AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

                                                           FINAL EXECUTION COPY

 

 

 

 

 

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                AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

 

                                   BY AND AMONG

 

 

                              IAC/INTERACTIVECORP,

 

 

                              AJI ACQUISTION CORP.

 

 

                                       AND

 

 

                                ASK JEEVES, INC.

 

 

 

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                           DATED AS OF MARCH 21, 2005

 

 

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                                TABLE OF CONTENTS

 

                                                                             PAGE

                                                                              

                                    ARTICLE I

 

                                   THE MERGER

 

Section 1.1        The Merger...................................................1

Section 1.2        Closing; Effective Time......................................1

Section 1.3        Tax Consequences.............................................2

 

                                    ARTICLE II

 

                    DIRECTORS, OFFICERS AND CHARTER DOCUMENTS

 

Section 2.1        Directors....................................................2

Section 2.2        Officers.....................................................2

Section 2.3         Certificate of Incorporation and Bylaws of the Surviving

                    Corporation................................................2

 

                                   ARTICLE III

 

                             TREATMENT OF SECURITIES

 

Section 3.1         Effect of the Merger on Capital Stock........................2

Section 3.2        Exchange of Certificates.....................................3

Section 3.3        Company Options, Other Equity-Based Awards and

                    Employee Stock Purchase Plan...............................6

Section 3.4        Convertible Notes............................................7

 

                                   ARTICLE IV

 

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Section 4.1        Corporate Organization.......................................8

Section 4.2        Capitalization...............................................9

Section 4.3        Authority; No Violation.....................................11

Section 4.4        Amendment to Rights Agreement...............................12

Section 4.5        Consents and Approvals......................................12

Section 4.6        SEC Reports; Financial Statements...........................12

Section 4.7        Broker's Fees...............................................13

Section 4.8        Absence of Certain Changes or Events........................13

Section 4.9        Legal Proceedings...........................................14

Section 4.10       Taxes and Tax Returns.......................................15

Section 4.11       Certain Other Tax Matters...................................16

Section 4.12       Employees...................................................16

Section 4.13       Securities Law Matters......................................18

Section 4.14       Compliance with Applicable Law, Permits and Licenses........19

 

                                      -i-

 

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                                                                            PAGE

 

Section 4.15       Intellectual Property; Proprietary Rights; Employee

                    Restrictions; Assets......................................20

Section 4.16       Certain Contracts; Leases...................................22

Section 4.17       Undisclosed Liabilities.....................................23

Section 4.18       Insurance...................................................23

Section 4.19       Environmental Liability.....................................24

Section 4.20       State Takeover Laws.........................................24

Section 4.21       Registration Statement......................................24

Section 4.22       Transactions with Affiliates................................24

Section 4.23       Opinions of Financial Advisors..............................24

Section 4.24       Relationship with Google....................................25

Section 4.25       Traffic Metrics.............................................25

 

                                    ARTICLE V

 

             REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

Section 5.1        Corporate Organization......................................25

Section 5.2        Capitalization..............................................26

Section 5.3        Authority; No Violation.....................................27

Section 5.4        SEC Reports; Financial Statements...........................27

Section 5.5        Consents and Approvals......................................28

Section 5.6        Securities Law Matters......................................29

Section 5.7        Compliance with Applicable Law..............................29

Section 5.8        Intellectual Property.......................................30

Section 5.9        Undisclosed Liabilities.....................................30

Section 5.10        Conduct of Business.........................................30

Section 5.11       Broker's Fees...............................................30

Section 5.12       Taxes and Tax Returns.......................................30

Section 5.13       Certain Other Tax Matters...................................31

Section 5.14       Registration Statement......................................31

Section 5.15       Absence of Certain Changes or Events........................31

Section 5.16       Legal Proceedings...........................................31

Section 5.17       Ownership of Company Common Stock...........................32

 

                                   ARTICLE VI

 

                     CONDUCT OF BUSINESS PENDING THE MERGER

 

Section 6.1        Conduct of Businesses Prior to the Merger Closing...........32

Section 6.2        Forbearances................................................32

Section 6.3        Certain Tax Matters.........................................35

 

                                      -ii-

 

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                                                                            PAGE

 

                                   ARTICLE VII

 

                              ADDITIONAL AGREEMENTS

 

Section 7.1        Regulatory Matters..........................................35

Section 7.2        Access to Information.......................................36

Section 7.3        Acquisition Transactions....................................37

Section 7.4        Stockholders' Approval......................................39

Section 7.5        Legal Conditions to the Merger..............................39

Section 7.6        Affiliates..................................................40

Section 7.7        Stock Exchange Quotation or Listing.........................40

Section 7.8        Additional Agreements.......................................40

Section 7.9        Advice of Changes...........................................40

Section 7.10       Section 16..................................................40

Section 7.11       Directors' and Officers' Indemnification and Insurance......40

Section 7.12       Reorganization..............................................42

Section 7.13       Registration Statement......................................42

Section 7.14       Employees...................................................42

Section 7.15       Obligations of Merger Sub...................................43

Section 7.16       Dividends...................................................43

 

                                  ARTICLE VIII

 

                                   CONDITIONS

 

Section 8.1        Conditions to Each Party's Obligation to Effect

                    the Merger................................................44

Section 8.2        Conditions to Obligations of the Company....................45

Section 8.3        Conditions to Obligations of Parent.........................45

 

                                   ARTICLE IX

 

                        TERMINATION, AMENDMENT AND WAIVER

 

Section 9.1        Termination.................................................46

Section 9.2        Effect of Termination.......................................48

Section 9.3        Amendment...................................................49

Section 9.4        Extension; Waiver...........................................49

 

                                    ARTICLE X

 

                               GENERAL PROVISIONS

 

Section 10.1       Nonsurvival of Representations, Warranties and

                    Agreements................................................50

Section 10.2       Expenses....................................................50

Section 10.3       Notices.....................................................50

Section 10.4       Interpretation..............................................51

 

                                     -iii-

 

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                                                                            PAGE

 

Section 10.5       Counterparts................................................51

Section 10.6       Entire Agreement............................................52

Section 10.7       Governing Law...............................................52

Section 10.8       Publicity...................................................52

Section 10.9       Assignment; Third Party Beneficiaries.......................53

Section 10.10      Specific Enforcement........................................53

Section 10.11      Severability................................................53

 

                                      -iv-

 

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                                   EXHIBIT LIST

 

Exhibit A           Form of Amended and Restated Certificate of Incorporation of

                     the Surviving Corporation

 

Exhibit B           Affiliate List

 

Exhibit C           Form of Rule 145 Affiliate Letter

 

                                      -v-

 

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                   INDEX OF DEFINED TERMS

 

TERM                                              PAGE

 

 

Acquisition Proposal...............................37

Acquisition Transaction............................37

Adware.............................................21

Agreement...........................................1

Business Day........................................2

Certificate.........................................4

Certificate of Merger...............................1

Certificates........................................4

Closing.............................................1

Closing Date........................................1

Code................................................1

Company.............................................1

Company 10-K Balance Sheets........................12

Company Active Business............................15

Company Affiliate Transactions.....................24

Company Benefit Plan...............................16

Company Charter.....................................8

Company Common Stock................................3

Company Contract...................................21

Company Disclosure Schedule.........................7

Company ERISA Affiliate............................16

Company Financial Statements.......................12

Company Intellectual Property......................19

Company Licensed Intellectual Property.............19

Company Option......................................6

Company Owned Intellectual Property................19

Company Permits....................................19

Company Regulatory Agreement.......................14

Company Reports....................................12

Company Series A Junior Participating Preferred

  Stock............................................ 3

Company Stock Plans.................................9

Company Stockholder Approval.......................10

Confidentiality Agreement..........................36

Convertible Notes...................................7

DGCL................................................1

DHT................................................15

Effective Time......................................1

ERISA..............................................16

ESPP................................................7

Excess Parent Common Stock..........................5

Exchange Act........................................8

Exchange Agent......................................4

Exchange Ratio......................................3

GAAP...............................................12

Google.............................................21

Governmental Entity................................11

HSR Act............................................11

Indemnified Parties................................40

Insurance Policies.................................23

 

 

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Intellectual Property..............................19

