10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2004
OR
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM                        TO                       
COMMISSION FILE NUMBER: 0-27168

VIEWPOINT CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation of organization) 95-4102687
(I.R.S. Employer
Identification Number)

498 Seventh Avenue, Suite 1810, New York, NY 10018
(Address of principal executive offices and zip code)

(212) 201-0800
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes S   No £

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. £

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act)   Yes S   No £

Aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2004	$	107,850,000
Number of shares of common stock outstanding as of February 28, 2005		57,652,000

      DOCUMENTS INCORPORATED BY REFERENCE:

      The information required by Part III of this Report, to the extent not set forth herein, is incorporated herein by reference from the registrant's definitive proxy statement relating to the annual meeting of stockholders to be held in 2005, which definitive proxy statement shall be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year to which this Report relates.

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business		3
Item 2.	Properties		8
Item 3.	Legal Proceedings		9
Item 4.	Submission of Matters to a Vote of Security Holders		9
	PART II
Item 5.	Market for Registrant's Common Stock and Related Stockholder Matters		9
Item 6.	Selected Financial Data		10
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		78
Item 9A.	Controls and Procedures		78
	PART III
Item 10.	Directors and Executive Officers of the Registrant		80
Item 11.	Executive Compensation		80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		80
Item 13.	Certain Relationships and Related Transactions		80
Item 14.	Controls and Procedures		80
	PART IV
Item 15.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K
	Signatures		81

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PART I

      In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from the results stated, implied, or suggested by the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations—Factors That May Affect Future Results of Operations.” You should carefully review these factors as well as the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed in 2005. When used in this report, the words “will”, “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Item 1. Business

      Viewpoint Corporation (“Viewpoint” or the “Company”) is an internet advertising company that focuses on using its graphical platform's capabilities to provide consumers, advertisers, and website publishers an enhanced internet experience. Since 2003, we have extended the historical imaging capabilities of our proprietary graphics technology to develop a search business that provides internet consumers a flexible graphical searching experience and an advertising delivery system that specializes in deploying video and rich media advertising. Our revenues in these product segments are supplemented by our in-house services team which builds sophisticated content that is used by customers in each product segment. Finally, we license our platform to internet publishers enabling them to deploy sophisticated graphically content at their websites.

      All of our four product segments have their roots in our core software offering, the Viewpoint Media Player (“VMP”). The VMP is a free software product installed by internet consumers on their computers to view specialized digital content displayed by websites. (See discussion of “Licensing” below.) We have been distributing the VMP since 2000 and estimate that it has been installed on more than 120 million computers in the United States. We base this estimate on independent surveys commissioned by us and by other industry participants as well as information we've received from our publishing clients who report to us the frequency with which visitors to their sites have the VMP installed before arriving at their sites.

      The VMP has an “automatic update” feature that enables new functions and features to be easily and efficiently added. Whenever an internet consumer visits a website deploying content that is built using the Viewpoint platform, or encounters online advertising content delivered by our ad-delivery product, the VMP is activated. When the VMP is activated it communicates with our servers to check for recent improvements and automatically updates itself when necessary. This activation provides a unique opportunity for us to communicate with internet consumers and to offer them the latest version of the VMP as well as other valuable features and products, such as our internet search toolbar.

      Internet Search

      On March 17, 2004, we entered the internet search business by launching a Graphically Enhanced Search toolbar product that we call the “Viewpoint Toolbar.” The Viewpoint Toolbar works within the Internet Explorer browser, enabling web surfers to conduct internet searches without leaving the web page they are viewing. When a user enters a term or phrase into the search field of the Viewpoint Toolbar, search results appear not only as text links listed on a search results page but also as thumbnail images of the web pages themselves in a horizontal “tray” that descends from the Viewpoint Toolbar. Search results delivered to users of the Viewpoint Toolbar are supplied by Yahoo! Inc. and its wholly-owned subsidiary, Overture Services,

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Inc. (“Yahoo!”) Under our Agreement with Yahoo! we receive a share of the fees advertisers pay to Yahoo! to be listed in the search results as “sponsored links.”

