of any agreement, plan or other circumstance that could reasonably be expected to prevent the Merger from being so treated as a "pooling of interests" or from so qualifying as a reorganization under Section 368 of the Code. SECTION 5.08 Opinion of Financial Advisor Goldman, Sachs & Co. ("GOLDMAN SACHS") has delivered to the board of directors of Parent its written opinion to the effect that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to Parent. SECTION 5.09 Brokers No broker, finder or investment banker (other than Goldman Sachs) is entitled to any brokerage, finder's or other fee or commission in connection with the Merger based upon arrangements made by or on behalf of Parent. Parent has heretofore made available to Company true, complete and correct copies of all agreements between Parent and Goldman Sachs pursuant to which such firm would be entitled to any payment relating to the Merger. SECTION 5.10 Affiliates Section 5.10 of the Parent Disclosure Schedule sets forth the names and addresses of each person who is, in Parent's reasonable judgment, an affiliate of Parent. ARTICLE VI COVENANTS SECTION 6.01 Conduct of Business by Company Pending the Closing Company agrees that, between the date of this Agreement and the Effective Time, unless Parent shall otherwise agree in writing, (x) the respective businesses of Company and the Company Subsidiaries shall be conducted only in, and Company and the Company Subsidiaries shall not take any action except in, the ordinary course of business consistent with past practice and (y) Company shall use all reasonable efforts to keep available the services of such of the current officers, significant employees and consultants of Company and the Company Subsidiaries and to preserve the current relationships of Company and the Company Subsidiaries with such of the corporate partners, customers, suppliers and other persons with which Company or any Company Subsidiary has significant business relations in order to preserve substantially intact its business organization. By way of amplification and not limitation, neither Company nor any Company Subsidiary shall, between the date of this Agreement and the Effective Time, directly or indirectly, do, or agree to do, any of the following without the prior written consent of Parent: (a) amend or otherwise change its certificate of incorporation or bylaws or equivalent organizational documents; (b) issue, sell, pledge, dispose of, grant, transfer, lease, license, guarantee or encumber, or authorize the issuance, sale, pledge, disposition, grant, transfer, lease, license or encumbrance of, (i) any shares of capital stock of Company or any Company Subsidiary of any class, or securities convertible into or exchangeable or exercisable for any shares of such capital stock, or any options, warrants or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including, without limitation, any phantom interest), of Company or any Company Subsidiary, other than the issuance of shares of Company Common Stock pursuant to the exercise of warrants or stock options therefor outstanding as of the date of this Agreement, (ii) the issuance in the ordinary course of business consistent with past practice of up to an additional 500,000 shares of Company Common Stock under Company's Stock Plans pursuant to new grants of options or share purchase rights or (iii) any property or assets of Company or any Company Subsidiary except sales of inventory in the ordinary course of business consistent with past practice; (c)(i) acquire (including, without limitation, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership, other business organization or person or any division thereof (other than in connection with the formation of foreign subsidiaries and the capitalization thereof with no more than $500,000); (ii) incur any indebtedness for borrowed money (other than in de minimus amounts) or issue any debt securities or assume, guarantee or endorse, or otherwise as an accommodation become responsible for, the obligations of any person for borrowed money or make any loans or advances material to the business, assets, liabilities, financial condition or results of operations of Company and the Company Subsidiaries, taken as a whole; (iii) terminate, cancel or request any material change in, or agree to any material change in, any Company Material Contract or other material License Agreement (other than as described in Section 6.01(c)(iii) of the Company Disclosure Schedule); (iv) make or authorize any capital expenditure, other than capital expenditures in the ordinary course of business that have been described in the Disclosure Schedule and that are not, in the aggregate, in excess of $4,000,000 for Company and the Company Subsidiaries taken as a whole; or (v) enter into or amend any contract, agreement, commitment or arrangement that, if fully performed, would not be permitted under this Section 6.01(c); (d) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, except that any Company Subsidiary may pay dividends or make other distributions to Company or any other Company Subsidiary; (e) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock except repurchases of unvested shares at cost in connection with the termination of the employment relationship with any employee pursuant to stock option or purchase agreements in effect on the date hereof; (f) amend or change the period (or permit any acceleration, amendment or change) of exercisability of options granted under the Company Stock Plans or authorize cash payments in exchange for any Company Stock Options granted under any of such plans, except pursuant to existing arrangements disclosed to Parent prior to the date hereof; (g) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Company Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of any Company Subsidiary or propose to do any of the foregoing; (h) other than pursuant to existing agreements of Company previously provided to Parent, increase the compensation payable or to become payable to its directors, officers, consultants or employees (other than any such increases for non-officers that are made in the ordinary course of business consistent with past practice), grant any rights to severance or termination pay to, or enter into any employment or severance agreement which provides benefits upon a change in control of Company that would be triggered by the Merger with, any director, officer, consultant or other employee of Company or any Company Subsidiary who is not currently entitled to such benefits from the Merger, establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any director, officer, consultant or employee of Company or any Company Subsidiary (except as allowed under Section 6.01(b)), except to the extent required by applicable Law or the terms of a collective bargaining agreement, or enter into or amend any contract, agreement, commitment or arrangement between Company or any Company Subsidiary and any of Company's directors, officers, consultants or employees (except as allowed under Section 6.01(b)); (i) except as permitted under Section 6.01(c), pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities (A) reflected or reserved against on the consolidated balance sheet of Company and the consolidated the Company Subsidiaries dated as of March 31, 1999 included in Company's quarterly report on Form 10-Q for the period then ended (the "COMPANY BALANCE Sheet") and only to the extent of such reserves or (B) that are both immaterial in amount and incurred in the ordinary course of business consistent with past practice after the date of the Company Balance Sheet; (j) make any change with respect to Company's accounting policies, principles, methods or procedures, including, without limitation, revenue recognition policies, other than as required by U.S. GAAP; (k) make any material Tax election or settle or compromise any material Tax liability; or (l) authorize or enter into any formal or informal agreement or otherwise make any commitment to do any of the foregoing or to take any action which would make any of the representations or warranties of Company contained in this Agreement untrue or incorrect in any material respect or result in any of the conditions to the Merger set forth herein not being satisfied, except as specifically permitted hereunder. SECTION 6.02 Notices of Certain Events Each of Parent and Company shall give prompt notice to the other of (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the Merger; (ii) any notice or other communication from any Governmental Entity in connection with the Merger; (iii) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting Parent or the Parent Subsidiaries or Company or the Company Subsidiaries, respectively, or that relate to the consummation of the Merger; (iv) the occurrence of a default or event that, with the giving of notice or lapse of time or both, will become a default under any Parent Material Contract or Company Material Contract, respectively; and (v) any change that could reasonably be expected to have a Parent Material Adverse Effect or a Company Material Adverse Effect, respectively, or to delay or impede the ability of either Parent or Company, respectively, to perform their respective obligations pursuant to this Agreement and to effect the consummation of the Merger. SECTION 6.03 Access to Information; Confidentiality (a) Except as required pursuant to any confidentiality agreement or similar agreement or arrangement to which Parent or Company or any of the Parent Subsidiaries or the Company Subsidiaries is a party or pursuant to applicable Law or the regulations or requirements of any stock exchange or other regulatory organization with whose rules a party hereto is required to comply, from the date of this Agreement to the Effective Time, Parent and Company shall (and shall cause the Parent Subsidiaries and Company Subsidiaries, respectively, to) (i) provide to the other (and its officers, directors, employees, accountants, consultants, legal counsel, agents and other representatives (collectively, "REPRESENTATIVES")) access at reasonable times upon prior notice to its and its subsidiaries' officers, employees, agents, properties, offices and other facilities and to the books and records thereof, and (ii) furnish promptly such information concerning its and its subsidiaries' business, properties, contracts, assets, liabilities and personnel as the other party or its Representatives may reasonably request. No investigation conducted pursuant to this Section 6.03 shall affect or be deemed to modify any representation or warranty made in this Agreement. (b) The parties hereto shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations under the Confidentiality Agreement with respect to the information disclosed pursuant to this Section 6.03. SECTION 6.04 No Solicitation of Transactions Until this Agreement has been terminated as provided herein, Company shall not, directly or indirectly, and shall cause its Representatives not to, directly or indirectly, solicit, initiate or encourage (including by way of furnishing nonpublic information), any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to its stockholders) that constitutes, or may reasonably be expected to lead to, any Competing Transaction, or enter into or maintain or continue discussions or negotiate with any person in furtherance of such inquiries or to obtain a Competing Transaction, or agree to or endorse any Competing Transaction, or authorize or permit any of Company's Representatives or subsidiaries, or any Representative retained by Company's subsidiaries, to take any such action; provided, however, that nothing contained in this Agreement, including this Section 6.04, shall prohibit the Company or the board of directors of Company (i) from complying with Rule 14d-9 or 14e-2(a) promulgated under the Exchange Act with regard to a tender or exchange offer not made in violation of this Section 6.04 or (ii) prior to receipt of the approval by the stockholders of Company of this Agreement and the Merger from providing information (subject to a confidentiality agreement at least as restrictive as the Confidentiality Agreement) in connection with, and negotiating, another unsolicited, bona fide written proposal regarding a Competing Transaction that (i) Company's board of directors shall have concluded in good faith, in part on the basis of advice of independent outside counsel of nationally recognized reputation, that such action is necessary to prevent Company's board of directors from violating its fiduciary duties to Company's stockholders under applicable law, (ii) if any cash consideration is involved, shall not be subject to any financing contingency, and with respect to which Company's board of directors shall have determined (based in part upon the advice of Company's independent financial advisors of nationally recognized reputation) that the acquiring party is reasonably capable of consummating such Competing Transaction on the terms proposed, and (iii) Company's board of directors reasonably believes in good faith that such Competing Transaction provides greater value to the stockholders of Company than the Merger (based in part upon the written opinion of Company's independent financial advisors of nationally recognized reputation that such Competing Transaction is superior from a financial point of view) (any such Competing Transaction being referred to herein as a "SUPERIOR PROPOSAL"). Any violation of the restrictions set forth in this Section 6.04 by any Representative of Company or any of its Subsidiaries, whether or not such Person is purporting to act on behalf of Company or otherwise, shall be deemed to be a breach of this Section 6.04 by Company. Company shall notify Parent promptly if any proposal or offer, or any inquiry or contact with any person with respect thereto, regarding a Competing Transaction is made, such notice to include the identity of the person making such proposal, offer, inquiry or contact, and the terms of such Competing Transaction, and shall keep Parent apprised, on a current basis, of the status of such Competing Transaction and of any modifications to the terms thereof. Company immediately shall cease and cause to be terminated all existing discussions or negotiations with any parties conducted heretofore with respect to a Competing Transaction. Company shall not release any third party from, or waive any provision of, any confidentiality or standstill agreement to which it is a party. SECTION 6.05 5Tax-Free Transaction; Pooling From and after the date of this Agreement, each party hereto shall use all reasonable efforts to cause the Merger to qualify, and shall not knowingly take any actions or cause any actions to be taken which could reasonably be expected to prevent the Merger from (a) qualifying as a "reorganization" under Section 368(a) of the Code or (b) being treated for financial accounting purposes as a "pooling of interests" in accordance with U.S. GAAP and the accounting standards of the SEC. SECTION 6.06 Control of Operations Nothing contained in this Agreement shall give Parent, directly or indirectly, the right to control or direct the operations of Company and the Company Subsidiaries prior to the Effective Time. Prior to the Effective Time, Company shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its operations. SECTION 6.07 Further Action; Consents; Filings (a) Upon the terms and subject to the conditions hereof, each of the parties hereto shall use all reasonable efforts to (i) take, or cause to be taken, all appropriate action, and do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the Merger, (ii) obtain from Governmental Entities any consents, licenses, permits, waivers, approvals, authorizations or orders required to be obtained or made by Parent or Company or any of their respective subsidiaries in connection with the authorization, execution and delivery of this Agreement and the consummation of the Merger and (iii) make all necessary filings, and thereafter make any other required or appropriate submissions, with respect to this Agreement and the Merger required under (A) the rules and regulations of the NNM, (B) the Securities Act, the Exchange Act and any other applicable Federal or state securities Laws, (C) the HSR Act, if any, and (D) any other applicable Law. The parties hereto shall cooperate and consult with each other in connection with the making of all such filings, including by providing copies of all such documents to the nonfiling parties and their advisors prior to filing, and none of the parties shall file any such document if any of the other parties shall have reasonably objected to the filing of such document. No party shall consent to any voluntary extension