Japanese JV.........................................8

Knowledge..........................................11

Leased Real Property...............................22

Leases.............................................22

Liens...............................................9

Material Adverse Effect.............................8

Maximum Premium....................................40

Merger..............................................1

Merger Consideration................................3

Merger Sub..........................................1

Multiple Employer Plan.............................16

NES................................................15

NOL Carryforwards..................................15

NOLs...............................................15

Parent..............................................1

Parent 10-K Balance Sheets.........................27

Parent 10-K Financial Statements...................27

Parent Class B Common Stock........................25

Parent Common Stock.................................3

Parent Disclosure Schedule.........................24

Parent Option.......................................6

Parent Preferred Stock.............................25

Parent Proxy Statement.............................25

Parent Reports.....................................27

Parent Spin-Off....................................35

Parties.............................................1

Pending ESPP Shares.................................9

Pending ISH Merger Shares...........................9

Pending Option Exercise Shares......................9

Potential Acquirer.................................37

Proxy Statement/Prospectus.........................34

Qualifying Proposal................................37

Registration Statement.............................28

Requisite Regulatory Approval......................43

Right...............................................3

Rights Agreement....................................3

SEC................................................11

Securities Act.....................................12

Series A Preferred Stock...........................25

Spyware............................................21

Stock Plans.........................................6

 

                            -vi-

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TERM                                              PAGE

 

Stockholder Meeting................................38

Stockholder Proposal...............................38

Subsidiary..........................................8

Superior Proposal..................................37

Surviving Corporation...............................1

Tax................................................15

Tax Return.........................................15

Taxes..............................................15

Termination Date...................................45

Third Party Intellectual Property..................19

Transferring Employee..............................42

 

                          -vii-

 

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            AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of March

21, 2005 (this "AGREEMENT"), by and among IAC/InterActiveCorp, a Delaware

corporation ("PARENT"), AJI Acquisition Corp., a Delaware corporation and wholly

owned Subsidiary (as defined herein) of Parent ("MERGER SUB"), and Ask Jeeves,

Inc., a Delaware corporation (the "COMPANY") (collectively, the "PARTIES").

 

            WHEREAS, the respective Boards of Directors of each of the Parties

have approved and declared advisable this Agreement, pursuant to which Merger

Sub shall merge with and into the Company (the "MERGER"), with the Company being

the surviving corporation in the Merger, upon the terms and subject to the

conditions, and with the effects, set forth in this Agreement;

 

            WHEREAS, the Parties intend that the Merger shall constitute a

"reorganization" within the meaning of Section 368(a) of the Internal Revenue

Code of 1986, as amended (the "CODE"), and that this Agreement shall constitute

a plan of reorganization for purposes of Sections 354 and 361 of the Code; and

 

            WHEREAS, the Parties desire to make certain representations,

warranties and agreements in connection with the Merger and other transactions

contemplated hereby and also to prescribe certain conditions to the Merger and

other transactions contemplated hereby.

 

            NOW THEREFORE, in consideration of the premises and the

representations, warranties, covenants and agreements contained herein, the

Parties, intending to be legally bound hereby, agree as follows:

 

 

                                     ARTICLE I

 

                                   THE MERGER

 

            Section 1.1 THE MERGER. Upon the terms and subject to the conditions

set forth in this Agreement, at the Effective Time (as defined herein), Merger

Sub shall be merged with and into the Company in accordance with Section 251 of

the Delaware General Corporation Law (the "DGCL"). Following the Effective Time,

the Company shall continue as the surviving corporation in the Merger (the

"SURVIVING CORPORATION"), shall be a direct, wholly owned Subsidiary of Parent

and shall succeed to all of the rights and obligations of Merger Sub in

accordance with the DGCL, and the separate corporate existence of Merger Sub

shall cease. The Merger shall have the effects and consequences specified in

Section 259 of the DGCL.

 

            Section 1.2 CLOSING; EFFECTIVE TIME. The closing of the Merger (the

"CLOSING") shall take place at the offices of Wachtell, Lipton, Rosen & Katz, at

10:00 a.m., Eastern time, on the third Business Day (as defined herein)

immediately following the date on which the last of the conditions set forth in

Article VIII hereof is satisfied or waived (other than conditions that by their

nature cannot be satisfied until the Closing Date, but subject to satisfaction

or waiver of such conditions), or at such other time and date and place as

Parent and the Company shall mutually agree (the "CLOSING DATE"). The term

"EFFECTIVE TIME" shall mean the time and date of the filing of a properly

executed certificate of merger (the "CERTIFICATE OF MERGER") with the Secretary

of State of the State of Delaware in accordance with the DGCL, or

 

 

<PAGE>

 

at such later time as agreed to by the Parties and set forth in the Certificate

of Merger. The term "BUSINESS DAY" shall mean any day, other than a Saturday,

Sunday or a day on which the commercial banks in the state of New York are

authorized or required by law to remain closed.

 

            Section 1.3 TAX CONSEQUENCES. It is intended that the Merger

constitute a "reorganization" within the meaning of Section 368(a) of the Code,

and the Parties agree to treat the Merger consistently with this intention for

all purposes.

 

                                   ARTICLE II

 

                    DIRECTORS, OFFICERS AND CHARTER DOCUMENTS

 

            Section 2.1 DIRECTORS. The directors of Merger Sub immediately prior

to the Effective Time shall become the directors of the Surviving Corporation,

which individuals shall serve as directors of the Surviving Corporation until

the earlier of their resignation or removal or their otherwise ceasing to be

directors or until their respective successors are duly appointed or elected in

accordance with the Amended and Restated Certificate of Incorporation and Bylaws

of the Surviving Corporation and applicable law.

 

            Section 2.2 OFFICERS. The officers of the Company immediately prior

to the Effective Time shall be the officers of the Surviving Corporation as of

the Effective Time and shall serve until their resignation or removal or their

otherwise ceasing to be officers or until their respective successors are duly

appointed or elected in accordance with the Amended and Restated Certificate of

Incorporation and Bylaws of the Surviving Corporation and applicable law.

 

            Section 2.3 CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING

CORPORATION. At the Effective Time, (i) the Certificate of Incorporation of the

Surviving Corporation shall be amended and restated to read the same as the

Certificate of Incorporation of Merger Sub in effect immediately before the

Effective Time and as set forth on Exhibit A, except that the name shall be

changed to Ask Jeeves, Inc., until altered, amended or repealed as provided

therein and under the DGCL, and (ii) the Bylaws of the Surviving Corporation

shall be amended and restated to read the same as the Bylaws of Merger Sub in

effect immediately before the Effective Time until altered, amended or repealed

as provided under the DGCL or in the Amended and Restated Certificate of

Incorporation or Bylaws of the Surviving Corporation.

 

                                   ARTICLE III

 

                             TREATMENT OF SECURITIES

 

            Section 3.1 EFFECT OF THE MERGER ON CAPITAL STOCK. At the Effective

Time, by virtue of the Merger and without any action on the part of any holder

of any capital stock of the Company or Merger Sub:

 

            (a) CANCELLATION OF CERTAIN COMPANY SECURITIES. Each share, if any,

of Company Common Stock (as defined herein) that is held in the treasury of the

Company and all shares of Company Common Stock, if any, that are owned by Parent

and any of its wholly

 

 

                                       -2-

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owned subsidiaries immediately   prior to the Effective Time shall be cancelled

and shall cease to exist, and no stock of Parent or other consideration shall be

delivered in exchange therefor.

 

            (b) CONVERSION OF COMPANY SECURITIES.   By virtue of the Merger and

without any action on the part of any holder thereof:

 

       (i)   Other than shares cancelled pursuant to Section 3.1(a), each share

            of common stock, par value $0.001 per share, of the Company

            (together with the related right (a "RIGHT") to purchase Series A

            Junior Participating Preferred Stock, par value $0.001 per share, of

            the Company (the "COMPANY SERIES A JUNIOR PARTICIPATING PREFERRED

            STOCK") issued pursuant to the Rights Agreement (the "RIGHTS

            AGREEMENT") entered into between the Company and Fleet National

             Bank, N.A., dated as of April 26, 2001, the "COMPANY COMMON STOCK")

            issued and outstanding immediately prior to the Effective Time shall

            cease to be outstanding and shall be retired and cease to exist and

            shall be converted automatically, subject to Sections 3.1(d) and

            3.2(d), into the right to receive 1.2668 (the "EXCHANGE RATIO")

            fully paid and nonassessable shares of common stock, $0.01 par value

            per share, of Parent ("PARENT COMMON STOCK") (such shares of Parent

            Common Stock together with any cash in lieu of fractional shares of

            Parent Common Stock to be paid pursuant to Section 3.2(d),

            collectively are referred to as the "MERGER CONSIDERATION").