      The Viewpoint Toolbar technology incorporates methods for “rendering”, streaming, updating, and “skinning” that were first developed for the VMP. Like other offerings of its type, the Viewpoint Toolbar enables consumers to search the Internet for goods, services and information. Unlike other toolbars, however, the Viewpoint Toolbar's architecture enables features such as visual representations of search results and “bookmarked” internet sites, automatic updating, generation of desktop animations, and a “Pop-Up” blocker that intercepts pop-up advertisements and holds them in a “tray” of the Viewpoint Toolbar. This tray can be accessed if and when a user desires. Viewpoint is in the process of applying for patent protection on several of these features and processes.

      In July 2004, we launched version 2.0 of the Viewpoint Toolbar which includes more efficient deployment of search results and a feature we call “Comparative Search.” When the Comparative Search feature is operating and a consumer uses a search method other than the Viewpoint Toolbar to conduct an internet search, a web page listing the search results of the search engine selected will appear and the tray from the Viewpoint Toolbar will simultaneously populate with thumbnail images of the search results supplied by Yahoo!.

      We have been offering the Viewpoint Toolbar to internet users who have the most recent version of the VMP installed on their computer. We present those users with notice of the availability of the Viewpoint Toolbar and an opportunity to install it without charge. Through March 1, 2005, we have offered over 33 million VMP users the opportunity to install the Viewpoint Toolbar and 10 million have accepted. Consumers can uninstall the Viewpoint Toolbar either through their operating system or through an option on the Viewpoint Toolbar. Over 6 million remain installed as of March 1, 2005. We also make the Viewpoint Toolbar available for download from our website.

      We generate revenue from the Viewpoint Toolbar when an internet consumer uses the Viewpoint Toolbar to conduct an internet search, or when they have the Viewpoint Toolbar installed and conduct a search at an internet site. We also generate revenue, although a very small percentage, when a user conducts a search from our search homepage, www.viewpointsearch.com. Revenue is generated when the consumer clicks on results provided by Yahoo! that have been provided because an advertiser has paid to be included in Yahoo!'s search results. Yahoo! receives the fee from the advertiser and pays Viewpoint a percentage of this fee 45 days after the end of the month in which the advertisement is clicked.

      In 2004, we recognized $2.7 million in revenue from our Internet Search business segment. For more information regarding the financial performance of this and our other segments, please see Note 15 in the financial statements.

      Advertising Systems

      We also offer an online advertising campaign management and deployment product known as “Creative Innovator.” Creative Innovator permits publishers, advertisers, and their agencies to manage the complex process of deploying online advertising campaigns. This process includes creating the advertising assets, selecting the sites on which the advertisements will be deployed, setting the campaign parameters (ad rotation, the frequency with which an ad may be deployed, and others), deployment, and tracking of campaign results.

      We designed Creative Innovator to be the first management system to integrate creative assembly with campaign management and detailed performance analysis. In addition, we believe it has the broadest capabilities of any deployment system to deliver ad formats and media types, including several different video formats, 3D content, and all major “rich media” units.

      Creative Innovator is “technology agnostic”, meaning it delivers advertisements that utilize all major technologies and formats, not just those exploiting the special capabilities of the VMP. Importantly, however, video and other “rich media” ads that typically involve large file sizes and,

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therefore, higher bandwidth costs, can be deployed at significantly lower rates when utilizing the Viewpoint format by taking advantage of the VMP residing on the internet consumer's computer.

      We delivered over 1 billion ad impressions through Creative Innovator in 2004. Many of the campaigns were delivered to help advertisers and publishers use Creative Innovator on a trial basis and did not generate revenue. The campaigns that were delivered as “pilots” or test campaigns served to provide publishers and advertisers with practical hands-on experience with the system and provided a practical basis of comparison with other ad-serving technologies. Following trial campaigns, certain advertisers and publishers elected to use Creative Innovator on a fee basis, including America Online and CBS Sportsline.

      On January 3, 2005, we acquired Unicast Communications Corp. (“Unicast”), a leader in the delivery of internet video advertisements that play interstitially when a web surfer moves between pages at a web publisher's site, adding another video ad delivery mechanism to our solution. We believe the addition of Unicast will help accelerate the growth of our advertising systems segment both because of its past relationship with over 240 advertisers and 280 web publishers in 2004, and as a result of the addition of key personnel in the marketing, technology, sales, and customer support areas.