of any statutory deadline or waiting period or to any voluntary delay of the consummation of the Merger at the behest of any Governmental Entity without the consent and agreement of the other parties hereto, which consent shall not be unreasonably withheld or delayed. (b) Each of Company and Parent will give (or will cause their respective subsidiaries to give) any notices to third persons, and use, and cause their respective subsidiaries to use, reasonable efforts to obtain any consents from third persons necessary, proper or advisable (as determined in good faith by Parent with respect to such notices or consents to be delivered or obtained by Company) to consummate the transactions contemplated by this Agreement. SECTION 6.08 Additional Reports Company and Parent shall each furnish to the other copies of any reports of the type referred to in Sections 4.07 and 5.06, which it files with the SEC on or after the date hereof, and Company and Parent, as the case may be, covenant and warrant that as of the respective dates thereof, such reports will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Any unaudited consolidated interim financial statements included in such reports (including any related notes and schedules) will fairly present in all material respects the financial position of Company and its consolidated subsidiaries or Parent and its consolidated subsidiaries, as the case may be, as of the dates thereof and the results of operations and changes in financial position or other information including therein for the periods or as of the date then ended (subject, where appropriate, to normal year-end adjustments), in each case in accordance with past practice and U.S. GAAP consistently applied during the periods involved (except as otherwise disclosed in the notes thereto). SECTION 6.09 Tax Information Company shall provide the following information to Parent not later than two weeks after the date of this Agreement: (i) a complete list of the types of Tax Returns being filed by Company and each Company Subsidiary in each taxing jurisdiction, (ii) a list of all closed years with respect to each such type of Tax Return filed in each jurisdiction, and (iii) a list of any deferred intercompany gain with respect to transactions to which Company or any Company Subsidiary has been a party. Company shall provide Parent and its accountants, counsel and other representatives reasonable access, during normal business hours during the period prior to the Effective Time, to all of Company's and Company Subsidiaries' Tax Returns and other records and workpapers relating to Taxes. SECTION 6.10 Conduct of Business by Parent. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Effective Time, Parent shall not knowingly take any action a principal purpose of which is, and the reasonably likely result of which would be, a material delay in or interference with the consummation of the Merger. ARTICLE VII ADDITIONAL AGREEMENTS SECTION 7.01 Registration Statement; Proxy Statement (a) As promptly as practicable after the execution of this Agreement, Parent and Company shall jointly prepare and shall file with the SEC a document or documents that will constitute (i) the prospectus forming part of the registration statement on Form S-4 of Parent (together with all amendments thereto, the "REGISTRATION STATEMENT"), in connection with the registration under the Securities Act of Parent Common Stock to be issued to Company's stockholders pursuant to the Merger and (ii) the proxy statement with respect to the Merger relating to the special meetings of Company's stockholders to be held to consider approval of this Agreement and the Merger (the "COMPANY STOCKHOLDERS' MEETING") (together with any amendments thereto, the "PROXY STATEMENT"). Copies of the Proxy Statement shall be provided to the NNM in accordance with its rules. Each of the parties hereto shall use all reasonable efforts to cause the Registration Statement to become effective as promptly as practicable after the date hereof, and, prior to the effective date of the Registration Statement, the parties hereto shall take all action required under any applicable Laws in connection with the issuance of shares of Parent Common Stock pursuant to the Merger. Parent or Company, as the case may be, shall furnish all information concerning Parent or Company as the other party may reasonably request in connection with such actions and the preparation of the Registration Statement and the Proxy Statement. As promptly as practicable after the effective date of the Registration Statement, the Proxy Statement shall be mailed to the stockholders of Company. Each of the parties hereto shall cause the Proxy Statement to comply as to form and substance as to such party in all material respects with the applicable requirements of (i) the Exchange Act, (ii) the Securities Act, (iii) the rules and regulations of the NNM. (b) The Proxy Statement shall include (i) the approval of the Merger and the recommendation of the board of directors of Company to Company's stockholders that they vote in favor of approval of this Agreement and the Merger, subject to the right of the board of directors of Company to withdraw its recommendation and recommend a Superior Proposal in compliance with Section 6.04 of this Agreement, and (ii) the opinion of Robertson Stephens referred to in Section 4.19. The board of directors of Company shall submit this Agreement to Company's stockholders whether or not at any time subsequent to the date hereof such board determines that it can no longer make such recommendation; provided, however, that, in the case of such withdrawal of such board's recommendation, Company may delay or adjourn the meeting at which this Agreement is submitted to such stockholders by as many as ten business days in order to give such stockholders a reasonable opportunity to consider such withdrawal of recommendation. (c) No amendment or supplement to the Proxy Statement or the Registration Statement shall be made without the approval of Parent and Company, which approval shall not be unreasonably withheld or delayed; provided, however, that the consent of Parent shall not be required to amend or supplement the Proxy Statement to reflect the withdrawal of the recommendation of Company's board of directors that Company's stockholders vote in favor of the approval of this Agreement and/or the recommendation that Company's stockholders approve of a Superior Proposal. Each of the parties hereto shall advise the other parties hereto, promptly after it receives notice thereof, of the time when the Registration Statement has become effective or any supplement or amendment has been filed, of the issuance of any stop order, of the suspension of the qualification of the Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction, or of any request by the SEC for amendment of the Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information. (d) None of the information supplied by Company for inclusion or incorporation by reference in the Registration Statement or the Proxy Statement shall, at the respective times filed with the SEC or other regulatory agency and, in addition, (A) in the case of the Proxy Statement, at the date it or any amendments or supplements thereto are mailed to stockholders of Company, at the time of the Company Stockholders' Meeting and at the Effective Time and (B) in the case of the Registration Statement, when it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Effective Time any event or circumstance relating to Company or any Company Subsidiary, or their respective officers or directors, should be discovered by Company that should be set forth in an amendment or a supplement to the Registration Statement or the Proxy Statement, Company shall promptly inform Parent. All documents that Company is responsible for filing with the SEC in connection with the Merger will comply as to form in all material respects with the applicable requirements of the rules and regulations of the Securities Act and the Exchange Act. (e) None of the information supplied by Parent for inclusion or incorporation by reference in the Registration Statement or the Proxy Statement shall, at the respective times filed with the SEC or other regulatory agency and, in addition, (A) in the case of the Proxy Statement, at the date it or any amendments or supplements thereto are mailed to stockholders of Company, at the time of Company Stockholders' meeting and at the Effective Time and (B) in the case of the Registration Statement, when it becomes effective under the Securities Act and at the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If, at any time prior to the Effective Time, any event or circumstance relating to Parent or any Parent Subsidiary, or their respective officers or directors, should be discovered by Parent that should be set forth in an amendment or a supplement to the Registration Statement or the Proxy Statement, Parent shall promptly inform Company. All documents that Parent is responsible for filing with the SEC in connection with the Merger will comply as to form in all material respects with the applicable requirements of the rules and regulations of the Securities Act and the Exchange Act. SECTION 7.02 Stockholders' Meeting Company shall call and hold the Company Stockholders' Meeting as promptly as practicable after the date hereof for the purpose of voting upon the approval of this Agreement and the Merger pursuant to the Proxy Statement, and Company shall use all reasonable efforts to hold the Company Stockholders' Meeting as soon as practicable after the date on which the Registration Statement becomes effective, subject to Company's right to delay or adjourn such meeting as provided in Section 7.01(c). Unless Company's board of directors has withdrawn its recommendation of this Agreement and the Merger in compliance with Section 6.04, Company shall use all reasonable efforts to solicit from its stockholders proxies in favor of the approval of this Agreement and the Merger pursuant to the Proxy Statement and shall take all other action necessary or advisable to secure the vote or consent of stockholders required by the DGCL or applicable other stock exchange requirements to obtain such approval. Company shall take all other action necessary or, in the reasonable opinion of Parent, advisable to promptly and expeditiously secure any vote or consent of stockholders required by applicable Law and Company's certificate of incorporation and bylaws to effect the Merger. Company shall call and hold the Company Stockholders' Meeting for the purpose of voting upon the approval of this Agreement and the Merger whether or not Company's board of directors at any time subsequent to the date hereof determines that this Agreement is no longer advisable or recommends that Company's stockholders reject it. SECTION 7.03 Affiliates (a) Company will use reasonable efforts to obtain an executed letter agreement substantially in the form of Annex B hereto from (i) each person identified in Section 4.18 of the Company Disclosure Schedule within 15 days following the execution and delivery of this Agreement and (ii) from any person who, to the knowledge of Company, may be deemed to have become an affiliate of Company after the date of this Agreement and prior to the Effective Time as soon as practicable after attaining such status. The foregoing notwithstanding, Parent shall be entitled to place legends as specified in the Affiliate Agreement on the certificates evidencing any of the Parent Common Stock to be received by (i) any affiliate of Company or (ii) any person Parent reasonably identifies (by written notice to Company) as being a person who may be deemed an "affiliate" within the meaning of Rule 145 promulgated under the Securities Act, and to issue appropriate stop transfer instructions to the transfer agent for such Parent Common Stock, consistent with the terms of the Affiliate Agreement, regardless of whether such person has executed Affiliate Agreement and regardless of whether such person's name and address appear on Section 4.18 of the Company Disclosure Schedule. (b) Parent will use reasonable efforts to obtain an executed letter agreement substantially in the form of Annex C hereto from (i) each person identified in Section 5.10 of the Parent Disclosure Schedule within 15 days following the execution and delivery of this Agreement and (ii) from any person who, to the knowledge of Parent, may be deemed to have become an affiliate of Parent after the date of this Agreement and prior to the Effective Time as soon as practicable after attaining such status. SECTION 7.04 Directors' and Officers' Indemnification and Insurance (a) Parent and the Merger Sub agree that all rights to indemnification, advancement of expenses, exculpation, limitation of liability and any and all similar rights now existing in favor of each present and former director, officer, employee and agent of Company and each Company Subsidiary (collectively, the "Indemnified Parties") as provided in the Company's present charter, by-laws or contractual arrangement in effect on the date hereof, shall survive the Merger and shall continue in full force and effect for a period of six years from the Effective Time, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Effective Time in any manner that would affect adversely the rights thereunder of individuals who at any time prior to the Effective Time were directors, officers, employees or agents of the Company, unless such modification shall be required by law, and Parent agrees to cause the Surviving Corporation to comply with its obligations thereunder; provided, however, that in the event any claim or claims are asserted or made within such six-year period, all rights to indemnification in respect to any such claim or claims shall continue until the disposition of any and all such claims. (b) In the event the Company or the Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers a material amount of its properties and assets to any person in a single transaction or a series of transactions, then, and in each such case, Parent will either guaranty the indemnification obligations referred to in this Section 7.04 or will make or cause to be made proper provision so that the successors and assigns of the Company or the Surviving Corporation, as the case may be, assume the indemnification obligations described herein for the benefit of the Indemnified Parties and have substantially equal financial ability as the Company (immediately prior to the Effective Time) to satisfy the obligations of the parties pursuant to this Section 7.04 as a condition to such merger, consolidation or transfer becoming effective. (c) The provisions of this Section 7.04 are (i) intended to be for the benefit of, and will be enforceable by, each of the Indemnified Parties and (ii) in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. (d) For a period of three years after the Effective Time, Parent shall use its best efforts to maintain in effect the directors' and officers' liability insurance policies maintained by Company; provided, however, that in no event shall Parent be required to expend in any one year in excess of 150% of the annual premium currently paid by Company for such coverage, which Company hereby represents is $250,000, and provided further, that if the premium for such coverage exceeds such amount, Parent shall purchase a policy with the greatest coverage available for such 150% of the annual premium. SECTION 7.05 No Shelf Registration Parent shall not be required to amend or maintain the effectiveness of the Registration Statement for the purpose of permitting resale of the shares of Parent Common Stock received pursuant hereto by the persons who may be deemed to be "affiliates" of Company within the meaning of Rule 145 promulgated under the Securities Act. SECTION 7.06 Public Announcements The initial press release concerning the Merger shall be a joint press release and, thereafter, Parent and Company shall consult with each other before issuing any press release or otherwise making any public statements with respect to this Agreement or the Merger and shall not issue any such press release or make any such public statement without the prior written approval of the other, except to the extent required by applicable Law or the requirements of the rules and regulations of the NNM, in which case the issuing party shall use all reasonable efforts to consult with the other party before issuing any such release or making any such public statement. SECTION 7.07 NNM Listing Prior to the Effective Time, Parent shall file with the NNM a Notification Form for Listing of Additional Shares with respect to the Parent Common Stock issued or issuable in