 

       (ii) At the Effective Time, each Certificate (as defined herein)

            theretofore representing shares of Company Common Stock, as the case

            may be, shall, without any action on the part of the Company, Parent

             or the holder thereof, represent, and shall be deemed to represent

            from and after the Effective Time, the number of shares of Parent

            Common Stock (and cash in lieu of fractional securities) as

            determined in accordance with Section 3.1(b)(i) above and shall

            cease to represent any rights in any shares of capital stock of the

            Company or the Surviving Corporation.

 

             (c)   CONVERSION OF MERGER SUB STOCK.   Each share of common stock

of Merger Sub, par value $0.01 per share, issued and outstanding immediately

prior to the Effective Time shall be converted into and become one fully paid

and nonassessable share of common stock of the Surviving Corporation.

 

             (d) CERTAIN ADJUSTMENTS. The Exchange Ratio shall be appropriately

and proportionately adjusted to fully reflect the effect of any

reclassification, stock split, reverse split, stock dividend (whether such

securities are stock of Parent or a subsidiary, including as a result of any

spin-off), reorganization, recapitalization or other like change, with respect

to Parent Common Stock or Company Common Stock occurring (or for which a record

date is established) after the date of this Agreement and prior to the Effective

Time.

 

              Section 3.2 EXCHANGE OF CERTIFICATES.

 

             (a) DEPOSIT WITH EXCHANGE AGENT.   Immediately   after the

Effective   Time,   Parent shall   deposit or cause to be deposited   with a bank or

trust company selected by Parent

 

 

                                        -3-

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that is reasonably acceptable to the Company (the "EXCHANGE AGENT"), pursuant to

an agreement in form and substance reasonably acceptable to Parent and the

Company, certificates representing the shares of Parent Common Stock issuable at

the Effective Time in the Merger pursuant to Section 3.1(b).

 

          (b) EXCHANGE AND PAYMENT PROCEDURES. As soon as practicable after the

Effective Time but in no event later than two (2) Business Days after the

Effective Time, Parent shall cause the Exchange Agent to mail to each holder of

record of a certificate or certificates (each, a "CERTIFICATE" and collectively,

the "CERTIFICATES") that immediately prior to the Effective Time represented

issued and outstanding shares of Company Common Stock whose shares were

converted into the right to receive the Merger Consideration pursuant to Section

3.1(b): (i) a letter of transmittal (which shall specify that delivery shall be

effected, and risk of loss and title to the Certificates shall pass, only upon

proper delivery of the Certificates to the Exchange Agent) and (ii) instructions

for use in effecting the surrender of the Certificates in exchange for Parent

Common Stock (which shall be in uncertificated book-entry form unless a physical

certificate is requested) and any cash payable in lieu of fractional shares of

Parent Common Stock. Upon surrender of the Certificates to the Exchange Agent,

together with a duly executed letter of transmittal and such other documents as

may reasonably be required by the Exchange Agent, the holder of such

Certificates shall be entitled to receive in exchange therefor (i) a book-entry

account statement reflecting ownership of (or, if requested, a stock certificate

representing) that number of whole shares of Parent Common Stock into which the

shares of Company Common Stock previously represented by such Certificates are

converted in accordance with Section 3.1(b), and (ii) cash in lieu of fractional

shares of Parent Common Stock which such holder has the right to receive

pursuant to Section 3.2(d). In the event that the Merger Consideration is to be

delivered to any person who is not the person in whose name the Certificate

surrendered in exchange therefor is registered in the transfer records of the

Company, the Merger Consideration may be delivered to a transferee if the

Certificate is presented to the Exchange Agent, accompanied by all documents

required to evidence and effect such transfer and by evidence reasonably

satisfactory to the Exchange Agent that any applicable stock transfer taxes have

been paid. Until surrendered as contemplated by this Section 3.2, each

Certificate (other than a Certificate representing shares of Company Common

Stock to be cancelled in accordance with Section 3.1(a)) shall be deemed at any

time after the Effective Time to represent only the right to receive upon such

surrender the applicable Merger Consideration contemplated by Sections 3.1 and

3.2. The Merger Consideration will be delivered to each former stockholder of

the Company by the Exchange Agent as promptly as practicable following surrender

of a Certificate and a duly executed letter of transmittal. No interest will be

paid or will accrue on any cash payable to holders of Certificates pursuant to

provisions of this Article III.

 

          (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or

other distributions declared or made after the Effective Time with respect to

Parent Common Stock with a record date after the Effective Time shall be paid to

the holder of any unsurrendered Certificate with respect to Parent Common Stock

represented thereby and no cash payment in lieu of fractional shares of Parent

Common Stock shall be paid to any such holder pursuant to Section 3.2(d) until

the holder of record of such Certificate shall surrender such Certificate.

Subject to the effect, if any, of unclaimed property, escheat and other

applicable laws, following surrender of any such Certificate, there shall be

paid to the record holder of the

 

 

                                        -4-

<PAGE>

 

certificates representing whole shares of Parent Common Stock issued in exchange

for Company Common Stock pursuant to the Merger, without interest, (i) at the

time of such surrender, the amount of any cash payable in lieu of a fractional

share of Parent Common Stock to which such holder is entitled pursuant to

Section 3.2(d) and the amount of dividends or other distributions with a record

date after the Effective Time theretofore paid with respect to such whole shares

of Parent Common Stock and (ii) at the applicable payment date, any dividends or

other distributions with a record date after the Effective Time but with a

payment date subsequent to the date of such surrender.

 

          (d) NO FRACTIONAL SECURITIES. In lieu of any fractional securities,

each holder of Company Common Stock who would otherwise have been entitled to

receive a fraction of a share of Parent Common Stock upon surrender of

Certificates for exchange pursuant to this Article III will be paid an amount in

cash (without interest) equal to such holder's respective proportionate interest

in the net proceeds from the sale or sales in the open market by the Exchange

Agent, on behalf of all such holders, of the aggregate fractional shares of

Parent Common Stock issued pursuant to this Article III. As soon as practicable

following the Effective Time, the Exchange Agent shall determine the excess of

(i) the number of shares of Parent Common Stock issuable upon surrender of

Certificates by the holders of Company Common Stock (without excluding

fractional shares), delivered to the Exchange Agent by Parent in accordance with

Section 3.2(a), over (ii) the aggregate number of whole shares of Parent Common

Stock to be distributed to holders of Company Common Stock (excluding fractional

shares)(such excess being collectively called the "EXCESS PARENT COMMON STOCK").

The Exchange Agent, as agent and trustee for the former holders of Company

Common Stock, shall as promptly as reasonably practicable sell the Excess Parent

Common Stock at the prevailing prices on NASDAQ (or on the principal exchange on

which the Parent Common Stock is then traded or quoted). The sales of the Excess

Parent Common Stock by the Exchange Agent shall be executed on NASDAQ (or such

other exchange) through one or more member firms of NASDAQ (or such other

exchange) and shall be executed in round lots to the extent practicable. Parent

shall pay all commissions, transfer taxes and other out-of-pocket transaction

costs, including the expenses and compensation of the Exchange Agent and costs

associated with calculating and distributing the respective cash amounts payable

to the applicable former Company stockholders, incurred in connection with such

sales of Excess Parent Common Stock. Until the net proceeds of such sales have

been distributed to the former holders of Company Common Stock to whom

fractional shares of Parent Common Stock otherwise would have been issued, the

Exchange Agent will hold such proceeds in trust for such former holders. As soon

as practicable after the determination of the amount of cash to be paid to

former holders of Company Common Stock in lieu of any fractional shares of

Parent Common Stock, the Exchange Agent shall distribute such amounts to such

former holders.

 

             (e) CLOSING OF TRANSFER BOOKS. If, after the Effective Time,

Certificates are presented to the Surviving Corporation, they shall be cancelled

and exchanged for certificates (or a book-entry position) representing the

appropriate number of shares of Parent Common Stock as provided in Section 3.1

and this Section 3.2 and any cash payable in lieu of fractional shares.

 

 

                                       -5-

<PAGE>

 

          (f) TERMINATION OF EXCHANGE AGENT. Any certificates representing

Parent Common Stock deposited with the Exchange Agent pursuant to Section 3.2(a)

and not exchanged within six months after the Effective Time pursuant to this

Section 3.2 shall be returned by the Exchange Agent to Parent, which shall

thereafter act as Exchange Agent. All funds or securities held by the Exchange

Agent for payment to the holders of unsurrendered Certificates and unclaimed at

the end of one year from the Effective Time shall be returned to Parent, after

which time any holder of unsurrendered Certificates shall look as a general

creditor only to Parent for payment of such funds or securities to which such

holder is entitled, subject to applicable law.