      Following the acquisition of Unicast, we integrated all of our product offerings into one suite of products called Viewpoint's Unicast Online Advertising Suite. This suite of products includes Unicast Transitional (full screen and partial screen video and interactive ads that are shown to consumers as they navigate between pages), Unicast In-Page (video and interactive ads embedded within web pages including standard and expandable banners, pre-roll and post-roll ads), and Unicast Over-the-Page (video and interactive ads that “float”/play over the top of an internet site page). The suite of products is delivered using Creative Innovator.

      We offer these advertising formats delivered through Creative Innovator to customers, charging in the standard manner for the industry with fees based on the number of times an advertisement is deployed (i.e., on a “CPM”, or cost per thousand impression basis). CPM fees vary by type of advertisement, with static ads realizing relatively low fees and rich media ads—particularly video ads—realizing higher fees. Rates charged for advertising ranged from $0.18 to $4.00 per thousand advertisements in 2004.

      Ad delivery via Creative Innovator also contributes to our overall strategy in that ads served through Creative Innovator cause older VMPs to be updated (as described above) regardless of whether the advertisement served relies on the VMP or uses other standard formats. At some later time, the user can be offered the Viewpoint Toolbar. Thus, we have experienced an increase in offers of Viewpoint Toolbars when we have an increase in advertising impressions delivered using Creative Innovator.

      Creative Services

      We provide fee-based professional services for creating content and implementing visualization solutions. Our professional services group uses the Viewpoint platform, as well as a spectrum of tools and other technologies to create enhanced rich media solutions for our clients' particular purposes, whether over the web, intranet systems or offline media and applications. We provide the support our clients need to implement the rich media content, to fully utilize the enhanced software, or to maximize the branding potential of the advertising opportunity. Clients supported during 2004 include America Online, Inc., Toyota Motor Services, General Electric and Sony Electronic.

      Our professional services group plays an integral role in our overall strategy. Aside from generating significant revenues, the group increases our ability to sell licenses (as described below) to clients who are impressed by the advantages of the Viewpoint platform but who do not wish to create Viewpoint content themselves. Also, the group's work keeps us on the cutting-edge of the industry, giving us hands-on experience with the design and development problems faced by our own clients. We are not totally reliant on our own content creation services, however, as we have cultivated a network of independent content developers trained to provide those services as well.

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      Licensing

      Viewpoint launched a business in 1987 as a software maker focused primarily on products that enabled content authors to create images in three dimensions and to “paint” artistic images digitally. Viewpoint initiated internet activities with the release of a beta version of the Viewpoint Media Player in 1999. Simultaneously, Viewpoint released a suite of free content authoring tools specifically designed to enable customers who published digital content on their websites to create material that can be “read” or “played back” by the VMP. With the VMP residing on the web consumer's computer and interpreting instructions delivered by our customers' web sites, web sites can transmit relatively small files that can yield “rich” media on the end user's computer. In this way, website owners can deploy digital content representing three-dimensional views of their products, include pre-set animations, and provide high-resolution two-dimensional views, video, audio, text, and other media types. For example, several of our licensing and creative services customers are auto manufacturers that deploy from their websites 3D representations of their vehicles which viewers can interact with by “opening” doors, zooming in on features, configuring accessories, or swapping colors.

      We charge web site owners licensing fees for the right to display content in the Viewpoint format from their sites. Our technology is designed so that content in the Viewpoint format that is deployed from a website or otherwise distributed without a valid license or “key” can be spoiled by a “watermarking” image.

      We make available on our web site, without charge, the core software necessary to create content in the Viewpoint format, as well as extensive tutorials and related materials. However, we are currently developing a content authoring software product that we expect will improve upon the currently available tools and make the process of authoring content in the Viewpoint format easier. We anticipate that this product will be available in 2005. We intend to license the product for a one-time fee and include with the price of the software the right to deploy an unlimited quantity of most types of Viewpoint content from an unlimited number of websites for an unlimited period of time.

      During 2004, we generated $4.2 million in License revenues including $3.5 million from an agreement with America Online signed in 2003. While rights to use the software are perpetual, maintenance and upgrades associated with the agreement will cease in December 2005.

      The Licensing segment represents an increasingly smaller portion of our revenues. While we anticipate that license revenues may actually decrease in the future, it remains an important aspect of our business because the increase of content in the Viewpoint format deployed on the internet—and therefore, the increase in the number of VMP's in use and up-to-date—benefits our other business segments by enabling us to offer additional Viewpoint products and to sell advertising campaign management solutions that involve Viewpoint content.