connection with the Merger and shall use all reasonable efforts to obtain approval from NNM of the listing of such Parent Common Stock as of the Effective Time, subject to official notice of issuance. SECTION 7.08 Blue Sky Parent shall use all reasonable efforts to obtain prior to the Effective Time all necessary permits and approvals required under Blue Sky Laws to permit the distribution of the shares of Parent Common Stock to be issued in accordance with the provisions of this Agreement. SECTION 7.09 Employee Benefit Matters Unless Parent consents otherwise in writing, Company shall take all action necessary to terminate, or cause to terminate, before the Effective Time, any Company Benefit Plan that is a 401(k) plan or other defined contribution retirement plan. SECTION 7.10 Registration Statement on Form S-8. On the date of the Effective Time or as soon thereafter as is practicable, Parent shall file a registration statement on Form S-8 covering the issuance of Parent Common Stock issuable under the Company Stock Plans. ARTICLE VIII CONDITIONS TO THE MERGER SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger The obligations of the parties hereto to consummate the Merger are subject to the satisfaction or, if permitted by applicable Law, waiver of the following conditions: (a) the Registration Statement shall have been declared effective by the SEC under the Securities Act and no stop order suspending the effectiveness of the Registration Statement shall have been issued by the SEC and no proceeding for that purpose shall have been initiated by the SEC and not concluded or withdrawn; (b) this Agreement and the Merger shall have been duly approved by the requisite vote of stockholders of Company in accordance with the DGCL; (c) no court of competent jurisdiction shall have issued or entered any order, writ, injunction or decree, and no other Governmental Entity shall have issued any order, which is then in effect and has the effect of making the Merger illegal or otherwise prohibiting its consummation; (d) any waiting period (and any extension thereof) applicable to the consummation of the Merger under the HSR Act or any other applicable competition, merger control or similar Law shall have expired or been terminated; and (e) all consents, approvals and authorizations legally required to be obtained to consummate the Merger shall have been obtained from all Governmental Entities, except where the failure to obtain any such consent, approval or authorization could not reasonably be expected to result in a Parent Material Adverse Effect or a Company Material Adverse Effect. SECTION 8.02 Conditions to the Obligations of Company The obligations of Company to consummate the Merger, or to permit the consummation of the Merger are subject to the satisfaction or, if permitted by applicable Law, waiver of the following further conditions: (a) each of the representations and warranties of Parent contained in this Agreement shall be true, complete and correct in all respects (ignoring for this purpose all materiality or Material Adverse Effect qualifications in such representations and warranties) both when made and on and as of the Effective Time as if made at and as of the Effective Time (other than (i) representations and warranties which address matters only as of a certain date which shall have been true, complete and correct as of such certain date, and (ii) failures to be true, complete and correct that do not, in the aggregate, constitute a Parent Material Adverse Effect), and Company shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of Parent to such effect; (b) Parent shall have performed or complied in all material respects with all covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time and Company shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of Parent to that effect; (c) Wilson Sonsini Goodrich & Rosati, legal counsel to Company, shall have issued its opinion, such opinion dated on the date of the Closing, addressed to Company, and reasonably satisfactory to it, based upon customary representations of Company and Parent and customary assumptions, to the effect that the Merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code, which opinion shall not have been withdrawn or modified in any material respect; provided, however, that if such firm does not render such opinion, this condition shall nonetheless be deemed satisfied if such opinion, dated as of the date of the Closing, is rendered to Company by Brobeck, Phleger & Harrison LLP, counsel to Parent; and (d) There shall have been no Parent Material Adverse Effect since the date of this Agreement. SECTION 8.03 Conditions to the Obligations of Parent The obligations of Parent to consummate the Merger are subject to the satisfaction or waiver of the following further conditions: (a) each of the representations and warranties of Company contained in this Agreement shall be true, complete and correct in all respects (ignoring for this purpose all materiality or Material Adverse Effect qualifications in such representations and warranties) both when made and on and as of the Effective Time as if made at and as of the Effective Time (other than (i) representations and warranties which address matters only as of a certain date which shall have been true, complete and correct as of such certain date, and (ii) failures to be true, complete and correct that do not, in the aggregate, constitute a Company Material Adverse Effect), and Parent shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of Company to such effect; (b) Company shall have performed or complied in all material respects with all covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Time and Parent shall have received a certificate of the Chief Executive Officer and Chief Financial Officer of Company to that effect; (c) Brobeck, Phleger & Harrison LLP, special counsel to Parent, shall have issued its opinion, such opinion dated on the date of the Closing, addressed to Parent, and reasonably satisfactory to it, based upon customary representations of Company and Parent and customary assumptions, to the effect that the Merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code, which opinion shall not have been withdrawn or modified in any material respect; provided, however, that if such firm does not render such opinion, this condition shall nonetheless be deemed satisfied if such opinion, dated as of the date of Closing, is rendered to Parent by Wilson Sonsini Goodrich & Rosati, legal counsel to Company; (d) Parent shall have been advised in writing by PricewaterhouseCoopers LLP as of the date upon which the Effective Time is to occur, in a form and in substance reasonably acceptable to Parent, that the Merger can properly be accounted for as a "pooling of interests" business combination in accordance with U.S. GAAP and the accounting standards of the SEC; Company shall have been advised in writing by KPMG LLP as of the date upon which the Effective Time is to occur that such firm concurs with the management of the Company that there is no reason why the Merger cannot be treated for financial accounting purposes as a "pooling of interests" business combination in accordance with U.S. GAAP and the accounting standards of the SEC; (e) There shall have been no Company Material Adverse Effect since the date of this Agreement; (f) All consents of third parties required pursuant to the terms of any Material Contract as a result of the Merger shall have been obtained; and (g) At least five of the employees of Company set forth on Schedule 8.03(g) shall have either (i) entered into employment, proprietary invention and non-competition agreements substantially in the form of Annex D or (ii) if so permitted as provided on Schedule 8.03(g), allowed Parent to assume their respective employment agreement as in effect on the date hereof and entered into a non-competition and proprietary invention agreement with Parent in substantially the form included in Annex D. ARTICLE IX TERMINATION, AMENDMENT AND WAIVER SECTION 9.01 Termination This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, notwithstanding any requisite adoption and approval of this Agreement, as follows: (a) by mutual written consent duly authorized by the boards of directors of each of Parent and Company; (b) by either Parent or Company, if the Effective Time shall not have occurred on or before January 31, 2000; provided, however, that the right to terminate this Agreement under this Section 9.01(b) shall not be available to any party whose material breach of this Agreement shall have caused, or resulted in, the failure of the Effective Time to occur on or before such date; (c) by either Parent or Company, if any Governmental Order, writ, injunction or decree preventing the consummation of the Merger shall have been entered by any court of competent jurisdiction and shall have become final and nonappealable; (d) by Parent, if (i) the board of directors of Company withdraws, modifies or changes its recommendation of this Agreement or the Merger in a manner adverse to Parent or its stockholders, (ii) the board of directors of Company shall have recommended to the stockholders of Company a Competing Transaction, (iii) the Company fails to comply in all material respects with Section 6.04 or Section 7.02, (iv) a Competing Transaction shall have been announced or otherwise publicly known and the board of directors of Company shall have (A) failed to recommend against acceptance of such by its stockholders (including by taking no position, or indicating its inability to take a position, with respect to the acceptance by its stockholders of a Competing Transaction involving a tender offer or exchange offer) within 5 business days of delivery of a written request from Parent for such action, (B) failed to reconfirm its approval and recommendation of this Agreement and the transactions contemplated hereby within 5 business days of delivery of a written request from Parent for such action or (C) determined that such Competing Transaction was a Superior Proposal and to take any of the actions allowed by clause (ii) of Section 6.04 (and shall not have, prior to Parent's termination of this Agreement pursuant to this Section 9.01(d)(iv)(C), (x) reconfirmed its approval and recommendation of this Agreement and (y) recommended against acceptance of such Superior Proposal by its stockholders), or (v) the board of directors of Company resolves to take any of the actions described above; (e) by Parent or Company, if this Agreement and the Merger shall fail to receive the requisite votes for approval at the Company Stockholders' Meeting or any adjournment or postponement thereof; (f) by Parent, upon a breach of any representation, warranty, covenant or agreement on the part of Company set forth in this Agreement, or if any representation or warranty of Company shall have become untrue, incomplete or incorrect, in either case such that the conditions set forth in Section 8.03 would not be satisfied (a "TERMINATING COMPANY BREACH"); provided, however, that if such Terminating Company Breach is curable by Company through the exercise of its reasonable efforts within 20 days and for so long as Company continues to exercise such reasonable efforts, Parent may not terminate this Agreement under this Section 9.01(f); and provided, further that the preceding proviso shall not in any event be deemed to extend any date set forth in paragraph (b) of this Section 9.01; or (g) by Company, upon breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement, or if any representation or warranty of Parent shall have become untrue, incomplete or incorrect, in either case such that the conditions set forth in Section 8.02 would not be satisfied (a "TERMINATING PARENT BREACH"); provided, however, that if such Terminating Parent Breach is curable by Parent through the exercise of its reasonable efforts within 20 days and for so long as Parent continues to exercise such reasonable efforts, Company may not terminate this Agreement under this Section 9.01(g); and provided, further that the preceding proviso shall not in any event be deemed to extend any date set forth in paragraph (b) of this Section 9.01. The right of any party hereto to terminate this Agreement pursuant to this Section 9.01 will remain operative and in full force and effect regardless of any investigation made by or on behalf of any party hereto, any person controlling any such party or any of their respective officers, directors, representatives or agents, whether prior to or after the execution of this Agreement. SECTION 9.02 Effect of Termination Except as provided in Section 9.05, in the event of termination of this Agreement pursuant to Section 9.01, this Agreement shall forthwith become void, there shall be no liability under this Agreement on the part of any party hereto or any of its affiliates or any of its or their officers or directors, and all rights and obligations of each party hereto shall cease; provided, however, that nothing herein shall relieve any party hereto from liability for the willful or intentional breach of any of its representations and warranties or the willful or intentional breach of any of its covenants or agreements set forth in this Agreement. No termination of this Agreement shall affect the obligation of the parties contained in the Confidentiality Agreements, which shall survive termination of this Agreement and remain in full force and effect in accordance with their terms. SECTION 9.03 Amendment This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective boards of directors at any time prior to the Effective Time; provided, however, that, after the approval of this Agreement by the stockholders of Company, no amendment may be made that changes the amount or type of consideration into which Company common stock will be converted pursuant to this Agreement. This Agreement may not be amended except by an instrument in writing signed by the parties hereto. SECTION 9.04 Waiver At any time prior to the Effective Time, any party hereto may (a) extend the time for or waive compliance with the performance of any obligation or other act of any other party hereto, (b) waive any inaccuracy in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance by the other party with any of the agreements or conditions contained herein. Any such extension or waiver shall be valid if set forth in an instrument in writing signed by the party or parties to be bound thereby. SECTION 9.05 Termination Fee; Expenses (a) Except as set forth in this Section 9.05, all Expenses incurred in connection with this Agreement and the Merger shall be paid by the party incurring such Expenses, whether or not the Merger is consummated, except that Parent and Company each shall pay one-half of all Expenses (other than attorneys' and accountants' fees and expenses) incurred solely for printing, filing and mailing the Registration Statement and the Proxy Statement and all SEC and other regulatory filing fees incurred in connection with the Registration Statement and the Proxy Statement and any fees required to be paid under the HSR Act. (b) In the event that (i) Parent shall terminate this Agreement pursuant to Section 9.01(d) or (ii) this Agreement shall be terminated pursuant to Section 9.01(b) or pursuant to Section 9.01(e) as a result of the failure to obtain the requisite approval of the Company stockholders and (A) at or prior to such termination, there shall exist or have been publicly proposed a Competing Transaction with respect to Company and (B) within 12 months after such termination, Company shall enter into a definitive agreement with respect to any Competing Transaction or any Competing Transaction involving Company shall be consummated, then, in the case of (i), promptly after such termination, or in the case of (ii), immediately before the execution and delivery of such agreement or such consummation, Company shall pay to Parent an amount equal to $30 million (the "TERMINATION FEE"). (c) In the event that Parent shall terminate this Agreement pursuant to Section 9.01(f), then Company shall promptly reimburse Parent for Parent's Expenses, and if, within twelve months of such termination of this Agreement, Company shall enter into a definitive agreement with respect to any Competing Transaction or any Competing Transaction involving Company shall be consummated concurrently with the consummation of such Competing Transaction, then, immediately before the execution and delivery of such agreement or such consummation, Company shall pay to Parent an amount in cash equal to the Termination Fee less the amount of any Expenses of Parent previously reimbursed by Company pursuant to this Section 9.05(c). (d) Parent and Company agree that the agreements contained in Section 9.05(b) and 9.05(c) above are an integral part of the transaction contemplated by this Agreement and constitute liquidated damages and not a penalty. Accordingly, if Company fails to pay to Parent any amounts due under Section 9.05(b) or 9.05(c), Company shall pay the cash and expenses (including legal fees and expenses) in connection with any action, including the filing of any lawsuit of other legal action, taken to collect payment, together with interest on such amounts at the prime rate of Citibank, N.A. in effect on the date such payment was required to be made. ARTICLE X GENERAL PROVISIONS SECTION 10.01 Non-Survival of Representations and Warranties The representations and warranties in this Agreement shall terminate at the Effective Time or upon the termination of this Agreement pursuant to Section 9.01, as the case may be. This Section 10.01 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 10.02 Notices All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy or facsimile, by registered or certified mail (postage prepaid, return receipt requested) or by a nationally recognized courier service to the respective parties at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 10.02): (a) if to Company: NetGravity, Inc. 1900 South Norfolk Street, Suite 150 San Mateo, CA 94403 Attention: Stephen Recht Telecopier: (650) 425-6070 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Larry W. Sonsini Telecopier: (650) 493-6811 (b) if to Parent or Merger Sub: DoubleClick Inc. 41 Madison Avenue, 32nd Floor New York, NY 10010 Attention: Elizabeth Wang, General Counsel Telecopier: (212) 889-0029 with a copy to: Brobeck, Phleger & Harrison LLP One Market, Spear Street Tower San Francisco, CA 94105 Attention: Steve L. Camahort Telecopier: (415) 442-1010 SECTION 10.03 Severability If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the Merger is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner to the fullest extent permitted by applicable Law in order that the Merger may be consummated as originally contemplated to the fullest extent possible. SECTION 10.04 Assignment; Binding Effect; Benefit Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of Law or otherwise) without the prior written consent of the other parties hereto. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Notwithstanding anything contained in this Agreement to the contrary, other than Section 7.04, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and permitted assigns any rights or remedies under or by reason of this Agreement. SECTION 10.05 Incorporation of Exhibits The Parent Disclosure Schedule, the Company Disclosure Schedule and all Exhibits attached hereto and referred to herein are hereby incorporated herein and made a part of this Agreement for all purposes as if fully set forth herein. SECTION 10.06 Governing Law THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE OTHER THAN CONFLICT OF LAWS PRINCIPLES THEREOF DIRECTING THE APPLICATION OF ANY LAW OTHER THAN THAT OF DELAWARE. COURTS WITHIN THE STATE OF DELAWARE WILL HAVE JURISDICTION OVER ALL DISPUTES BETWEEN THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE AGREEMENTS, INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY. THE PARTIES HEREBY CONSENT TO AND AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS. EACH OF THE PARTIES HERETO WAIVES, AND AGREES NOT TO ASSERT IN ANY SUCH DISPUTE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (I) SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, (II) SUCH PARTY AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL PROCESS ISSUED BY SUCH COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS IS BROUGHT IN AN INCONVENIENT FORUM. SECTION 10.07 Waiver of Jury Trial EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF. SECTION 10.08 Headings; Interpretation The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. SECTION 10.09 Counterparts This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. SECTION 10.10 Entire Agreement This Agreement (including the Exhibits, the Parent Disclosure Schedule and the Company Disclosure Schedule) and the Confidentiality Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings among the parties with respect thereto. No addition to or modification of any provision of this Agreement shall be binding upon any party hereto unless made in writing and signed by all parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. DOUBLECLICK INC. By: /s/ Kevin P. Ryan ----------------------------------------- Kevin P. Ryan President and Chief Operating Officer NETGRAVITY, INC. By: /s/ Eric W. Spivey ----------------------------------------- Eric W. Spivey President and Chief Executive Officer NJ MERGER CORPORATION By: /s/ Kevin P. Ryan ----------------------------------------- Kevin P. Ryan President EX-23 3 EXHIBIT 23.1 The Board of Directors NetGravity, Inc.: We consent to the incorporation by reference in the registration statements (No. 333-78959) on Form S-3 and (No. 333-48277, 333-90653, 333-91661) on Form S-8 of DoubleClick, Inc. of our report dated January 27, 1999, with respect to the consolidated balance sheets of NetGravity, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the Form 8-K/A of DoubleClick, Inc. dated October 26, 1999. KPMG LLP San Francisco, California January 7, 2000 EX-99 4 EXHIBIT 99.1 Exhibit 99.1 DOUBLECLICK COMPLETES MERGER WITH NETGRAVITY NEW YORK, NY and SAN MATEO, CA., October 26, 1999 -- DoubleClick Inc. (Nasdaq: DCLK) announced today that it has completed its merger with NetGravity, Inc. (Nasdaq: NETG) following today's approval by the stockholders of NetGravity. Under the terms of the merger agreement, holders of NetGravity stock are entitled to receive 0.28 shares of DoubleClick common stock for each share of NetGravity common stock pursuant to a fixed exchange ratio. DoubleClick will issue approximately 5 million shares to complete the exchange. Based on DoubleClick's closing price of $128 15/16 on October 25, 1999, the transaction is valued at approximately $650 million, and the combined market capitalization of the two companies is approximately $5.8 billion. The NetGravity business will be included in the DoubleClick Technology Solutions division of DoubleClick Inc. "The merger with NetGravity will allow us to offer two distinct ad serving solutions to publishers and advertisers," said Kevin O'Connor, Chairman & CEO, DoubleClick. "The combination of our companies, along with the pending Abacus Direct merger, enables us to deliver the right message to the right consumer at the right time, and help companies maximize the return on their advertising and marketing investment." About DoubleClick Inc. DoubleClick Inc. (www.doubleclick.net) is a leading provider of comprehensive global Internet advertising solutions for marketers and Web publishers. Combining technology and media expertise, DoubleClick centralizes planning, execution, control, tracking and reporting for online media campaigns. DoubleClick Inc. has Global headquarters in New York City and maintains offices in Atlanta, Boston, Chicago, Detroit, Dallas, Dublin, Los Angeles, San Francisco, San Mateo, Seattle, Amsterdam, Barcelona, Copenhagen, Dusseldorf, Hamburg, Helsinki, Hong Kong, London, Madrid, Milan, Montreal, Munich, Oslo, Paris, Sao Paulo, Singapore, Stockholm, Sydney, Taipei, Tokyo and Toronto. # # # Contact: DoubleClick Inc. Investor Relations: Ilona Nemeth Sara Pasko 212-683-0001 or Abernathy MacGregor Frank Adam Miller/David Sasso 212-371-5999 EX-99 5 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders NetGravity, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of NetGravity, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NetGravity, Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ KPMG LLP KPMG LLP San Francisco, California January 27, 1999 NETGRAVITY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, --------------------- 1997 1998 --------- ---------- ASSETS Current assets: Cash and cash equivalents.................................................................. $ 5,637 $ 10,236 Short-term investments..................................................................... -- 10,563 Accounts receivable, net of allowances of $223 and $202 at December 31, 1997 and 1998, respectively............................................................................. 2,739 6,311 Prepaid expenses and other current assets.................................................. 155 778 --------- ---------- Total current assets..................................................................... 8,531 27,888 Property and equipment, net.................................................................. 1,356 3,473 Other assets, net............................................................................ -- 2,059 --------- ---------- $ 9,887 $ 33,420 --------- ---------- --------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable........................................................... $ 1,140 $ 618 Accounts payable........................................................................... 305 898 Accrued liabilities........................................................................ 1,344 2,867 Deferred revenue........................................................................... 3,520 5,800 --------- ---------- Total current liabilities................................................................ 6,309 10,183 Notes payable, less current portion.......................................................... 727 1,109 Commitments Stockholders' equity: Convertible preferred stock; $0.001 par value; 26,540,194 shares authorized; 11,149,788 shares issued and outstanding at December 31, 1997; 5,000,000 shares authorized; none issued and outstanding at December 31, 1998.............................................. 11 -- Common stock, $0.001 par value; 35,000,000 shares authorized; 3,979,125 shares issued and outstanding at December 31, 1997; 50,000,000 shares authorized; 13,589,894 shares issued and outstanding at December 31, 1998..................................................... 4 14 Additional paid-in capital................................................................. 16,209 46,817 Deferred stock compensation................................................................ (1,669) (1,706) Accumulated deficit........................................................................ (11,704) (22,997) --------- ---------- Total stockholders' equity............................................................... 2,851 22,128 --------- ---------- $ 9,887 $ 33,420 --------- ---------- --------- ----------
See accompanying notes to consolidated financial statements. NETGRAVITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- Revenues: Software licenses.............................................................. $ 1,262 $ 2,901 $ 4,115 Software upgrades.............................................................. 107 1,123 2,394 Consulting and support......................................................... 570 2,334 4,637 Transactional services......................................................... -- -- 411 --------- --------- ---------- Total revenues............................................................... 1,939 6,358 11,557 --------- --------- ---------- Cost of revenues: Cost of software licenses...................................................... -- 76 63 Cost of consulting and support................................................. 702 2,496 4,521 Cost of transactional services................................................. -- -- 644 --------- --------- ---------- Total cost of revenues....................................................... 702 2,572 5,228 --------- --------- ---------- Gross profit................................................................. 1,237 3,786 6,329 --------- --------- ---------- Operating costs and expenses: Research and development....................................................... 1,764 3,033 4,639 Selling and marketing.......................................................... 2,839 6,073 10,351 General and administrative..................................................... 1,315 1,552 3,172 --------- --------- ---------- Total operating costs and expenses........................................... 5,918 10,658 18,162 --------- --------- ---------- Loss from operations......................................................... (4,681) (6,872) (11,833) Other income (expense), net...................................................... 54 (10) 540 --------- --------- ---------- Net loss..................................................................... $ (4,627) $ (6,882) $ (11,293) --------- --------- ---------- --------- --------- ---------- Basic and diluted net loss per share............................................. $ (2.19) $ (2.46) $ (1.28) --------- --------- ---------- --------- --------- ---------- Shares used in per share calculation............................................. 2,111 2,799 8,823 --------- --------- ---------- --------- --------- ----------
See accompanying notes to consolidated financial statements. NETGRAVITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ---------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT CAPITAL --------- ----------- --------- ----------- ----------- Balances as of December 31, 1995.................................... -- -- 4,364 5 178 Issuance of common stock upon exercise of stock options............. -- -- 310 -- 62 Repurchases of common stock......................................... -- -- (439) (1) (27) Compensation expense related to non-employee option grants.......... -- -- -- -- 8 Issuance of Series A preferred stock, net of issuance costs of $15.. 4,405 4 -- -- 4,429 Net loss............................................................ -- -- -- -- -- --------- --- --------- --- ----------- Balances as of December 31, 1996.................................... 4,405 4 4,235 4 4,650 Issuance of common stock for cash................................... -- -- 17 -- 4 Issuance of common stock upon exercise of stock options............. -- -- 301 -- 67 Compensation expense related to non-employee option grants.......... -- -- -- -- 120 Deferred compensation related to grants of stock options............ -- -- -- -- 1,784 Amortization of deferred compensation............................... -- -- -- -- -- Repurchases of common stock in connection with revaluation.......... -- -- (446) -- (98) Repurchases of common stock......................................... -- -- (126) -- (26) Issuance of Series B preferred stock, net of issuance costs of $18.. 4,308 4 -- -- 4,277 Issuance of Series C preferred stock, net of issuance costs of $566.............................................................. 2,437 3 -- -- 5,431 Net loss............................................................ -- -- -- -- -- --------- --- --------- --- ----------- Balances as of December 31, 1997.................................... 11,150 $ 11 3,979 $ 4 $ 16,209 Issuance of common stock upon exercise of stock options............. -- -- 204 -- 73 Repurchases of common stock......................................... -- -- (102) -- (23) Issuance of Series C preferred stock, net of issuance costs of $1... 1,451 2 -- -- 3,247 Issuance of common stock upon exercise of warrants.................. -- -- 28 -- 7 Issuance of restricted common stock for cash........................ -- -- 11 -- 2 Conversion of Preferred Stock to Common............................. (12,601) (13) 6,220 7 6 Issuance of common stock in initial public offering................. -- -- 3,250 3 25,869 Deferred compensation related to grants of stock options............ -- -- -- -- 1,427 Amortization of deferred stock compensation......................... -- -- -- -- -- Net loss............................................................ -- -- -- -- -- --------- --- --------- --- ----------- Balances as of December 31, 1998.................................... -- -- 13,590 $14 $ 46,817 --------- --- --------- --- ----------- --------- --- --------- --- -----------