 

             (g) ESCHEAT. To the fullest extent permitted by applicable law,

neither   Parent nor the   Company   shall be liable to any person for any funds or

securities   delivered to a public official pursuant to any applicable   abandoned

property, escheat or similar law.

 

          (h) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any

Certificate shall have been lost, stolen or destroyed, upon the making of an

affidavit of that fact by the person claiming such certificate to be lost,

stolen or destroyed and, if reasonably required by Parent, the posting by such

person of a bond in such amount as Parent may determine is reasonably necessary

as indemnity against any claim that may be made against it with respect to such

Certificate, the Exchange Agent will issue in exchange for such lost, stolen or

destroyed Certificate the Merger Consideration deliverable in respect thereof

pursuant to this Agreement.

 

              (i) WITHHOLDING RIGHTS. Each of the Exchange Agent, the Surviving

Corporation and Parent shall be entitled to deduct and withhold from the Merger

Consideration otherwise payable pursuant to this Agreement to any holder of

Certificates which, prior to the Effective Time, represented shares of Company

Common Stock such amounts as it is required to deduct and withhold with respect

to the making of such payment under the Code and the rules and regulations

promulgated thereunder, or any provision of state, local or foreign tax law. To

the extent that amounts are so withheld by the Exchange Agent, the Surviving

Corporation or Parent, as the case may be, such withheld amounts shall be

treated for all purposes of this Agreement as having been paid to the holder of

the shares of Company Common Stock in respect of which such deduction and

withholding was made by the Exchange Agent, the Surviving Corporation or Parent,

as the case may be.

 

          (j) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of

Parent Common Stock and cash paid upon the conversion of shares of Company

Common Stock in accordance with the terms of Articles I, II and III (including

any cash paid pursuant to Section 3.2(d)) shall be deemed to have been issued

and paid in full satisfaction of all rights pertaining to the shares of Company

Common Stock.

 

          Section 3.3 COMPANY OPTIONS, OTHER EQUITY-BASED AWARDS AND EMPLOYEE

STOCK PURCHASE PLAN. (a) Each option to purchase shares of Company Common Stock

(a "COMPANY OPTION") granted under the employee and director stock plans of the

Company, but excluding the ESPP (the "STOCK PLANS"), whether vested or unvested,

that is outstanding immediately prior to the Effective Time shall, at the

Effective Time, cease to represent a right to acquire shares of Company Common

Stock and shall be converted, at the Effective Time, into an option to purchase

shares of Parent Common Stock (a "PARENT OPTION"), on the same terms and

 

 

                                        -6-

<PAGE>

 

conditions (including vesting) as were applicable under such Company Option as

of immediately prior to the Effective Time. The number of shares of Parent

Common Stock subject to each such Parent Option shall be equal to the number of

shares of Company Common Stock subject to each such Company Option immediately

prior to the Effective Time multiplied by the Exchange Ratio, rounded, if

necessary, down to the nearest whole share of Parent Common Stock, and such

Parent Option shall have an exercise price per share (rounded up to the nearest

cent) equal to the per share exercise price of such Company Option immediately

prior to the Effective Time divided by the Exchange Ratio.

 

          (b) The Company shall take any actions with respect to the Company's

Employee Stock Purchase Plan (the "ESPP") as are necessary to (i) provide that

the ESPP shall terminate immediately prior to the Effective Time and all

balances in ESPP participant accounts shall be applied to the purchase of shares

in accordance with the terms of the ESPP immediately prior to the Effective

Time, and (ii) limit the total number of shares purchased between the date

hereof and the Effective Time to 260,000 in the aggregate.

 

          (c) At the Effective Time all other equity based awards of the Company

outstanding immediately prior to the Effective Time will be converted into

equity based awards of Parent and the number of shares of Parent Common Stock

subject to such awards shall be equal to the number of shares of Company Common

Stock subject to each such equity-based award of the Company immediately prior

to the effective time multiplied by the Exchange Ratio, rounded, if necessary,

down to the nearest whole share of Parent Common Stock.

 

              (d)   Prior to the Effective Time, the Company shall take all

necessary action for the adjustment of the Company Options under this Section

3.3 and the adjustment of other equity based awards of the Company under this

Section 3.3, and will take all necessary action to ensure that no holders of

Company Options or other equity-based awards of the Company will be able to

receive shares of Company Common Stock after the Effective Time. Parent shall

reserve for issuance a number of shares of Parent Common Stock at least equal to

the number of shares of Parent Common Stock, that will be subject to Parent

Options as a result of the actions contemplated by this Section 3.3. As soon as

practicable following the Effective Time (and in any event not later than two

Business Days following the Effective Time), Parent shall file a registration

statement on Form S-8 (or any successor form, or if Form S-8 is not available,

other appropriate form) with respect to the shares of Parent Common Stock

subject to such Parent Options and shall use reasonable efforts to maintain the

effectiveness of such registration statement or registration statements (and

maintain the current status of the prospectus or prospectuses contained therein)

for so long as such Parent Options remain outstanding and are required to be

registered.

 

               Section 3.4 CONVERTIBLE NOTES. The Company shall give all such

notices as may be required by the terms of the Zero Coupon Convertible

Subordinated Notes, due June 1, 2008 (the "CONVERTIBLE NOTES") in respect of the

matters contemplated by this Article III, at the times and in the manner

required by such Convertible Notes.

 

 

                                       -7-

<PAGE>

 

                                   ARTICLE IV

 

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

            Except as disclosed in the corresponding number and subsection of

the Company disclosure schedule delivered to Parent concurrently herewith (the

"COMPANY DISCLOSURE SCHEDULE"), or in such other number and subsection of the

Company Disclosure Schedule where the applicability of such exception is

reasonably apparent, as an inducement to Parent and Merger Sub entering into

this Agreement and completing the transactions contemplated hereby, the Company

hereby represents and warrants to Parent and Merger Sub as follows:

 

            Section 4.1 CORPORATE ORGANIZATION. (a) The Company is duly

organized and validly existing as a corporation in good standing under the laws

of the State of Delaware. The Company has the corporate power and authority to

own or lease all of its properties and assets and to carry on its business as it

is now being conducted, and is duly licensed or qualified to do business in each

jurisdiction in which the nature of the business conducted by it or the

character or location of the properties and assets owned or leased by it makes

such licensing or qualification necessary, except where the failure to be so

licensed or qualified would not, either individually or in the aggregate, have a

Material Adverse Effect on the Company. As used in this Agreement, the term

"MATERIAL ADVERSE EFFECT" means, with respect to Parent or the Company, as the

case may be, any condition, state of facts, change or effect that is or would

reasonably be expected to be materially adverse to (i) the business, assets,

liabilities, operations, results of operations or financial condition, of such

entity and its Subsidiaries taken as a whole or (ii) the ability of such entity

to timely consummate the transactions contemplated hereby PROVIDED, HOWEVER,

that Material Adverse Effect shall not be deemed to include the impact of any

condition, fact, change or effect relating to or arising from (A) the execution,

announcement, or consummation of this Agreement and the transactions

contemplated hereby, including any impact thereof on relationships, contractual

or otherwise, with partners (including, without limitation, joint venture

partners, syndication partners and strategic partners), customers, suppliers or

employees, (B) (x) changes in economic or regulatory conditions in the

industries in which the Company or Parent carries on business as of the date

hereof, and (y) changes in general economic, regulatory or political conditions,

including, without limitation, acts of war or terrorism, except, in the case of

clauses (B)(x) and (B)(y), to the extent such changes have a materially

disproportionate effect on the Company or Parent and their respective

Subsidiaries taken as a whole, as the case may be, relative to other

participants in the industries in which the Company or Parent carries on

business as of such date or (C) any changes or effects resulting from any

matter, which matter is expressly contemplated or permitted by the terms of this

Agreement, including any matter which is approved by Parent following the date

hereof pursuant to Article VI. As used in this Agreement, the word "SUBSIDIARY"

shall mean (i) a "significant subsidiary" as defined in Rule 1-02(w) of

Regulation S-X of the Securities Exchange Act of 1934, as amended (the "EXCHANGE

ACT") and, (ii) with respect to the Company, the companies listed in Section

4.1(a) of the Company Disclosure Schedule and with respect to Parent, the

companies listed on Exhibit 21.1 to Parent's Annual Report on Form 10-K. The

Company has previously made available true and complete copies of (i) the

Certificate of Incorporation of the Company (the "COMPANY CHARTER") and the

Bylaws of the Company, each as in effect as of the date of this Agreement, and

(ii) the minutes of the meetings of the Board of Directors and any Committee

thereof in respect of meetings of the Board of Directors and such Committees

held

 

 

                                       -8-

<PAGE>

 

since January 31, 2002 through the date hereof for which minutes have been

prepared and approved.