Competition

      We have competitors in all four of our product segments. Competitors in the Search business include Google Inc., Yahoo! (who offers its own search toolbar in addition to supplying search results for use with the Viewpoint Toolbar), MSN, AskJeeves, Inc., FindWhat, and InfoSpace. Competitors of our Creative Innovator product include full service advertising delivery companies like DoubleClick, ValueClick, Aquantive, 24/7 Media, AOL (through its recently purchased Advertising.com subsidiary) and MSN. Additionally, certain companies specialize in delivering rich media and video advertisements although these companies are generally smaller and are not publicly listed. Competitors in the Services sector include advertising agencies, online agencies and independent creative talent that can build content in the Viewpoint format or in other rich media formats. Our software licensing competitors (and their products) include: Macromedia, Inc. (Flash and Shockwave) and Cycore AB (Cult3D).

      Some of our competitors have longer operating histories and significantly greater financial, management, technology, development, sales, marketing and other resources than we have. As we compete with larger competitors across a broader range of products and technologies, we may face

6

increasing competition from such companies. If these or other competitors develop products, technologies or solutions that offer significant performance, price or other advantages over our products, our business would be harmed.

      A variety of other possible actions by our competitors could also have a material adverse effect on our business, including increased promotion or the introduction of new or enhanced products and technologies. Moreover, new personal computer platforms and operating systems may provide new entrants with opportunities to obtain a substantial market share in the markets in which we compete.

      Our competitors may be able to develop products or technologies comparable or superior to ours, or may be able to develop new products or technologies more quickly. We also face competition from developers of personal computer operating systems such as Microsoft and Apple Computer, Inc., as well as from open-source operating systems such as Linux. These operating systems may incorporate functions that could be superior to or incompatible with our products and technologies. Such competition would adversely affect our business.

      See the section headed “Factors That May Affect Future Results of Operations” below for additional information regarding competition.

Product Development

      The continual development of new products and enhancements to our existing products is critical to our success. Our principal current product development efforts are focused on the development of the Viewpoint platform and other technologies like Creative Innovator and Graphically Enhanced Search. From time to time, we may also acquire basic software technologies that we considers complementary to our offerings.

      Our growth will, in part, be a function of the introduction of new products, technologies and services and future enhancements to existing products and technologies. Any such new products, technologies or enhancements may not achieve market acceptance. In addition, we have historically experienced delays in the development of new products, technologies and enhancements, and such delays may occur in the future. If we were unable, due to resource constraints or technological or other reasons, to develop and introduce such products, technologies or enhancements in a timely manner, this inability could have a material adverse effect on our business.

      Our research and development expenses were approximately $3.4 million, $3.4 million and $3.6 million for 2004, 2003, and 2002 respectively, excluding charges for non-cash stock based compensation. We have added additional engineers in connection with our recent acquisition of Unicast and expanded efforts in the advertising systems business which will result in increased research and development expenses during 2005.

Employees

      As of February 25, 2005, Viewpoint had 126 full time employees, including 40 related to cost of revenues in creative services and advertising systems; 20 in sales and marketing; 39 in research, development and quality assurance; and 27 in administration. This compares to 95 full-time employees at March 5, 2004 including 16 in sales and marketing, 29 in creative services, 29 in research, development and quality assurance and 21 in administration. The employees and the Company are not parties to any collective bargaining agreements, and the Company believes that its relationships with its employees are good.

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Executive Officers of the Registrant

      The following table sets forth certain information regarding the Company's executive officers as of March 5, 2005:

Name	Age		Position
Jerry S. Amato		45	President and Chief Executive Officer
William H. Mitchell		47	Chief Financial Officer
Brian J. O'Donoghue		41	Senior Vice President and General Counsel
Robert E. Rice		50	Executive Chairman

Jerry S. Amato, President and Chief Executive Officer

      Mr. Amato has been a director of the Company and its Chief Executive Officer since August 2003. From July 1995 through September 1998, Mr. Amato served as President and Chief Operating Officer of Vanstar Corporation, a leading provider of services and products designed to build, manage and enhance personal computer network infrastructures with 1998 revenues exceeding $2.8 billion. From September 1998 until joining the Company in August 2003, Mr. Amato served as a principal of the Flatiron Group in New York, a business strategy and planning advisory service. In March 1998, Mr. Amato led the formation of Technology Access Action Coalition/ACT, a Washington-based organization promoting innovation and growth in the technology sector, and served as its Chairman until November 1999.