TOTAL DEFERRED STOCKHOLDERS' STOCK ACCUMULATED EQUITY COMPENSATION DEFICIT (DEFICIT) ------------- ------------ ------------ Balances as of December 31, 1995.................................... -- (195) (12) Issuance of common stock upon exercise of stock options............. -- -- 62 Repurchases of common stock......................................... -- -- (28) Compensation expense related to non-employee option grants.......... -- -- 8 Issuance of Series A preferred stock, net of issuance costs of $15.. -- -- 4,433 Net loss............................................................ -- (4,627) (4,627) ------------- ------------ ------------ Balances as of December 31, 1996.................................... -- (4,822) (164) Issuance of common stock for cash................................... -- -- 4 Issuance of common stock upon exercise of stock options............. -- -- 67 Compensation expense related to non-employee option grants.......... -- -- 120 Deferred compensation related to grants of stock options............ (1,784) -- -- Amortization of deferred compensation............................... 115 -- 115 Repurchases of common stock in connection with revaluation.......... -- -- (98) Repurchases of common stock......................................... -- -- (26) Issuance of Series B preferred stock, net of issuance costs of $18.. -- -- 4,281 Issuance of Series C preferred stock, net of issuance costs of $566.............................................................. -- -- 5,434 Net loss............................................................ -- (6,882) (6,882) ------------- ------------ ------------ Balances as of December 31, 1997.................................... $ (1,669) $ (11,704) $ 2,851 Issuance of common stock upon exercise of stock options............. -- -- 73 Repurchases of common stock......................................... -- -- (23) Issuance of Series C preferred stock, net of issuance costs of $1... -- -- 3,249 Issuance of common stock upon exercise of warrants.................. -- -- 7 Issuance of restricted common stock for cash........................ -- -- 2 Conversion of Preferred Stock to Common............................. -- -- -- Issuance of common stock in initial public offering................. -- -- 25,872 Deferred compensation related to grants of stock options............ (1,427) -- -- Amortization of deferred stock compensation......................... 1,390 -- 1,390 Net loss............................................................ -- (11,293) (11,293) ------------- ------------ ------------ Balances as of December 31, 1998.................................... $ (1,706) $ (22,997) $ 22,128 ------------- ------------ ------------ ------------- ------------ ------------
See accompanying notes to consolidated financial statements. NETGRAVITY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- Cash flows from operating activities: Net loss.................................................................................. $ (4,627) $ (6,882) $ (11,293) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation............................................................................ 172 540 965 Amortization of intangibles............................................................. -- -- 222 Amortization of deferred stock compensation............................................. -- 115 1,390 Compensation from grant of non-employee stock options................................... 8 120 -- Changes in operating assets and liabilities: Accounts receivable, net.............................................................. (1,218) (1,521) (3,572) Prepaid expenses and other assets..................................................... (178) 27 (623) Accounts payable...................................................................... 239 48 593 Accrued liabilities................................................................... 635 678 1,523 Deferred revenue...................................................................... 1,718 1,802 2,280 --------- --------- ---------- Net cash used in operating activities............................................... (3,251) (5,073) (8,515) --------- --------- ---------- Cash flows from investing activities: Capital expenditures...................................................................... (810) (1,201) (3,082) Purchases of short-term investments....................................................... (2,705) (2,466) (10,563) Proceeds from maturities of short-term investments........................................ 2,705 2,466 -- Acquisition of intangibles................................................................ -- -- (2,000) Other assets.............................................................................. (44) 44 (281) --------- --------- ---------- Net cash used in investing activities............................................... (854) (1,157) (15,926) --------- --------- ---------- Cash flows from financing activities: Proceeds from notes payable............................................................... 683 1,185 1,000 Repayment of notes payable................................................................ (450) -- (1,140) Proceeds from issuance of preferred stock, net............................................ 4,433 9,715 3,249 Proceeds from issuance of common stock.................................................... 62 71 25,954 Repurchases of common stock............................................................... (28) (124) (23) --------- --------- ---------- Net cash provided by financing activities........................................... 4,700 10,847 29,040 --------- --------- ---------- Net increase in cash and cash equivalents................................................... 595 4,617 4,599 Cash and cash equivalents at beginning of year.............................................. 425 1,020 5,637 --------- --------- ---------- Cash and cash equivalents at end of year.................................................... $ 1,020 $ 5,637 $ 10,236 --------- --------- ---------- --------- --------- ---------- Supplemental disclosures of cash flow information: Cash paid for interest.................................................................. $ 18 $ 91 $ 118 --------- --------- ---------- --------- --------- ---------- Non-cash financing activities: Deferred compensation cost on employee stock option grants.............................. $ -- $ 1,784 $ 1,427 --------- --------- ---------- --------- --------- ----------
See accompanying notes to consolidated financial statements. NETGRAVITY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1996, 1997 and 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS NetGravity, Inc. (the Company), a Delaware corporation, was incorporated in September 1995. The Company is a leading provider of interactive marketing solutions. The Company maintains its US headquarters in California. The Company incorporated a subsidiary in the UK in April 1997 for its European operations and incorporated subsidiaries in Japan in April 1998 and in Hong Kong in October 1998 for its Asia Pacific operations. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. CASH AND CASH EQUIVALENTS Cash equivalents are highly liquid investments with remaining maturities of three months or less at the date of purchase. INVESTMENTS The Company has adopted Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 requires entities to classify investments in debt and equity securities with readily determined fair values as "held-to-maturity," "available-for-sale" or "trading" and establishes accounting and reporting requirements for each classification. Management determines the appropriate classification of investment securities at the time of purchase and reevaluates such designation as of each balance sheet date. As of December 31, 1998, all investment securities were designated as "available-for-sale." Available-for-sale securities are carried at fair value based on quoted market prices, with unrealized gains and losses, if material, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains and losses and declines in value judged to be other-than-temporary for available-for-sale securities are included in the consolidated statements of operations. There have been no such gains, losses or declines through December 31, 1998. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation. Depreciation of property and equipment is provided over the estimated useful lives of the respective assets, estimated to be three years on a straight-line method. SOFTWARE DEVELOPMENT COSTS In accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, development costs related to the software products are expensed as incurred NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) until the technological feasibility of the product has been established. Technological feasibility in the Company's circumstances occurs when a working model is completed. The Company believes its process for developing software is essentially completed concurrent with the establishment of technological feasibility and, accordingly, no research and development costs have been capitalized to date. REVENUE RECOGNITION The Company records an account receivable and deferred revenue upon shipment and invoicing of a software license to a customer. The Company recognizes software license revenue upon completion of the product installation which the Company's management has generally determined to occur at the point in time at which customers begin "serving ads" utilizing the Company's software. A portion of the initial software license fee is attributed to the customer's right to receive, at no additional charge, software upgrades released during the subsequent twelve months. Revenues attributable to software upgrades are deferred and recognized ratably over the period covered by the software license agreement, generally one year. Revenue from consulting services are recognized as the services are performed. Customer-support revenue is deferred and recognized ratably over the period covered by the customer support agreement, generally one year. Revenue from transactional services is primarily comprised of fees from AdCenter advertising management outsourcing services, as well as fees from the Company's Global Profile Service, which licenses the use of data to customers. Fees derived from transactional services are recognized as the services are rendered. In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2, SOFTWARE REVENUE RECOGNITION (SOP 97-2). Effective January 1, 1998, the Company adopted SOP 97-2. SOP 97-2 generally requires revenue earned on software arrangements involving multiple elements such as software products, upgrades, enhancements, post-contract customer support, installation and training to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence which is specific to the vendor. The revenue allocated to software products, including specified upgrades or enhancements, generally is recognized upon delivery of the products. The revenue allocated to unspecified upgrades and updates and post contract customer support generally is recognized as the services are performed. If evidence of the fair value for all elements of the arrangement do not exist, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. There was no material change to the Company's accounting for revenues as a result of the adoption of SOP 97-2. In February 1998, the Accounting Standards Executive Committee (AcSEC) of the AICPA issued SOP 98-4, "DEFERRAL OF THE EFFECTIVE DATE OF SOP 97-2". The SOP defers the effective date for applying the provisions regarding vendor-specific objective evidence ("VSOE") of fair value until the AcSEC can reconsider what constitutes such VSOE. There was no material change to the Company's accounting for revenues as a result of the adoption of SOP 98-4. In December 1998, AcSEC issued SOP 98-9 "SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN ARRANGEMENTS", which requires recognition of revenue using the "residual method" in a multiple element arrangement when fair value does not exist for one or more of the delivered elements in the arrangement. Under the "residual method", the total fair value of the undelivered elements is deferred NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and subsequently recognized in accordance with SOP 97-2. The Company does not expect a material change to its accounting for revenues as a result of the provisions of SOP 98-9. Advances on commissions are paid upon receipt of a firm sales order for an initial software license. These advances totaled $0 and $259,000 at December 31, 1997 and 1998, respectively, and are included in other current assets in the accompanying consolidated balance sheets. Advances on commissions are expensed as selling and marketing expenses when the related deferred revenue is recognized. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. CONCENTRATION OF CREDIT RISK Accounts receivable potentially subject the Company to concentrations of credit risk. The Company performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral for accounts receivable. When required, the Company maintains allowances for credit losses, and to date such losses have been within management's expectations. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of the Company's cash, cash equivalents, accounts receivable, accounts payable and notes payable approximate their carrying values due to the short maturity or variable-rate structure of those instruments. ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation arrangements using the intrinsic-value method pursuant to APB Opinion No. 25. As such, compensation expense is recorded on the date of grant when the fair value of the underlying common stock exceeds the exercise price for stock options or the purchase price for issuance or sales of common stock. Pursuant to SFAS No. 123, the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. COMPREHENSIVE LOSS NetGravity has no significant components of other comprehensive loss and, accordingly, the comprehensive loss is the same as net loss for all periods. ADVERTISING EXPENSE The cost of advertising is expensed as incurred. Such costs are included in selling and marketing expense and totalled approximately $783,000, $831,000 and $1,033,000 during the years ended December 31, 1996, 1997, and 1998, respectively. FOREIGN CURRENCY TRANSACTIONS The functional currency of the Company's UK, Japan and Hong Kong subsidiaries is the US dollar. Resulting foreign currency gains and losses are included in operating results and have not been significant in any period presented. PER SHARE INFORMATION Basic and diluted net loss per share are computed using the weighted average number of outstanding shares of common stock. Net loss per share for the year ended December 31, 1998 does not include the effect of approximately 1,989,545 stock options with a weighted average exercise price of $4.21 per share, or 463,468 shares of common stock issued and subject to repurchase by the Company at a weighted average price of $0.22 per share, because their effects are anti-dilutive. Net loss per share for the year ended December 31, 1997 does not include the effect of approximately 11,150,000 (5,563,000 on an as-if converted basis) shares of convertible preferred stock outstanding, 1,312,399 stock options with a weighted average exercise price of $0.22 per share, 15,908 common stock warrants with a weighted average exercise price of $0.22 per share, or 1,171,546 shares of common stock issued and subject to repurchase by the Company at a weighted average price of $0.22 per share, because their effects are anti-dilutive. RECENT ACCOUNTING PRONOUNCEMENTS The FASB recently issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. The Company must adopt SFAS No. 133 by July 1, 1999. Management does not believe the adoption of SFAS No. 133 will have a material effect on the financial position or results of operations of the Company. (2) BALANCE SHEET COMPONENTS SHORT-TERM INVESTMENTS The following is a summary of short-term investments (in thousands):
DECEMBER 31, -------------------- 1997 1998 --------- --------- Cash equivalents: Money market funds................................................... $ 5,637 $ 10,236 --------- --------- Short-term investments: Corporate Bonds...................................................... -- 10,563 --------- --------- $ 5,637 $ 20,799 --------- --------- --------- ---------
Through December 31, 1998, the difference between the fair value and the amortized cost of available-for-sale securities was not significant; therefore, no unrealized gains or losses have been recorded in stockholders' equity. As of December 31, 1998, the average portfolio duration and contractual maturity was less than three months. PURCHASE OF INTANGIBLE ASSETS In September 1998, the Company entered into an agreement with MatchLogic, Inc., a subsidiary of Excite, Inc. As part of this agreement, the Company paid MatchLogic $2 million for the limited, non-exclusive right to use certain of MatchLogic's proprietary consumer profile databases for certain purposes. This transaction has been accounted for as a purchase of an intangible asset. The cost of this intangible asset has been capitalized, is included in other assets on the Company's consolidated balance sheet, and is being amortized over a three-year period. NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (2) BALANCE SHEET COMPONENTS (CONTINUED) PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of December 31, 1997 and 1998 (in thousands):