 

              (b)   Each Company Subsidiary and, to the Knowledge of the Company,

Ask Jeeves   Kabushiki   Kaisha (the   "JAPANESE   JV" ) (i) is duly   organized   and

validly   existing under the laws of its   jurisdiction of   organization,   (ii) is

duly   qualified to do business   and,   where such status is   recognized,   in good

standing in all jurisdictions   (whether federal,   state, local or foreign) where

its ownership or leasing of property or the conduct of its business   requires it

to be so   qualified   and   in   which   the   failure   to   be   so   qualified   would,

individually or in the aggregate, have a Material Adverse Effect on the Company,

and (iii) has all   requisite   corporate   power and authority to own or lease its

properties and assets and to carry on its business as now conducted.

 

            Section 4.2 CAPITALIZATION. (a) The authorized capital stock of the

Company consists of (i) 150,000,000 shares of Company Common Stock, of which, as

of the close of business on March 18, 2005, 59,455,548 shares were issued (or

issuable as described in this sentence) and outstanding, including, without

limitation, 473,856 shares held in the Company's treasury and 191,997 shares

issuable (but not yet issued) under the Company's merger agreement with

Interactive Search Holdings upon tender of shares of Interactive Search

Holdings, Inc. by their holders (the "PENDING ISH MERGER SHARES"), 4,393 shares

issuable (but not yet issued) in connection with stock option exercises that

occurred prior to the close of business on March 18, 2005 (the "PENDING OPTION

EXERCISE SHARES"), and 10 shares issuable (but not yet issued) to participants

in the January 31, 2005 purchase under the Employee Stock Purchase Plan (the

"PENDING ESPP SHARES"); (ii) 5,000,000 shares of preferred stock, par value

$.001 per share, of which no shares are issued and outstanding, and no such

shares are held in the Company's treasury, and of which 150,000 shares have been

designated as Company Series A Junior Participating Preferred Stock, of which no

shares are issued and outstanding, and no such shares are held in the Company's

treasury. As of the close of business on March 18, 2005, no shares of Company

Common Stock or Company Series A Junior Participating Preferred Stock were

reserved for issuance, except for (A) 74,277 shares of Company Series A Junior

Participating Preferred Stock, such number of shares being sufficient to permit

the exercise in full of all Rights either outstanding or issuable together with

the Company Common Stock described in the remainder of this sentence; (B)

7,832,388 shares of Company Common Stock reserved for issuance pursuant to the

exercise of outstanding Company Options under the 1996 Equity Incentive Plan,

the 1999 Equity Incentive Plan, the 1999 Non-Qualified Equity Incentive Plan,

the 1998 Direct Hit Stock Plan, the ISH 2001 Equity Incentive Plan, and the ISH

2003 Equity Incentive Plan (collectively, together with the 1999 Employee Stock

Purchase Plan, the "COMPANY STOCK PLANS"); (C) a total of 445,635 shares

available for issuance under the Employee Stock Purchase Plan; (D) 135,000

shares of Company Common Stock potentially issuable under the Conditional Stock

Award Agreements listed in Section 4.12(a) of the Company Disclosure Schedule;

(E) 50,000 shares of Company Common Stock potentially issuable under a

Restricted Stock Award Agreement listed in Section 4.12(d) of the Company

Disclosure Schedule (the "50,000 SHARE RESTRICTED AWARD AGREEMENT"); and (F)

6,804,733 shares of Company Common Stock reserved for issuance upon conversion

of the outstanding Convertible Notes. All of the issued and outstanding shares

of Company Common Stock have been duly authorized and validly issued and are

fully paid, nonassessable and free of preemptive rights, with no personal

liability attaching to the ownership thereof. As of the date of this

 

 

                                       -9-

<PAGE>

 

Agreement, except for the Rights, the Company Options, Conditional Stock Award

Agreements, the 50,000 Share Restricted Award Agreement, the Employee Stock

Purchase Plan (and, other purchase rights arising under the Company Stock

Plans), the Convertible Notes (including the Indenture related thereto and the

forms of Convertible Note), and the obligations to issue the Pending ISH Merger

Shares, the Pending Option Exercise Shares and the Pending ESPP Shares, the

Company does not have and is not bound by any outstanding subscriptions,

options, warrants, calls, preemptive rights, commitments or agreements of any

character calling for the purchase or issuance of any shares of Company Common

Stock or any other equity securities of the Company or any securities

representing the right to purchase or otherwise receive any shares of Company

Common Stock. Since the close of business on March 18, 2005 through the date

hereof, the Company has not issued any shares of its capital stock or any

securities convertible into or exercisable for any shares of its capital stock,

other than (x) awards of stock options in the ordinary course under the Company

Stock Plans and (y) pursuant to the exercise of stock options granted under the

Company Stock Plans prior to such date. Section 4.2(a) of the Company Disclosure

Schedule sets forth a list of the Company Option holders as of the close of

business on March 18, 2005, including the date as of which each Company Option

was granted, the number of shares subject to each such Company Option at March

18, 2005 (i.e., the original amount less exercises and any cancellations), the

expiration date of each such Company Option and the price at which each such

Company Option may be exercised under an applicable Company Stock Plan.

 

        (b)   Section 4.2(b) of the Company Disclosure Schedule sets forth, for

each Subsidiary of the Company and the Japanese JV, the name and state of

incorporation of such entity, and the number of its outstanding shares of

capital stock or other equity interests and type(s) of such outstanding shares

of capital stock or other equity interests (or a statement that the Company owns

all of the outstanding shares of capital stock or other equity interests of such

Subsidiary). The Company owns, directly or indirectly, all of the issued and

outstanding shares of capital stock or other equity ownership interests of each

of the Company's Subsidiaries and 47.17% of the issued and outstanding equity

ownership interests of the Japanese JV, free and clear of any liens, pledges,

charges, encumbrances and security interests whatsoever ("LIENS"), and all of

such shares or equity ownership interests are duly authorized and validly issued

and are fully paid, nonassessable and free of preemptive rights, with no

personal liability attaching to the ownership thereof. None of the Company's

Subsidiaries and, to the Company's Knowledge the Japanese JV, has or is bound by

any outstanding subscriptions, options, warrants, calls, commitments or

agreements of any character calling for the purchase or issuance of any shares

of capital stock or any other equity security of such Subsidiary or the Japanese

JV, as the case may be, or any securities representing the right to purchase or

otherwise receive any shares of capital stock or any other equity security of

such Subsidiary or the Japanese JV, as the case may be. Except for interests in

its Subsidiaries and the Japanese JV, neither the Company nor any of its

Subsidiaries own directly or indirectly any equity interest in any firm,

corporation, partnership or other entity, whether incorporated or

unincorporated, that is material to the business of the Company or otherwise to

the Company or to any of its Subsidiaries or has any obligation or has made any

commitment to acquire any such interest or to make any investment. No Company

Subsidiary nor, to the Company's Knowledge the Japanese JV, owns any capital

stock of the Company.

 

 

                                        -10-

<PAGE>

 

            Section 4.3 AUTHORITY; NO VIOLATION. (a) The Company has full

corporate power and authority to execute and deliver this Agreement and (subject

to obtaining the Company Stockholder Approval) to consummate the transactions

contemplated hereby. The execution and delivery of this Agreement and the

consummation of the transactions contemplated hereby have been duly and validly

authorized (including such authorization and corporate actions as may be

required so that no state interested director or anti-takeover statutes or

similar statute or regulation, including, without limitation, Sections 144 and

203 of the DGCL, respectively, is or becomes operative with Parent, its

affiliates or transferees, this Agreement or the transactions contemplated

hereby). Except for the filing of the Certificate of Merger with the Secretary

of State of the State of Delaware pursuant to the DGCL and the approval of this

Agreement by the affirmative vote of the holders of shares representing a

majority of the voting power of the outstanding shares of the Company Common

Stock (the "COMPANY STOCKHOLDER APPROVAL"), no other corporate proceedings on

the part of the Company are necessary to approve this Agreement or to consummate

the transactions contemplated hereby. The Company's Board of Directors, by

unanimous vote (i) has duly and validly adopted this Agreement and the

transactions contemplated hereby and declared this Agreement advisable, (ii) has

directed that this Agreement and the Merger be submitted to the stockholders of

the Company for approval at the Stockholder Meeting; and (iii) subject to

Section 7.4, recommends that stockholders of the Company approve this Agreement

and the transactions contemplated hereby. This Agreement has been duly and

validly executed and delivered by the Company and (assuming due authorization,

execution and delivery by the other Parties) constitutes a valid and binding

obligation of the Company, enforceable against the Company in accordance with

its terms (except as may be limited by bankruptcy, insolvency, moratorium,

reorganization or similar laws affecting the rights of creditors generally and

the availability of equitable remedies).