William H. Mitchell, Chief Financial Officer

      Mr. Mitchell has served as Chief Financial Officer of the Company since August 2003. From July 2002 to August 2003, Mr. Mitchell served as Chief Financial Officer of MaxWorldwide, Inc., an Internet-based provider of marketing solutions for advertisers and web publishers. From January 2001 to July 2002, Mr. Mitchell served as Chief Financial Officer for Tally Systems, Inc., a software development company. He served as Executive Vice President and Chief Financial Officer of Bigfoot Interactive, an Internet advertising company, from July 1999 to January 2001, and as Chief Operating Officer of Bigfoot International from October 1998 to July 1999. Mr. Mitchell graduated with an A.B. from Dartmouth College, MS and MS/M.B.A. degrees from Northeastern University and obtained his certified public accountant license in 1982.

Brian O'Donoghue, Senior Vice President and General Counsel

      Mr. O'Donoghue was an attorney at Milbank, Tweed, Hadley, and McCloy LLP, specializing in corporate and litigation matters from 1995 until joining the Company as General Counsel in May 2000. Mr. O'Donoghue received his Juris Doctorate from Fordham University School of Law in 1995.

Robert E. Rice, Executive Chairman

      Mr. Rice has been Executive Chairman since August 2003. Prior to that Mr. Rice served as President and Chief Executive Officer of Viewpoint since March 2000 and Chairman of the Company's Board of Directors since November 2000. At the Company, he served as Vice President of Strategic Affairs until September 1999. He served as the President and a Director of Metastream since its formation in June 1999. Mr. Rice co-founded Real Time Geometry Corporation and served as its chairman until its sale to the Company in 1996. Before founding Real Time Geometry, Mr. Rice was a partner at the law firm of Milbank, Tweed, Hadley and McCloy LLP, where he advised on various corporate, tax, and intellectual property issues.

Item 2. Properties

      The Company leases approximately 17,000 square feet of space on the 18th floor of a 24-story office building in New York City, New York. This space houses approximately 90 personnel,

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including substantially all of the Company's general and administrative and research and development personnel as well as a significant portion of the sales and marketing and creative services personnel. The primary lease agreement expires in February 2010, if not renewed. The Company believes that this office space is adequate for its current needs and that additional space is available in the building or in the New York City area to provide for anticipated growth.

      The Company also leases approximately 12,000 square feet of office space in Los Angeles, California, pursuant to a lease that expires in December 2009. This space houses approximately 18 personnel principally engaged in sales, marketing and production for the services segment.

      The Company also leased approximately 12,000 square feet of office space in Draper, Utah, pursuant to a sublease agreement that expired in April 2010. This space housed approximately 29 personnel in 2002 principally engaged in sales and marketing, creative services, and management information systems services. In February 2003, the Company closed this office and reached an agreement with the Leasor to terminate the lease in October, 2004. The Company recorded a partial impairment for the costs associated with maintaining this facility in 2003 and adjusted this impairment to reflect the final settlement in 2004.

Item 3. Legal Proceedings

      The Company is engaged in certain legal actions arising in the ordinary course of business. The Company believes it has adequate legal defenses in legal actions in which it is the defendant and believes that the ultimate outcome of such actions will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders

      None.

PART II

Item 5. Market for Registrant's Common Stock, Related Stockholder Matters, and Issuer Purchases of Equity Securities

      Viewpoint Corporation's (“Viewpoint” or the “Company”) common stock, $0.001 par value, began trading over the counter in December 1995. The common stock is traded on The NASDAQ National Market under the symbol “VWPT.” On February 28, 2005, there were 321 holders of record of our common stock. Some of the holders of record of Viewpoint common stock are brokers and other institutions that hold stock on behalf of their customers. We estimate that approximately 10,000 stockholders hold shares of Viewpoint common stock through the brokers and other institutions. The following table sets forth, for the periods indicated, the range of high and low closing sales prices per share of our common stock:

	High		Low
2004
4th Quarter	$	3.30	$	2.38
3rd Quarter		2.34		1.03
2nd Quarter		3.99		1.97
1st Quarter		3.50		0.75
2003
4th Quarter	$	1.01	$	0.68
3rd Quarter		1.64		0.72
2nd Quarter		1.37		0.43
1st Quarter		1.83		0.30

      The Company has not paid any cash dividends on its common stock to date. The Company currently anticipates that it will retain all future earnings, if any, for use in its business and does not anticipate paying any cash dividends on its common stock in the foreseeable future.