1997 1998 --------- --------- Computer equipment and software........................................... $ 1,837 $ 3,228 Furniture and fixtures.................................................... 236 423 Leasehold improvements.................................................... -- 1,343 --------- --------- 2,073 4,994 Accumulated depreciation.................................................. (717) (1,521) --------- --------- Property and equipment, net............................................. $ 1,356 $ 3,473 --------- --------- --------- ---------
(3) NOTES PAYABLE The Company had a revolving credit facility with a bank in the amount of $1.0 million which bore interest at the prime rate (8.50% as of December 31, 1997) plus 0.75%, and expired in May 1998. Borrowings were limited to the lesser of $1.0 million or 70% of the net amount of eligible accounts receivable and were secured by the Company's accounts receivable. As of December 31, 1997 and December 31, 1998, borrowings under this credit facility were $655,000 and $0, respectively. The Company has an equipment line of credit with a bank that provides up to $1.0 million, bears interest at the prime rate (7.75% as of December 31, 1998), and expires in June 2000. The line of credit is secured by the Company's fixed assets. As of December 31, 1997 and 1998, $584,000 and $350,000, respectively, were outstanding under this agreement with the principal amount due in 30 monthly installments of $19,467 beginning December 31, 1997. The Company also has a second equipment line of credit with the same bank that provides up to $1.2 million, bears interest at the prime rate, and expires in June 2000. The line of credit is secured by the Company's fixed assets. As of December 31, 1997 and 1998, $628,000 and $377,000, respectively, were outstanding under this agreement with the principal amount due in 30 monthly installments of $20,933 beginning December 31, 1997. In September 1998, the Company secured a revolving credit facility with a bank in the amount of $4.0 million, which bears interest at the prime rate and expires in May 1999. Borrowings are limited to the lesser of $4.0 million or 80% of the net amount of eligible accounts receivable, and are secured by the Company's assets. The credit facility has a non-revolving sub-facility for up to $1.5 million for purchases of equipment, bears interest at the prime rate, and expires in December 2004. The line of credit is secured by the Company's accounts receivable. As of December 31, 1998, $1.0 million was outstanding under this agreement with the principal and interest due in 60 monthly installments beginning in May 1999. As of December 31, 1998, the Company was in compliance with the financial covenants on all of the aforementioned credit facilities. The terms of the aforementioned credit facilities include financial covenants related to certain financial ratios and tangible asset requirements. NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (3) NOTES PAYABLE (CONTINUED) The aggregate principal payments on long-term debt for each of the years in the five-year period subsequent to December 31, 1998 are as follows: 1999, $618,000; 2000, $442,000; 2001, $200,000; 2002, $200,000; 2003, $200,000; Thereafter $67,000. (4) INCOME TAXES The domestic and foreign components of loss before income taxes are as follows (in thousands):
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- Domestic..................................................... $ (4,627) $ (6,244) $ (8,586) Foreign...................................................... -- (638) (2,707) --------- --------- ---------- Loss before income taxes................................. $ (4,627) $ (6,882) $ (11,293) --------- --------- ---------- --------- --------- ----------
The difference between the amount of income tax benefit recorded and the amount of income tax benefit calculated using the U.S. federal statutory rate of 34% is due to net operating losses not being benefited. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets as of December 31, 1997 and 1998 are presented below (in thousands):
YEAR ENDED DECEMBER 31, -------------------- 1997 1998 --------- --------- Deferred tax assets: Various accruals and reserves not deductible for tax purposes............ $ 229 $ 340 Property and equipment................................................... 134 264 Capitalized start-up expenditures........................................ 89 51 Net operating loss carryforward.......................................... 4,446 8,079 Research and development credit carryforward............................. 265 590 --------- --------- Total deferred tax assets............................................ 5,163 9,324 Valuation allowance...................................................... (5,163) (9,324) --------- --------- Net deferred tax assets.............................................. $ -- $ -- --------- --------- --------- ---------
As of December 31, 1998, NetGravity Europe Limited and NetGravity Asia Pacific K.K. had net operating loss carryforwards of approximately $2,700,000 and $900,000 in the UK and Japan, respectively. The UK net operating loss can be carried forward indefinitely. The Japan net operating loss will expire in the year 2003, if not utilized. As of December 31, 1998, the Company has a net operating loss carryforward for U.S. federal and state income tax purposes of approximately $15.9 million. In addition, the Company had U.S. federal and state research and development credit carryforwards of approximately $318,000 and $272,000, respectively. The Company's U.S. federal net operating loss and research and development credit carryforwards will expire in the years 2010 through 2018, if not utilized. The Company's state net NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (4) INCOME TAXES (CONTINUED) operating loss carryforwards will expire in the year 2003. The state research and development credit can be carried forward indefinitely. U.S. federal and state tax laws impose substantial restrictions on the utilization of net operating loss and tax credit carryforwards in the event of an "ownership change" as defined in Section 382 of the Internal Revenue Code. The Company had such an ownership change, as defined, in March 1997. Accordingly, $6.0 million of each of the Company's U.S. federal and state net operating loss carryforwards are each limited in their annual usage to approximately $700,000 per year. The Company has not yet determined whether any ownership change, as defined, has occurred since 1997. (5) STOCKHOLDERS' EQUITY INITIAL PUBLIC OFFERING In July 1998, the Company completed its initial public offering (IPO) in which it sold 3,250,000 shares and raised approximately $25.9 million in proceeds, net of offering costs of approximately $1.3 million. In connection with the IPO, all outstanding shares of preferred stock automatically converted into approximately 6,220,000 shares of common stock. STOCK SPLIT The Company's Board of Directors approved a 1-for-2.2 reverse split of the Company's common stock (approved by the stockholders effective as of May 8, 1998) which was effected at the effectiveness of the IPO. All common share amounts in the accompanying consolidated financial statements have been adjusted retroactively. COMMON STOCK In connection with the Board of Directors' revaluation of the Company's fair value in March 1997, the Company repurchased and retired approximately 446,000 shares of common stock previously held by two of the Company's founders, at an average purchase price of $0.22 per share. Additionally, the Company adjusted the conversion price of Series A convertible preferred stock to $1.78 per share of common stock; previously the conversion price was $2.22 per share of common stock. Approximately 494,340 additional shares of common stock (after giving effect to the 1-for-2.2 reverse stock split) were in-substance issuable to the holders of Series A convertible preferred stock due to the reduction in the conversion price. The fair value of the assumed in-substance dividend on reported basic and diluted net loss per share for fiscal 1997 was not significant. Common stock issued to certain individuals is subject to repurchase at the option of the Company, at the original issuance price, in the event an individual ceases to be employed by the Company. Such shares are subject to repurchase on a pro rata basis over a four-year period from the date of issuance. As of December 31, 1996, 1997 and 1998, there were approximately 1,688,000, 628,000 and 218,000 shares, respectively, subject to repurchase, at a weighted average price of $0.07 per share. During 1996, 1997 and 1998, approximately 439,000, 126,000 and 102,000 shares, respectively, were repurchased. The Company's Board of Directors adopted the 1998 Stock Plan (the "1998 Plan") on April 23, 1998 (approved by the stockholders effective as of May 8, 1998). The 1998 Plan provides for the grant NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (5) STOCKHOLDERS' EQUITY (CONTINUED) of incentive and nonstatutory stock options and stock purchase rights to employees, directors and consultants. A total of 2,000,000 shares of common stock, plus annual increases equal to the lesser of (i) 1,000,000 shares, (ii) 5% of the outstanding shares, or (iii) a lesser amount determined by the Board of Directors, were reserved for issuance pursuant to the 1998 Plan. The Company's Board of Directors adopted the 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") on April 23, 1998 (approved by the stockholders effective as of May 8, 1998). A total of 200,000 shares of common stock were reserved for issuance under the 1998 Purchase Plan, plus annual increases equal to the lesser of (i) 750,000 shares, (ii) 4% of the outstanding shares on such date, or (iii) a lesser amount determined by the Board of Directors. The Company's Board of Directors also adopted the 1998 Director Option Plan (the "Director Plan") on April 23, 1998 (approved by the stockholders effective as of May 8, 1998). The Director Plan provides for the grant of nonstatutory stock options to non-employee directors of the Company or affiliates thereof. A total of 200,000 shares of common stock were reserved for issuance under the Director Plan plus annual increases to maintain 200,000 shares of common stock reserved for additional option grants. As of December 31, 1998, a total of 2,727,570 shares of common stock were authorized for issuance under the 1995 Stock Option Plan (the Plan). Options may be granted at an exercise price not less than 100% of the fair market value, as determined by the Board of Directors, for incentive stock options and 85% of fair market value for nonqualified stock options at the grant date. All options are granted at the discretion of the Company's Board of Directors and have a term not greater than 10 years from the date of grant. Options issued are generally immediately exercisable and generally vest 25% on the first anniversary date and 1/48th of the shares each month thereafter, so that all the shares are vested 48 months after the vesting commencement date. A summary of the status of the Company's options under the Plan is as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998 ------------------------ ------------------------ ------------------------ WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE NUMBER OF EXERCISE NUMBER OF EXERCISE NUMBER OF EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ----------- ----------- ----------- ----------- ----------- ----------- Outstanding at beginning of year................... 5,000 $ 0.07 456,509 $ 0.22 1,312,399 $ 0.22 Granted at market value............................ 833,418 0.22 475,193 0.22 368,388 $ 12.13 Granted at less than market value.................. -- -- 845,092 0.22 643,468 $ 5.85 Exercised.......................................... (309,418) 0.22 (301,009) 0.22 (204,036) $ 0.36 Canceled........................................... (72,491) 0.22 (163,386) 0.22 (129,311) $ 1.84 ----------- ----------- ----------- Options at end of year............................. 456,509 0.22 1,312,399 0.22 1,990,908 $ 4.21 ----------- ----------- ----------- ----------- ----------- ----------- Weighted-average fair value of options granted during the year with exercise prices equal to market value at date of grant.................... $ 0.07 $ 0.07 $ 12.13 ----------- ----------- ----------- ----------- ----------- ----------- Weighted-average fair value of options granted during the year with exercise prices less than market value at date of grant.................... -- $ 2.05 $ 8.07 ----------- ----------- ----------- ----------- ----------- -----------
NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (5) STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding as of December 31, 1998:
OPTIONS OUTSTANDING - ----------------------------------------------------------------- WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE OPTIONS EXERCISE PRICE NUMBER (YEARS) VESTED - ----------------- ---------- ------------------- ------------- $0.22 1,037,993 8.50 332,675 $0.55 73,374 9.09 5,368 $6.60 409,866 9.28 4,734 $7.15-$11.94 374,427 9.57 -- $13.31-$23.69 95,135 9.12 10,735 $26.06 113 4.52 113 ---------- ------------- 1,990,908 353,625 ---------- ------------- ---------- -------------
The Company uses the intrinsic value-based method to account for all its employee stock-based compensation arrangements. Accordingly, no compensation cost has been recognized for its stock options in the accompanying consolidated financial statements because the fair value of the underlying common stock equals or exceeds the exercise price of the stock options at the date of grant, except with respect to certain options granted in 1997 and 1998. The Company has recorded deferred stock compensation expense of $1,784,000 and $1,427,000 for the difference at the grant date between the exercise price and the fair value of the common stock underlying the options granted in 1997 and 1998, respectively. Amortization of deferred compensation of approximately $115,000 and $1,390,000 was recognized in 1997 and 1998, respectively. Had compensation cost for the Company's stock-based compensation plans been determined consistent with the fair value approach set forth in SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net losses for the years ended December 31, 1996, 1997 and 1998, would have been as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 --------- --------- ---------- Net loss--as reported.................................................. $ (4,627) $ (6,882) $ (11,293) Net loss--pro forma.................................................... $ (4,635) $ (6,883) $ (11,085) Basic and diluted net loss per share--as reported...................... $ (2.19) $ (2.46) $ (1.28) Basic and diluted net loss per share--pro forma........................ $ (2.20) $ (2.46) $ (1.26)
The fair value of options granted during the years ended December 31, 1996 and 1997 is estimated on the date of grant using the minimum value method with the following weighted-average assumptions: no dividend yield, risk-free interest rates of 6.0% and 6.1% for 1996 and 1997, respectively, and expected lives of 5 years. The fair value of options granted during the year ended December 31, 1998 is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (5) STOCKHOLDERS' EQUITY (CONTINUED) assumptions: no dividend yield, risk free interest rate of 5.2%, expected lives of 5 years, and an expected volatility of 80%. WARRANTS In March 1997, in connection with a lease termination agreement, the Company issued the building landlord a warrant to purchase 6,818 shares of common stock at a purchase price of $0.22 per share. There warrants were exercised in June 1998. The value of the warrant was not significant at the date of grant. In October 1997, in connection with certain consulting activities, the Company committed to deliver a warrant to purchase 9,090 shares of common stock at a purchase price of $0.22 per share. These warrants were exercised in May 1998. The value of the warrant was not significant at the date of grant. In January 1998, in connection with a non-employee compensation matter, the Company committed to deliver a warrant to purchase 11,742 shares of common stock at a purchase price of $0.22 per share. These warrants were exercised in May 1998. The value of the warrant was not significant at the date of grant. (6) COMMITMENTS The Company leases its facilities under various noncancellable operating lease agreements that expire on various dates through 2005. As of December 31, 1998, the remaining future minimum payments for these facilities are as follows (in thousands):