 

        (b)   Neither the execution and delivery of this Agreement by the

Company, nor the consummation by the Company of the transactions contemplated

hereby, including the Merger, nor compliance by the Company with any of the

terms or provisions hereof, will (i) violate any provision of the Company

Charter or the Bylaws of the Company, or violate or conflict with any agreement

or instrument pursuant to which any shares of capital stock of the Company, or

securities exercisable for or convertible into shares of capital stock of the

Company, have been issued, or (ii) subject to the making of the filings and

obtaining the approvals referred to in Section 4.5 and the effectiveness of such

filings and/or receipt of the consents and approvals in connection therewith,

(A) violate any statute, code, ordinance, rule, regulation, judgment, order,

writ, decree or injunction applicable to the Company, any of its Subsidiaries or

any of their respective properties or assets or (B) violate, conflict with,

result in a breach of any provision of or the loss of any material benefit

under, constitute a default (or an event which, with notice or lapse of time, or

both, would constitute a default) under, result in the termination of or a right

of termination or cancellation under, accelerate the performance required by,

result in the creation of any Lien upon any of the respective properties or

assets of the Company or any of its Subsidiaries under, or require any increased

payment under, any of the terms, conditions or provisions of any note, bond,

mortgage, indenture, deed of trust, license, lease, agreement or other

instrument or obligation to which the Company or any of its Subsidiaries is a

party, or by which they or any of their respective properties or assets may be

bound or affected, except (in the case of clause (ii) above) for such

violations, conflicts, breaches, losses of benefits, defaults, terminations,

cancellations,

 

 

                                       -11-

<PAGE>

 

accelerations, Liens or payments which, individually or in the aggregate, would

not have a Material Adverse Effect on the Company.

 

            Section 4.4 AMENDMENT TO RIGHTS AGREEMENT. (a) The Board of

Directors of the Company has taken all necessary action to amend the Rights

Agreement so that, for so long as this Agreement is in full force and effect:

(i) the execution or delivery of this Agreement and the consummation of the

transactions contemplated hereby will not cause (A) the Rights to become

exercisable under the Rights Agreement, (B) Parent or Merger Sub or any of their

affiliates to be deemed an Acquiring Person (as that term is used in the Rights

Agreement), or (C) the Distribution Date or the Share Acquisition Date (as these

terms are used in the Rights Agreement) to occur; and (ii) immediately prior to

the Effective Time, the Rights shall expire and no longer be outstanding.

 

        (b) The Distribution Date (as that term is used in the Rights Agreement)

has not occurred.

 

            Section 4.5 CONSENTS AND APPROVALS. Except for (a) the filing of the

pre-merger notification report under the Hart-Scott-Rodino Antitrust

Improvements Act of 1976, as amended (the "HSR ACT"), (b) filings with the

Securities and Exchange Commission (the "SEC") as may be required by the Company

in connection with this Agreement and the transactions contemplated by this

Agreement, (c) the filing of the Certificate of Merger and the Amended and

Restated Certificate of Incorporation of the Surviving Corporation with the

Secretary of State of the State of Delaware pursuant to the DGCL, (d) the

filings with any court, administrative agency or commission or other

governmental, regulatory or self-regulatory authority or instrumentality (each a

"GOVERNMENTAL ENTITY") as required under applicable law in each case as set

forth in Section 4.5 of the Company Disclosure Schedule, (e) the Company

Stockholder Approval, (f) such filings as may be required under the rules and

regulations of NASDAQ and (g) such other consents, approvals or filings the

failure of which to obtain or make would not, individually or in the aggregate,

have a Material Adverse Effect on the Company, no consents or approvals of or

filings or registrations with any Governmental Entity or third party are

necessary in connection with (A) the execution and delivery by the Company of

this Agreement and (B) the consummation by the Company of the transactions

contemplated hereby. As of the date hereof, to the Company's Knowledge, there is

no reason why the receipt of any such consents or approvals will not be obtained

in a customary time frame once complete and appropriate filings have been made

by the Company and Parent. For purposes of this Agreement, the "KNOWLEDGE" of

any person that is not an individual means, with respect to any matter in

question, the actual knowledge of such person's executive officers and other

officers having primary responsibility for such matter, in each case based upon

reasonable inquiry consistent with such person's title and responsibilities.

 

            Section 4.6 SEC REPORTS; FINANCIAL STATEMENTS. (a) The Company has

made available to Parent an accurate and complete copy of each (i) report,

schedule, final registration statement, prospectus and definitive proxy

statement filed by the Company with the SEC on or after January 1, 2002 and

prior to the date hereof pursuant to the Securities Act of 1933, as amended (the

"SECURITIES ACT"), or the Exchange Act (all such filings, the "COMPANY

REPORTS"), which are all the forms, reports and documents required to be filed

by the Company with the SEC since such date; and (ii) communication mailed by

the Company to its stockholders since

 

 

                                       -12-

<PAGE>

 

January 1, 2004 and prior to the date hereof. As of their respective dates, the

Company Reports and communications (A) complied in all material respects with

requirements of the Securities Act or the Exchange Act, as the case may be, and

the published rules and regulations of the SEC thereunder applicable thereto,

and (B) did not 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 in which they were made,

not misleading, except that information as of a later date (but before the date

hereof) shall be deemed to modify information as of an earlier date.

 

        (b)   The Company has previously made available to Parent copies of the

consolidated balance sheets (the "COMPANY 10-K BALANCE SHEETS") of the Company

and its Subsidiaries as of December 31, 2003 and December 31, 2004, and the

related consolidated statements of operations, stockholders' equity (deficit)

and cash flows for the fiscal years ended December 31, 2003 and December 31,

2004, as reported in the Company's Annual Report on Form 10-K for the fiscal

year ended December 31, 2004 filed with the SEC under the Exchange Act (such

financial statements included in such Annual Report on Form 10-K, together with

the Company 10-K Balance Sheets, the "COMPANY FINANCIAL STATEMENTS"), in each

case, accompanied by the audit report of Ernst & Young LLP, independent public

accountants with respect to the Company. The Company Financial Statements

(including the related notes) (i) fairly present in all material respects the

consolidated financial position of the Company and its Subsidiaries at the

respective dates thereof and the consolidated results of operations, cash flows

and changes in stockholders' equity (deficit) of the Company and its

Subsidiaries for the years indicated, (ii) have been prepared consistent with

the books and records of the Company and its Subsidiaries and consistent with

the Company's accounting policies and procedures, each in a manner consistent

with prior financial statements of the Company (except for adoption of

accounting pronouncements and other changes in accounting policy, each as

disclosed in the Company Reports), (iii) comply as to form in all material

respects with applicable accounting requirements and with the published rules

and regulations of the SEC with respect thereto and (iv) have been prepared in

all material respects in accordance with United States generally accepted

accounting principles ("GAAP") consistently applied during the periods involved,

except, in each case, as indicated in such statements or in the notes thereto.

The books and records of the Company and its Subsidiaries have been, and are

being, maintained in all material respects in accordance with GAAP (to the

extent applicable) and any other applicable legal and accounting requirements

and reflect only actual transactions.

 

            Section 4.7 BROKER'S FEES. Other than Allen & Company LLC and

Citigroup Global Markets Inc., none of the Company or any Company Subsidiary or

any of their respective officers or directors has employed any broker or finder

or incurred any liability for any broker's fees, commissions or finder's fees

payable on behalf of the Company in connection with the Merger or the other

transactions contemplated by this Agreement. A true and complete copy of each

engagement letter pursuant to which any such fee or commission is payable has

been previously delivered to Parent.