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In March 2004, the Company sold 1.5 million shares of common stock, in a private placement to an institutional investor, for $3.7 million or $2.45 per share.

In December 2004 the company sold 1.9 million shares of common stock in a private placement to an investor for $5.0 million or $2.65 per share.

      Information with respect to securities authorized for issuance under equity compensation plans is included in our Proxy Statement relating to our 2004 annual meeting of stockholders and is incorporated herein by reference.

Item 6. Selected Financial Data

      The following selected consolidated financial data should be read in conjunction with “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K.

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	Years Ended December 31,
	2004			2003			2002			2001			2000
	(In thousands, except per share data)
Statements of Operations Data
Revenues:
Search	$	2,698		$	—		$	—		$	—		$	—
Advertising systems		305			—			—			—			—
Services		4,822			4,291			3,302			3,500			1,659
Related party services		2,468			5,226			2,244			827			500
Licenses		704			2,283			5,039			8,148			1,421
Related party licenses		3,535			1,729			7,554			1,533			—
Total revenues		14,532			13,529			18,139			14,008			3,580
Cost of Revenues:
Search		45			—			—			—			—
Advertising systems		132			—			—			—			—
Services		3,074			5,776			3,587			3,283			1,467
Licenses		6			97			353			309			76
Total cost of revenues		3,257			5,873			3,940			3,592			1,543
Gross profit		11,275			7,656			14,199			10,416			2,037
Operating expenses:
Sales and marketing		3,732			8,723			16,682			17,521			18,616
Research and development		3,432			4,209			4,348			9,846			10,559
General and administrative		7,220			11,549			10,334			10,423			9,814
Depreciation		853			1,543			1,962			1,804			801
Amortization of intangible assets (1),(2)		17			10			664			3,325			1,258
Amortization of goodwill (1)		—			—			—			14,128			1,767
Restructuring charges (3)		(106	)		2,023			—			—			—
Impairment of goodwill and other intangible assets (2)		—			—			6,275			7,925			—
Compensation charge related to forgiveness of an officer loan		—			—			—			—			2,322
Non-cash sales and marketing charges (4)		—			—			—			—			19,998
Acquired in-process research and development costs (1)		—			—			—			—			963
Total operating expenses		15,148			28,057			40,265			64,972			66,098
Loss from operations		(3,873	)		(20,401	)		(26,066	)		(54,556	)		(64,061	)
Other income (expense):
Interest and other income, net		60			254			153			1,064			2,180
Interest expense (5)		(936	)		(958	)		—			—			—
Changes in fair values of warrants to purchase common stock and conversion options of convertible notes (5)		(4,180	)		1,209			—			—			—
Loss on conversion of debt		(810	)		—			—			—			—
Loss on early extinguishment (5)		—			(1,682	)		—			—			—
Other income (expense):		(5,866	)		(1,177	)		153			1,064			2,180
Loss before provision for income taxes		(9,739	)		(21,578	)		(25,913	)		(53,492	)		(61,881	)
Provision for income taxes		90			81			107			—			—
Loss before minority interest in loss of subsidiary		(9,829	)		(21,659	)		(26,020	)		(53,492	)		(61,881	)
Minority interest in loss of subsidiary		—			—			—			—			4,429
Net loss from continuing operations		(9,829	)		(21,659	)		(26,020	)		(53,492	)		(57,452	)
Net income (loss) from discontinued operations (4)		129			157			127			1,122			1,496
Net loss		(9,700	)		(21,502	)		(25,893	)		(52,370	)		(55,956	)
Accretion of mandatorily redeemable preferred stock of subsidiary		—			—			—			—			(438	)
Net loss applicable to common shareholders	$	(9,700	)	$	(21,502	)	$	(25,893	)	$	(52,370	)	$	(56,394	)
Basic and diluted net loss per common share:
Net loss per common share from continuing operations	$	(0.18	)	$	(0.47	)	$	(0.64	)	$	(1.37	)	$	(2.01	)
Net income (loss) per common share from discontinued operations		0.00			0.00			0.00			0.03			0.05
Net loss per common share	$	(0.18	)	$	(0.47	)	$	(0.64	)	$	(1.34	)	$	(1.96	)
Weighted average number of shares outstanding—basic and diluted		52,955			45,280			40,759			39,077			28,718