OPERATING YEARS ENDING DECEMBER 31, LEASES - --------------------------------------------------------------------------------------- --------------- 1999................................................................................... $ 1,396 2000................................................................................... 1,367 2001................................................................................... 1,363 2002................................................................................... 1,398 Thereafter,............................................................................ 3,558 ------ $ 9,082 ------ ------
Total rent expense, including month to month arrangements, was approximately $149,000, $313,000 and $800,000 for the years ended December 31, 1996, 1997 and 1998, respectively. (7) SEGMENT INFORMATION The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operating decisions and assessing financial performance. NETGRAVITY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1996, 1997 AND 1998 (7) SEGMENT INFORMATION (CONTINUED) The Company's chief operating decision maker is considered to be the Company's Chief Executive Officer ("CEO"). The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The consolidated financial information reviewed by the CEO is identical to the information presented in the accompanying consolidated statement of operations. Therefore, the Company operates in a single operating segment: interactive marketing software and services. Revenue and asset information regarding operations in the different geographic regions is as follows (in thousands):
NORTH AMERICA EUROPE ASIA CONSOLIDATED ------------ ------------ ------------ ------------ Revenues: 1996................................................... 1,939 -- -- $ 1,939 1997................................................... 6,358 -- -- 6,358 1998................................................... 8,263 1,980 1,314 11,577 Identifiable assets: 1997................................................... 9,139 748 -- $ 9,887 1998................................................... 30,587 1,513 1,320 33,420
No single customer accounted for greater than 10% of revenues in any period reported. EX-99 6 EXHIBIT 99.3 NETGRAVITY, INC. CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except per share data) (Unaudited)
June 30, December 31, 1999 1998 ------- ------------ ASSETS Current assets: Cash, cash equivalents and short-term investments................................ $ 125,043 $ 20,799 Accounts receivable, net......................................................... 9,231 6,311 Prepaid expenses and other current assets........................................ 1,909 778 --------- -------- Total current assets............................................................. 136,183 27,888 Property and equipment, net............................................................ 5,870 3,473 Other assets........................................................................... 1,655 2,059 --------- -------- Total assets..................................................................... $ 143,708 $ 33,420 ========= ======== LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Current portion of notes payable................................................. $ 485 $ 618 Accounts payable................................................................. 594 898 Accrued liabilities.............................................................. 3,814 2,867 Deferred revenue................................................................. 7,791 5,800 --------- -------- Total current liabilities........................................................ 12,684 10,183 Notes payable, less current portion ................................................... -- 1,109 Stockholders equity: Convertible preferred stock...................................................... -- -- Common stock..................................................................... 18 14 Additional paid-in capital....................................................... 161,121 46,817 Deferred compensation............................................................ (1,266) (1,706) Accumulated deficit.............................................................. (28,849) (22,997) --------- -------- Total stockholders' equity..................................................... 131,024 22,128 --------- -------- Total liabilities and stockholders' equity..................................... $ 143,708 $ 33,420 ========= ========
See accompanying notes to the condensed consolidated financial statements. NETGRAVITY, INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended ------------------------- ------------------------- June 30, June 30, June 30, June 30, 1999 1998 1999 1998 -------- -------- -------- -------- Revenues: Software licenses......................................... $ 2,058 $ 877 $ 3,615 $ 1,652 Software upgrades......................................... 1,006 527 1,879 929 Consulting and support.................................... 1,963 916 3,584 1,742 Transactional services.................................... 622 12 1,143 12 -------- -------- -------- --------- Total revenues........................................ 5,649 2,332 10,221 4,335 Cost of revenues: Cost of software licenses................................. 43 20 46 35 Cost of consulting and support............................ 1,221 1,073 2,444 2,231 Cost of transactional services............................ 1,326 19 2,306 19 -------- -------- -------- --------- Total cost of revenues................................ 2,590 1,112 4,796 2,285 -------- -------- -------- --------- Gross profit.......................................... 3,059 1,220 5,425 2,050 -------- -------- -------- --------- Operating costs and expenses: Research and development........................................ 1,615 1,063 3,577 2,059 Sales and marketing............................................. 3,544 2,439 6,898 4,395 General and administrative...................................... 1,428 754 2,417 1,462 -------- -------- -------- --------- Total operating costs and expenses.............................. 6,587 4,256 12,892 7,916 -------- -------- -------- --------- Loss from operations............................................ (3,528) (3,036) (7,467) (5,866) Other income (expense), net..................................... 1,425 26 1,615 56 -------- -------- -------- --------- Net loss........................................................ $ (2,103) $ (3,010) $ (5,852) $ (5,810) ======== ======== ======== ========= Per share of common stock: Basic and diluted net loss per share...................... $ (0.12) $ (0.59) $ (0.38) $ (1.42) -------- -------- -------- --------- Weighted average shares used in per share calculation of basic and diluted net loss per share calculation..................................... 17,487 5,134 15,572 4,079 -------- -------- -------- ---------
See accompanying notes to the condensed consolidated financial statements. NETGRAVITY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, ------------------------- 1999 1998 ---- ---- Cash Flows from operating activities: Net loss.................................................................... $ (5,852) $ (5,810) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation........................................................... 934 371 Amortization of intangibles............................................ 369 -- Amortization of deferred stock compensation............................ 559 561 Compensation from grant of non-employee stock options and warrants......................................................... 254 -- Accounts receivable, net............................................ (2,920) (1,584) Prepaid expenses and other assets................................... (1,131) (163) Accounts payable.................................................... (304) 869 Accrued liabilities................................................. 947 1,355 Deferred revenue.................................................... 1,991 1,798 -------- -------- Net cash used in operating activities...................... (5,153) (2,603) ------ -------- Cash flows from investing activities: Capital expenditures........................................................ (3,329) (965) Purchase of short-term investments, net..................................... (848) -- Other assets................................................................ 35 (284) -------- -------- Net cash used in investing activities..................... (4,142) (1,249) -------- -------- Cash flows from financing activities: Proceeds from notes payable................................................. -- (655) Repayment of notes payable.................................................. (1,242) (243) Proceeds from issuance of preferred stock, net.............................. -- 3,249 Proceeds from issuance of common stock, net................................. 113,935 23,901 Repurchases of common stock................................................. -- (9) -------- -------- Net cash provided by financing activities................... 112,693 26,243 -------- -------- Net increase in cash and cash equivalents......................................... 103,398 22,391 Cash and cash equivalents at beginning of period.................................. 10,236 5,637 -------- -------- Cash and cash equivalents at end of period........................................ 113,634 28,028 ======== ======== Supplemental disclosure of cash flow information: Cash paid for interest...................................................... 57 71 ======== ======== Non-cash financing activities: Deferred compensation cost on employee and non-employee stock option grants....................................................... $ 228 $ 1,037 ======== ========
See accompanying notes to the condensed consolidated financial statements. NOTE 1. BASIS OF PRESENTATION The condensed consolidated financial statements of NetGravity, Inc. and subsidiaries (the "Company") reflect all adjustments (consisting only of normal recurring adjustments) that, in the opinion of management, are necessary for a fair presentation of interim period results. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. The results of operations for the current interim period are not necessarily indicative of results to be expected for the entire current year or other future interim periods. Net Loss Per Share Basic and diluted net loss per share are computed using the weighted average number of outstanding shares of common stock. Diluted net loss per share for the three- and six-months ended June 30, 1998 does not include the effect of approximately 1,852,000 stock options with a weighted average exercise price of $2.58 per share, or 827,000 shares of common stock issued and subject to repurchase by the Company at a weighted average price of $0.22 per share, because their effects are anti-dilutive. Diluted net loss per share for the three- and six-months ended June 30, 1999 does not include the effect of approximately 3,503,073 stock options outstanding with a weighted average exercise price of $16.12 per share, and approximately 164,861 shares of common stock issued and subject to repurchase by the Company at a weighted average price of $0.28 per share, because their effects are anti-dilutive. NOTE 2. EQUITY TRANSACTIONS In March 1998, the Company issued and sold approximately 1,451,000 shares of Series C Preferred Stock for aggregate net proceeds to the Company of approximately $3,249,000. In June 1998, the Company raised $23.9 million of net proceeds from the sale of 3 million shares of the Company's common stock in its initial public offering ("IPO"). All then outstanding shares of Series A, B and C Preferred Stock were converted into 2.5 million shares, 1.9 million shares and 1.8 million shares of common stock, respectively, upon the closing of the IPO. In July 1998, the Company raised an additional $2.1 million of net proceeds from the sale of an additional 250,000 shares of the Company's common stock upon the exercise of the underwriters' over-allotment option granted in connection with the IPO. In April 1999, the Company completed a secondary public offering of 4,692,000 shares of its Common Stock, of which approximately 3,830,000 were sold by the Company, including 612,000 shares sold upon exercise of the underwriters' over-allotment option, for net proceeds to the Company of approximately $113 million, after deducting underwriting discounts, commissions and estimated offering expenses payable by the Company. In connection with the Company's issuance of certain contingent stock option rights to purchase the Company's common stock to consultants engaged in research and development activities on behalf of the Company, the Company valued the deferred stock compensation charge associated with the rights issued to the consultants as of June 30, 1999 at approximately $240,000. The Company determined the value of the contingent stock option rights using the Black-Scholes model, based on the following assumptions: no dividends; contractual term of one year; risk-free interest rate of 6.50%; and expected volatility of 80%. The value assigned to the contingent stock option rights is being remeasured at each reporting date until all such ownership rights have been earned by the consultants, and the resulting compensation charge is being amortized over the related service period of approximately one year. Amortization of the assigned value of the warrant during the six months ended June 30, 1999 totaled approximately $121,000. In connection with the Company's issuance of a warrant to purchase the Company's common stock to a recruitment firm as partial consideration for services rendered in connection with the recruitment and hiring of a new CEO, the Company valued the stock compensation charge associated with the warrant issuance at its measurement date at approximately $133,000. The Company determined the value of the warrant using the Black-Scholes model, based on the following assumptions: no dividends; contractual term of six months; risk-free interest rate of 6.50%; and expected volatility of 80%. The entire value assigned to the warrant was expensed in the three months ended June 30, 1999. Amortization of deferred compensation and compensation expense of approximately $315,000 and $355,000 was recognized in the three months ended June 30, 1998 and 1999, respectively. Amortization of deferred compensation and compensation expense of approximately $561,000 and $813,000 was recognized in the six months ended June 30, 1998 and 1999, respectively. NOTE 3. SEGMENT INFORMATION The Company has adopted the provisions of SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's Chief Executive Officer ("CEO") is considered to be the "chief operating decision maker" within the meaning of SFAS No. 131. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. The consolidated financial information reviewed by the CEO is identical to the information presented in the accompanying consolidated statement of operations. Therefore, the Company has determined that it operates in a single operating segment: interactive marketing software and services. Revenue and asset information regarding operations in the different geographic regions is as follows (in thousands of dollars):
North America Europe Asia Consolidated ------------- ------ ---- ------------ Revenues: Three months ended June 30, 1998.. 1,658 334 340 2,332 Three months ended June 30, 1999.. 3,984 805 860 5,649 Six months ended June 30, 1998.... 3,073 584 678 4,335 Six months ended June 30, 1999.... 6,948 1,824 1,449 10,221 Identifiable Assets: June 30, 1999..................... 138,496 1,198 2,173 143,708
No single customer accounted for greater than 10% of revenues in any period reported. NOTE 4. MERGER WITH DOUBLECLICK INC. In July 1999, the Company entered into an agreement with DoubleClick, Inc., a Delaware corporation ("DoubleClick"), under which the Company agreed to merge with DoubleClick. This merger transaction, in which the stockholders of the Company will receive 0.28 shares of DoubleClick common stock for each share of common stock held by them, is expected to be accounted for using the pooling-of-interests method and should close during the quarter ending December 31, 1999, subject to various conditions, including customary regulatory approvals and approval by the Company's stockholders. EX-99 7 EXHIBIT 99.4 DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE 30, 1999 (IN THOUSANDS)