 

            Section 4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since December

31, 2004, no event or events have occurred which have had or would reasonably be

expected to have, individually or in the aggregate, a Material Adverse Effect on

the Company.

 

 

                                       -13-

<PAGE>

 

        (b)   Except as publicly disclosed in the Company Reports filed prior to

the date hereof, since December 31, 2004, the Company and its Subsidiaries have

carried on their respective businesses in all material respects in the ordinary

course consistent with past practice.

 

        (c)   Except as publicly disclosed in the Company Reports filed prior to

the date hereof, neither the Company nor any of its Subsidiaries has, since

December 31, 2004, (i) except for such actions as are in the ordinary course of

business or except as required by applicable law, (A) materially increased the

wages, salaries, compensation, pension, or other fringe benefits or perquisites

payable to any executive officer, employee, or director from the amount thereof

in effect as of December 31, 2004, or (B) granted any material severance or

termination pay, entered into any contract to make or grant any material

severance or termination pay, or paid any material bonuses (other than customary

bonuses for the fiscal year 2004) or (ii) suffered any material strike, work

stoppage, slowdown, or other labor disturbance.

 

        (d)   From the period beginning on December 31, 2004 through the date

hereof, the Company has not granted any stock options with respect to Company

Common Stock to any director, officer, employee, or independent contractor of

the Company or any of its Subsidiaries at an exercise price per share below the

fair market value per share of the Company Common Stock on the date of such

grant.

 

        (e)   Since December 31, 2004 through the date hereof, neither the

Company nor any of its Subsidiaries has taken any action described in Section

6.2 (j), (m), (n) or (u) that if taken after the date hereof and prior to the

Effective Time would violate such provision.

 

          Section 4.9 LEGAL PROCEEDINGS. Except as publicly disclosed in the

Company Reports filed prior to the date hereof,

 

        (a)   Neither the Company nor any of its Subsidiaries is a party to any,

and there are no pending or, to the Company's Knowledge, threatened, legal,

administrative, arbitral or other proceedings, claims, actions or governmental

or regulatory investigations in which the Company is a plaintiff, defendant or

otherwise might be deemed liable (including by virtue of indemnification or

otherwise), (i) against (x) the Company or any of its Subsidiaries, (y) any

present or former officer, director or employee of the Company or any of its

Subsidiaries, in such person's capacity as a present or former officer, director

or employee or (z) otherwise such that the Company or any of its Subsidiaries

would reasonably be expected to be liable (whether by virtue of indemnification

or otherwise), in each case other than such proceedings, claims, actions or

investigations which would not, individually or in the aggregate, (A) result in

any material fines, judgments or amounts paid in settlement, (B) if adversely

determined against the Company or any of its Subsidiaries, restrict in any

material respect the conduct of the business of the Company and its Subsidiaries

or (C) as of the date hereof, challenge the validity or propriety of the

transactions contemplated by this Agreement.

 

        (b)   Neither the Company nor any of its Subsidiaries (i) is subject to

any outstanding order, injunction or decree or is a party to any written

agreement, consent agreement or memorandum of understanding with, or is a party

to any commitment letter or

 

 

                                        -14-

<PAGE>

 

similar undertaking to, or is subject to any order or directive applicable to

the Company or any of its Subsidiaries by, or is a recipient of any supervisory

letter from or has adopted any resolutions at the request of, any Governmental

Entity that restricts in any respect the conduct of its business (each, a

"COMPANY REGULATORY AGREEMENT"), or (ii) has, since December 31, 2002, been

advised by any Governmental Entity that it is considering issuing or requesting

any such Company Regulatory Agreement.

 

            Section 4.10 TAXES AND TAX RETURNS. (a) Each of the Company and its

Subsidiaries has duly and timely filed all material Tax Returns (as defined

herein) required to be filed by it, each of the Company and its Subsidiaries has

duly paid or made adequate provision in accordance with GAAP in the Company's

10-K Balance Sheet for the payment of all material Taxes (as defined herein)

which have become due as of the date thereof, and have withheld from their

employees all material Taxes required to have been withheld and have paid over

all such material Taxes to the proper governmental authority, and all such filed

Tax Returns are accurate and complete in all material respects. Federal, state

and local Tax Returns have been filed by the Company and its Subsidiaries for

all periods for which Tax Returns were due with respect to income tax

withholding, Social Security and unemployment Taxes, except for such failures to

file such Tax Returns that, in the aggregate would not have a Material Adverse

Effect on the Company. There are no disputes pending or, to the knowledge of the

Company, threatened, related to, or claims asserted for, material Taxes or

assessments upon the Company or any of its Subsidiaries for which the Company

does not have specific and adequate contingency reserves to the extent required

by GAAP. There are no material liens for Taxes upon any property or assets of

the Company or its Subsidiaries, other than liens for Taxes that are not

delinquent. There are no outstanding agreements or waivers extending the

statutory period of limitation applicable to any material Taxes of the Company

or any of its Subsidiaries for any period. No claim has ever been made by any

taxing authority in any jurisdiction where the Company or any of its

Subsidiaries currently does not file Tax Returns that the Company or any of its

Subsidiaries is or may be subject to material Tax in such jurisdiction. Neither

the Company nor any of its Subsidiaries has been a "distributing corporation" or

a "controlled corporation" in a material distribution intended to qualify under

Section 355(a) of the Code. Neither the Company nor any of its Subsidiaries is a

party to any Tax sharing, allocation or indemnification agreement or

arrangement, other than any such customary agreements with customers, vendors,

lessors or the like entered into in the ordinary course of business. Neither the

Company nor any of its Subsidiaries has been a member of an affiliated group

filing a consolidated, combined or unitary Tax Return (other than the affiliated

group of which the Company is the common parent or of which such Subsidiary was

the common parent) or has any material liability for the Taxes of any person

(other than the Company or its Subsidiaries) under Treasury Regulation ss.

1.1502-6 (or any similar provision of state, local or foreign law). The Company

will have continuously and directly conducted, by performing active and

substantial management and operational functions, an active trade or business

having both revenues and expenses (the "COMPANY ACTIVE BUSINESS"), for the

entire five year period ending at the Effective Time and will have directly

employed and compensated at least 50 individuals in the Company Active Business

in each of the five years during the five year period ending at the Effective

Time. The fair market value of the gross assets of the Company Active Business

on the date hereof equals, and immediately prior to the Effective Time, will

equal, at least five percent of the total fair market value of the gross assets

of the Company. Neither the Company nor any of its Subsidiaries has engaged in,

or

 

 

                                       -15-

<PAGE>

 

is a party to, any "reportable transaction" within the meaning of Treasury

Regulation Section 1.6011-4 that has not been reported in accordance with

Treasury Regulation Section 1.6011-4.

 

         (b)   As of December 31, 2004, the Company and its Subsidiaries had net

operating loss carryforwards for U.S. federal income tax purposes purposes

("NOLS"), other than those NOLs attributable to Interactive Search Holdings

("ISH"), Net Effect Systems, Inc. ("NES") and Direct Hit Technologies, Inc.

("DHT"), totaling approximately $270 million (such NOLs excluding the ISH, NES

and DHT NOLs, the "NOL CARRYFORWARDS"). The NOL Carryforwards are subject to the

limitations under Section 382 of the Code described in Section 4.10(b) of the

Company Disclosure Schedule.

 

         (c)   Neither the Company nor any of its Subsidiaries is a party to any

agreement, contract, arrangement or plan that has resulted or would result,

separately or in the aggregate, in the payment of any material amount that will

not be fully deductible as a result of Section 162(m) of the Code (or any

similar provision of state, local or foreign law).

 

         (d)   INTENTIONALLY LEFT BLANK

 

         (e)   INTENTIONALLY LEFT BLANK

 

         (f)   As used in this Agreement, the term "TAX" or "TAXES" means all

federal, state, local and foreign income, excise, gross receipts, gross income,

AD VALOREM, profits, gains, property, capital, sales, transfer, use, payroll,

employment, severance, withholding, duties, intangibles, franchise, backup

withholding and other taxes, or like assessments together with all penalties and

additions to tax and interest thereon, and the term "TAX RETURN" means any

return, declaration, report, claim for refund, information return or statement

filed or required to be filed with a Governmental Entity relating to Taxes.

 

            Section 4.11 CERTAIN OTHER TAX MATTERS. Neither the Company nor any

of its Subsidiaries has taken or agreed to take any action, has failed to take

any action or knows of any fact, agreement, plan or other circumstance, in each

case that would or could reasonably be expected to prevent the Merger from

qualifying as a "reorganization" within the meaning of Section 368(a) of the

Code. The parties agree that none of the transactions contemplated by this

Agreement could reasonably be expected to prevent the Merger from qualifying as

a "reorganization" within the meaning of Section 368(a) of the Code.

 

            Section 4.12 EMPLOYEES. (a) Set forth on Section 4.12(a) of the

Company Disclosure Schedule is a true and complete list of each Company Benefit

Plan. For purposes of this Agreement, "COMPANY BENEFIT PLAN" means any employee

benefit plan, program, policy, practices, agreement or other arrangement

providing benefits to any current or former employee, officer, director or

consultant of the Company or any of its Subsidiaries or any beneficiary or

dependent thereof that is sponsored or maintained by the Company or any of its

Subsidiaries or to which the Company or any of its Subsidiaries contributes or

is obligated to contribute, whether or not written, including without limitation

any employee welfare benefit plan within the meaning of Section 3(1) of ERISA

(as defined herein), any employee pension benefit plan within the meaning of

Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any

bonus, incentive, deferred compensation, vacation, stock purchase, stock option,

severance,

 

                                       -16-

<PAGE>

 

employment, change of control or fringe benefit plan, program, policy,

practices, agreement or other arrangement.

 

        (b)   The Company has heretofore made available to Parent true and

complete copies of each of the Company Benefit Plans and (i) the actuarial

report for such Company Benefit Plan (if applicable) for each of the last two

years, (ii) the most recent determination letter from the Internal Revenue

Service (if applicable) for such Company Benefit Plan, (iii) the summary plan

description for such Company Benefit Plan (if any), and (iv) the Form 5500 for

such Company Benefit Plan (if applicable) for each of the last two years. Except

as specifically provided in the foregoing documents delivered to Parent, there

are no amendments to any Company Benefit Plan that have been adopted or approved

nor has the Company or any of its Subsidiaries undertaken to make any such

amendments or to adopt or approve any new Company Benefit Plan.

 

        (c)(i) Each of the Company Benefit Plans has been operated and

administered in all material respects in compliance with applicable laws,

including, but not limited to, ERISA and the Code, (ii) each Company Benefit

Plan has been administered in all material respects in accordance with its

terms, (iii) each of the Company Benefit Plans intended to be "qualified" within

the meaning of Section 401(a) of the Code has received a favorable determination

or opinion letter from the Internal Revenue Service, and there are no existing

circumstances nor any events that have occurred that would be reasonably

expected to affect adversely the qualified status of any such Company Benefit

Plan, (iv) no Company Benefit Plan is subject to Title IV of the Employee Income

Security Act of 1974, as amended ("ERISA") or Section 302 of ERISA or Section

412 or 4971 of the Code, (v) no Company Benefit Plan provides welfare benefits,

including, without limitation, death or medical benefits (whether or not

insured), with respect to current or former employees or directors of the

Company or its Subsidiaries beyond their retirement or other termination of

service, other than coverage mandated by applicable law, or under any employment

or severance agreement disclosed to Parent (vi) no material liability under

Title IV of ERISA has been incurred by the Company, its Subsidiaries or any

trade or business, whether or not incorporated (a "COMPANY ERISA AFFILIATE"),

which together with the Company would be deemed a "single employer" within the

meaning of Section 4001 of ERISA that has not been satisfied in full, and no

condition exists that presents a material risk to the Company, its Subsidiaries

or any Company ERISA Affiliate of incurring a material liability thereunder,

(vii) no Company Benefit Plan is a "multiemployer pension plan" (as such term is

defined in Section 3(37) of ERISA) or a plan that has two or more contributing

sponsors at least two of whom are not under common control (a "MULTIPLE EMPLOYER

PLAN"), within the meaning of Section 4063 of ERISA and none of the Company and

its Subsidiaries nor any of their respective ERISA Affiliates has, at any time

during the last six years, contributed to or been obligated to contribute to any

Multiemployer Plan or Multiple Employer Plan, (viii) all contributions or other

amounts payable by the Company or its Subsidiaries with respect to each Company

Benefit Plan and all premiums due or payable with respect to insurance policies

funding any Company Benefit Plan for any period through the date hereof have

been timely made or paid in full or, to the extent not required to be made or

paid on or before the date hereof, have been fully reflected on the Company's

financial statements, (ix) none of the Company, its Subsidiaries or, to the

Company's Knowledge, any other person, including any fiduciary, has engaged in a

transaction in connection with which the Company, its Subsidiaries or any

Company Benefit

 

 

                                       -17-

<PAGE>

 

Plan will be subject to either a material civil penalty assessed pursuant to

Section 409 or 502(i) of ERISA or a material Tax imposed pursuant to Section

4975 or 4976 of the Code, (x) there are no pending, or to the knowledge of the

Company, threatened or anticipated claims (other than routine claims for

benefits) by, on behalf of or against any of the Company Benefit Plans or any

trusts related thereto or any fiduciaries thereof that could reasonably be

expected to result in a material liability for the Company or its Subsidiaries

or any Company Benefit Plan; (xi) each individual who renders services to the

Company or any of its Subsidiaries who is classified by the Company or such

Subsidiary, as applicable, as having the status of an independent contractor or

other non-employee status for any purpose (including for purposes of taxation

and tax reporting and under Company Benefit Plans) is properly so characterized,

except to the extent that, in the aggregate, any such misclassifications would

not reasonably be expected to result in a material liability for the Company or

its Subsidiaries or any Company Benefit Plan and (xii) there does not now exist,

nor do any circumstances exist that could reasonably be expected to result in,

any Controlled Group Liability (as defined below) that would be a liability of

the Company or any of its subsidiaries following the Effective Time. "Controlled

Group Liability" means any and all liabilities (i) under Title IV of ERISA, (ii)

under Section 302 of ERISA, (iii) under Sections 412 and 4971 of the Code, (iv)

as a result of a failure to comply with the continuation coverage requirements

of Section 601 et seq. of ERISA and Section 4980B of the Code, and (v) under

corresponding or similar provisions of foreign laws or regulations.

 

        (d)   Section 4.12(d)(i) of the Company Disclosure Schedule sets forth

(i) an accurate and complete description of each provision of any Company

Benefit Plan and any employment-related agreement under which the execution and

delivery of this Agreement or the consummation of the transactions contemplated

hereby could (either alone or in conjunction with any other event) result in,

cause the accelerated vesting, funding or delivery of, or increase the amount or

value of, any payment or benefit to any employee, officer or director of the

Company or any of its Subsidiaries, or could limit the right of the Company or

any of its Subsidiaries to amend, merge, terminate or receive a reversion of

assets from any Company Benefit Plan or related trust and (ii) the maximum

amount of the "excess parachute payments" within the meaning of Section 280G of

the Code that could become payable by the Company and its Subsidiaries in

connection with the execution and delivery of this Agreement and the

consummation of the transactions contemplated hereby, using stock price

assumptions set forth in Section 4.12(d)(i) of the Company Disclosure Schedule.

 

        (e)   Except to the extent required by any Company Benefit Plan, as of

the date hereof, none of the Company, the Company's Board of Directors or the

Compensation Committee of the Company's Board of Directors has taken any action

to accelerate the vesting of any stock options or other equity-based

compensation awards in connection with the execution and delivery of this

Agreement or the consummation of the transactions contemplated hereby.

 

            Section 4.13 SECURITIES LAW MATTERS.

 

        (a)   With respect to each Annual Report on Form 10-K and each Quarterly

Report on Form 10-Q included in the Company Reports, the financial statements

and other financial information included in such reports fairly present in all

material respects the financial

 

 

                                       -18-

<PAGE>

 

condition as of the dates thereof and the results of operations for the periods

then ended of the Company and its consolidated Subsidiaries.

 

        (b)   There are no significant deficiencies or material weaknesses in

either the design or operation of internal controls of the Company or any of its

Subsidiaries that are reasonably likely to adversely affect the ability of the

Company or any of its Subsidiaries to record, process, summarize and report

financial information. With respect to periods after January 1, 2002, the

Company has no knowledge of any fraud or suspected fraud involving (x)

management of the Company (including its consolidated Subsidiaries) who have a

significant role in the internal controls related to financial reporting, (y)

any employees of the Company (including its consolidated Subsidiaries) where

such fraud could have a material effect on the consolidated financial statements

of the Company or (z) any officer or employee of the Company