DOUBLECLICK/ ABACUS/ DOUBLECLICK/ NETGRAVITY NETGRAVITY/ PRO ABACUS HISTORICAL FORMA PRO FORMA --------------------- ----------- HISTORICAL ----------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- ------ ----------- ---------- ----------- ASSETS CURRENT ASSETS: Cash, cash equivalents and short-term investments $372,988 $23,563 $396,551 $125,043 $521,594 Accounts receivable, net......................... 20,351 14,857 35,208 9,231 44,439 Prepaid expenses and other current assets........ 2,033 3,301 5,334 1,909 7,243 -------- ------- -------- -------- -------- Total current assets....................... 395,372 41,721 437,093 136,183 573,276 Property and equipment, net...................... 21,168 7,114 28,282 5,870 34,152 Investments and other assets..................... 5,801 146 5,947 1,655 7,602 -------- ------- -------- -------- -------- Total assets............................... $422,341 $48,981 $471,322 $143,708 $615,030 ======== ======= ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses............ $28,055 $5,756 $33,811 $4,893 $38,704 Deferred revenues................................ 6,482 -- 6,482 7,791 14,273 Deferred license and service fees................ 344 -- 344 -- 344 -------- ------- -------- -------- -------- Total current liabilities.................. 34,881 5,756 40,637 12,684 53,321 Convertible subordinated notes................... 250,000 -- 250,000 -- 250,000 Other liabilities................................ 295 447 742 -- 742 STOCKHOLDERS' EQUITY: Common stock..................................... 40 10 50 18 68 Additional paid-in capital....................... 205,221 14,499 219,720 161,121 380,841 Accumulated earnings (deficit)................... (67,253) 28,269 (38,984) (28,849) (67,833) Deferred compensation............................ (265) -- (265) (1,266) (1,531) Other comprehensive income (loss)................ (578) -- (578) -- (578) -------- ------- -------- -------- -------- Total stockholders' equity................. 137,165 42,778 179,943 131,024 310,967 Total liabilities and stockholders' equity. $422,341 $48,981 $471,322 $143,708 $615,030 -------- ------- -------- -------- --------
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DOUBLECLICK/ DOUBLECLICK/ ABACUS/ ABACUS NETGRAVITY HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------------------- --------- ---------- ---------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- -------- --------- ---------- ---------- Revenues .................................. $ 53,079 $ 25,968 $ 79,047 10,221 $ 89,268 Cost of revenues .......................... 25,038 6,463 31,501 4,796 36,297 -------- -------- -------- -------- -------- Gross profit ........................... 28,041 19,505 47,546 5,425 52,971 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing .................... 25,059 8,142 33,201 6,898 40,099 General and administrative ............. 8,750 2,643 11,393 2,417 13,810 Product development .................... 7,691 1,381 9,072 3,577 12,649 Facility relocation & other ............ 2,132 -- 2,132 -- 2,132 -------- -------- -------- -------- -------- Total operating expenses ............ 43,632 12,166 55,798 12,892 68,690 -------- -------- -------- -------- -------- Income (loss) from operations ............. (15,591) 7,339 (8,252) (7,467) (15,719) Equity in losses of joint venture ......... -- (365) (365) -- (365) Interest and other net .................... 3,055 567 3,622 1,615 5,237 -------- -------- -------- -------- -------- Income (loss) before income taxes ......... (12,536) 7,541 (4,995) (5,852) (10,847) Provision for income taxes ................ -- 2,964 2,964 -- 2,964 -------- -------- -------- -------- -------- Net income (loss) ......................... $(12,536) $ 4,577 $ (7,959) $ (5,852) $(13,811) ======== ======== ======== ======== ======== Net income (loss) per share--basic......... $ (0.32) $ 0.46 $ (0.16) $ (0.38) $ (0.25) -------- -------- -------- -------- -------- Net income (loss) per share--diluted ...... $ (0.32) $ 0.44 $ (0.16) $ (0.38) $ (0.25) -------- -------- -------- -------- -------- Weighted average shares used in basic per share calculation........................ 39,435 9,878 49,807 15,572 54,167 -------- -------- -------- -------- -------- Weighted average shares used in diluted per share calculation......................... 39,435 10,475 49,807 15,572 54,167 -------- -------- -------- -------- --------
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DOUBLECLICK/ DOUBLECLICK/ ABACUS/ ABACUS NETGRAVITY HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------------------- --------- ---------- ---------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- -------- --------- ---------- ---------- Revenues .................................. $ 30,297 $ 18,449 $ 48,746 $ 4,335 $ 53,081 Cost of revenues .......................... 20,569 4,227 24,796 2,285 27,081 -------- -------- -------- -------- -------- Gross profit ........................... 9,728 14,222 23,950 2,050 26,000 -------- -------- -------- -------- -------- Operating expenses Sales and marketing .................... 12,508 5,936 18,444 4,395 22,839 General and administrative ............. 4,970 2,244 7,214 1,462 8,676 Product development .................... 2,579 851 3,430 2,059 5,489 -------- -------- -------- -------- -------- Total operating expenses ............ 20,057 9,031 29,088 7,916 37,004 -------- -------- -------- -------- -------- Income (loss) from operations ............. (10,329) 5,191 (5,138) (5,866) (11,004) Interest and other net .................... 1,228 305 1,533 56 1,589 -------- -------- -------- -------- -------- Income (loss) before income taxes ......... (9,101) 5,496 (3,605) (5,810) (9,415) Provision for income taxes ................ -- 2,006 2,006 -- 2,006 -------- -------- -------- -------- -------- Net Income (loss) ......................... $ (9,101) $ 3,490 $ (5,611) $ (5,810) $(11,421) -------- -------- -------- -------- -------- Net income (loss) per share--basic ........ $ (0.34) $ 0.36 $ (0.15) $ (1.42) $ (0.30) -------- -------- -------- -------- -------- Net income (loss) per share-diluted ....... $ (0.34) $ 0.34 $ (0.15) $ (1.42) $ (0.30) -------- -------- -------- -------- -------- Weighted average shares used in basic per share calculation ........................ 27,101 9,692 37,278 4,079 38,420 -------- -------- -------- -------- -------- Weighted average shares used in diluted per share calculation ........................ 27,101 10,202 37,278 4,079 38,420 -------- -------- -------- -------- --------
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DOUBLECLICK/ DOUBLECLICK/ ABACUS/ ABACUS NETGRAVITY HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------------------- --------- ---------- ---------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- -------- --------- ---------- ---------- Revenues .................................. $ 80,188 $ 46,979 $ 127,167 $ 11,557 $ 138,724 Cost of revenues .......................... 53,964 9,581 63,545 5,228 68,773 --------- --------- --------- --------- --------- Gross profit ........................... 26,224 37,398 63,622 6,329 69,951 --------- --------- --------- --------- --------- Operating expenses: Sales and marketing .................... 29,180 12,628 41,808 10,351 52,159 General and administrative ............. 11,288 4,928 16,216 3,172 19,388 Product development .................... 6,684 1,691 8,375 4,639 13,014 Facility relocation & other ............ -- 360 360 -- 360 --------- --------- --------- --------- --------- Total operating expenses ............ 47,152 19,607 66,759 18,162 84,921 --------- --------- --------- --------- --------- Income (loss) from operations ............. (20,928) 17,791 (3,137) (11,833) (14,970) Equity in losses of joint venture ......... -- (53) (53) -- (53) Interest and other, net ................... 2,756 754 3,510 540 4,050 --------- --------- --------- --------- --------- Income (loss) before income taxes ......... (18,172) 18,492 320 (11,293) (10,973) Provision for income taxes ................ -- 7,066 7,066 7,066 --------- --------- --------- --------- --------- Net income (loss) ......................... $ (18,172) $ 11,426 $ (6,746) $ (11,293) $ (18,039) ========= ========= ========= ========= ========= Net income (loss) per share--basic......... $ (0.60) $ 1.17 $ (0.17) $ (1.28) $ (0.42) --------- --------- --------- --------- --------- Net income (loss) per share--diluted ...... $ (0.60) $ 1.12 (0.17) $ (1.28) $ (0.42) --------- --------- --------- --------- --------- Weighted average shares used in basic per share calculation ....................... 30,440 9,727 40,654 8,823 43,124 --------- --------- --------- --------- --------- Weighted average shares used in diluted per share calculation ....................... 30,440 10,216 40,654 8,823 43,124 --------- --------- --------- --------- ---------
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DOUBLECLICK/ DOUBLECLICK/ ABACUS/ ABACUS NETGRAVITY HISTORICAL PRO FORMA HISTORICAL PRO FORMA ----------------------- --------- ---------- ---------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- -------- --------- ---------- ---------- Revenues .................................. $ 30,597 $ 30,971 $ 61,568 $ 6,358 $ 67,926 Cost of revenues .......................... 20,628 5,942 26,570 2,572 29,142 -------- -------- -------- -------- -------- Gross profit ........................... 9,969 25,029 34,998 3,786 38,784 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing .................... 10,710 8,000 18,710 6,073 24,783 General and administrative ............. 6,326 3,911 10,237 1,552 11,789 Product development .................... 1,398 1,507 2,905 3,033 5,938 Facility relocation & other ............ -- 102 102 -- 102 -------- -------- -------- -------- -------- Total operating expenses ............ 18,434 13,520 31,954 10,658 42,612 -------- -------- -------- -------- -------- Income (loss) from operations ............. (8,465) 11,509 3,044 (6,872) (3,828) Interest and other net .................... 109 297 406 (10) 396 -------- -------- -------- -------- -------- Income (loss) before income taxes ......... (8,356) 11,806 3,450 (6,882) (3,432) Provision for income taxes ................ -- 4,309 4,309 -- 4,309 -------- -------- -------- -------- -------- Net income (loss) ......................... $ (8,356) $ 7,497 $ (859) $ (6,882) $ (7,741) ======== ======== ======== ======== ======== Net income (loss) per share--basic ........ $ (0.61) $ 0.78 $ (0.04) $ (2.46) $ (0.32) Net income (loss) per share--diluted ...... $ (0.61) $ 0.74 $ (0.04) $ (2.46) $ (0.32) Weighted average shares used in basic per share calculation ....................... $ 13,718 $ 9,546 23,740 2,799 24,524 Weighted average shares used in diluted per share calculation ....................... $ 13,718 10,058 23,740 2,799 24,524
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. DOUBLECLICK INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DOUBLECLICK/ DOUBLECLICK/ ABACUS/ ABACUS NETGRAVITY HISTORICAL PRO FORMA HISTORICAL PRO FORMA ------------------------- --------- ---------- ---------- DOUBLECLICK ABACUS COMBINED NETGRAVITY COMBINED ----------- -------- --------- ---------- ---------- Revenues .................................. $ 6,514 $ 17,532 $ 24,046 $ 1,939 $ 25,985 Cost of revenues .......................... 3,780 3,751 7,531 702 8,233 -------- -------- -------- -------- -------- Gross profit ........................ 2,734 13,781 16,515 1,237 17,752 -------- -------- -------- -------- -------- Operating expenses: Sales and marketing .................... 3,079 4,294 7,373 2,839 10,212 General and administrative ............. 2,145 2,204 4,349 1,315 5,664 Product development .................... 618 913 1,531 1,764 3,295 -------- -------- -------- -------- -------- Total operating expenses ............ 5,842 7,411 13,253 5,918 19,171 -------- -------- -------- -------- -------- Income (loss) from operations ............. (3,108) 6,370 3,262 (4,681) (1,419) Interest and others, net .................. (84) (116) (200) 54 (146) -------- -------- -------- -------- -------- Income (loss) before income taxes ......... (3,192) 6,254 3,062 (4,627) (1,565) Provision for income taxes ................ -- 2,389 2,389 -- 2,389 -------- -------- -------- -------- -------- Net income (loss) ......................... $ (3,192) $ 3,865 $ 673 $ (4,627) $ (3,954) ======== ======== ======== ======== ======== Net income (loss) per share--basic......... $ (0.18) $ 0.43 $ 0.02 $ (2.19) $ (0.14) -------- -------- -------- -------- -------- Net income (loss) per share--diluted ...... $ (0.18) $ 0.40 $ 0.02 $ (2.19) $ (0.14) -------- -------- -------- -------- -------- Weighted average shares used in basic per share calculation ....................... 18,118 9,094 27,667 2,111 28,258 Weighted average shares used in diluted per share calculation ....................... 18,118 9,614 28,213 2,111 28,258
The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NOTE 1 The unaudited pro forma condensed combined financial statements of DoubleClick and Abacus give retroactive effect to the proposed merger of DoubleClick and Abacus, which is expected to be accounted for as a pooling of interests and, as a result, the unaudited pro forma condensed combined balance sheet and statements of operations are presented as if DoubleClick and Abacus had been combined for all periods presented. On July 12, 1999, DoubleClick entered into an agreement to merge with NetGravity. The unaudited pro forma condensed combined financial statements of DoubleClick and Abacus have been updated to reflect the proposed merger with NetGravity, which is expected to be accounted for as a pooling of interests and, as a result, the unaudited pro forma condensed combined balance sheet and statements of operations are presented as if DoubleClick, Abacus and NetGravity had been combined for all periods presented. The unaudited pro forma condensed combined financial statements, including the related notes, should be read in conjunction with the historical consolidated financial statements and related notes of DoubleClick, Abacus and NetGravity which are incorporated by reference in this joint proxy statement/prospectus. Amounts from the Abacus and NetGravity historical consolidated financial statements have been reclassified in the unaudited pro forma condensed combined financial statements to conform with DoubleClick historical classifications. All share numbers in these unaudited pro forma condensed combined financial statements for all periods presented have been adjusted to reflect the DoubleClick 2-for-1 stock split that occurred in April 1999. NOTE 2 Basic net income (loss) per share is computed using the weighed average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the weighed average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of the incremental common shares issuable upon conversion of convertible preferred stock, convertible notes (using the if-converted method), and shares issuable upon exercise of stock options (using the treasury stock method). Common equivalent shares or shares issuable upon conversion of potentially dilutive securities are excluded from the computations if their effect is anti-dilutive. Pro forma net income (loss) per share is computed by adding DoubleClick historical weighted average shares outstanding to Abacus and NetGravity historical weighted average shares outstanding converted to give effect to the exchange ratio of 1.05 and 0.28, respectively. NOTE 3 The provision for income taxes does not reflect the benefit of DoubleClick's or NetGravity's net losses due to limitations and uncertainty surrounding realization. NOTE 4 It is anticipated that the combined company will incur estimated direct transaction charges of $16 million related to the proposed merger of DoubleClick with Abacus and $10.75 million for the NetGravity merger, principally in the quarter in which the proposed merger is consummated. These charges include estimated investment banking and financial advisory fees of approximately $12.5 million and $7.25 million for the Abacus and NetGravity merger, respectively, and other estimated merger related expenses totaling $3.5 million for each of the Abacus and NetGravity mergers consisting primarily of other professional services and estimated registration expenses. These anticipated charges are preliminary estimates and are subject to change. Actual amounts ultimately incurred could differ from the estimated amounts. The actual amounts will be charged to the statement of operations in the period the transaction is consummated. Additionally, the direct transaction charges do not include integration costs which may be incurred as of and subsequent to the mergers. Neither DoubleClick, Abacus or NetGravity have estimated the amount or nature of integration costs. -----END PRIVACY-ENHANCED MESSAGE-----