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	December 31,
	2004		2003		2002		2001		2000
	(In thousands)
Balance Sheet Data (In thousands)
Cash, cash equivalents and marketable securities (4) (7)	$	8,662	$	9,488	$	11,568	$	15,122	$	29,033
Working capital (3) (5) (7)		4,416		3,324		9,051		11,765		34,313
Total assets (1) (2) (5)		45,273		45,743		53,352		61,917		102,349
Convertible notes, subordinated notes and warrants (6)		3,674		4,748		7,000		—		—
Stockholders' equity (1) (4) (7)		33,958		27,467		38,352		52,737		96,339

(1)	Effective January 1, 2002, the Company adopted Statements of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” As required by SFAS No. 142, the Company discontinued amortizing the remaining balances of goodwill as of January 1, 2002. All remaining and future acquired goodwill is subject to impairment tests annually, or earlier if indicators of potential impairment exist, using a fair-value-based approach. All other intangible assets continue to be amortized over their estimated useful lives and assessed for impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
(2)	During 2002, due to the persistence of unfavorable economic conditions along with lower-than-expected revenues generated to date and reduced estimates of future performance of the Viewpoint Digital assets, the Company performed an impairment analysis on the goodwill and other intangible asset balances recorded upon the acquisition of Viewpoint Digital. In accordance with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded impairment charges totaling $6.3 million.
(3)	In fiscal 2003, the Company implemented three restructuring plans. The first plan, implemented and completed in 2003, reduced operating expenses by closing the Company's Utah office. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1.4 million, which was recorded on our income statement as restructuring charges. During October 2004 the Company signed an agreement releasing it from any additional obligation under the remaining lease commitment after a payment of $0.3 million. As a result of this release the Company reversed the remaining accrued amount of $0.1 million as the Company completed its obligations under the release agreement.
	The second plan was implemented in 2003, and was designed to streamline the business. The Company incurred a restructuring charge of $0.6 million related to severance arrangements, on the income statement. In January 2004 the Company recorded a non-cash adjustment less than $0.1 million to the restructuring accrual to reflect payments that were less than originally contemplated under the plan.
	The third plan was implemented and completed in 2003, and was designed to consolidate international operations to the New York office. The Company incurred a restructuring charge of $0.1 million related to severance arrangements on the income statement.
(4)	In December 1999, the Board of Directors of the Company approved a plan to focus exclusively on the Company's 3D and rich media visualization and marketing technologies, and to correspondingly divest itself of all its prepackaged graphics software business. Consequently, the results of operations of the prepackaged graphics software business have been classified as net income (loss) from discontinued operations for all periods presented.
(5)	On December 31, 2002, the Company completed a debt financing in which it issued to three investors, 4.95% convertible notes having an aggregate principle amount of $7 million, and warrants to purchase 0.7 million shares of Company common stock.
	On March 25, 2003 the Company redeemed an aggregate of $3.3 million principal amount of the outstanding convertible notes, exchanged an aggregate of $1 million principal amount of the outstanding convertible notes for shares of the Company's common stock, and exchanged the remaining $2.7 million principal amount of outstanding convertible notes for $2.7 million principal amount of new convertible notes.

(footnotes continued on next page)

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(footnotes continued from previous page)

	In connection with the redemption of the convertible notes the Company recorded a $1.7 million loss on the early extinguishment of debt.
	On March 26, 2003, the Company entered into a Securities Purchase Agreement with three other accredited investors pursuant to which it received $3.5 million in exchange for an aggregate of $3.5 million principal amount of subordinated notes and 3.6 million shares of Viewpoint common stock.
	On March 17, 2004, one of the institutional investors holding the convertible notes converted $0.9 million of outstanding notes for shares of the Company's common stock. In the first quarter of 2004, the Company recorded a loss of $1.4 million related to the change in the fair value of the conversion feature from January 1, 2004 through the date of the conversion. For the three months ended March 31, 2004 the Company also recorded a loss related to a change in the fair value of the conversion feature and warrants of $3.7 million and $1.3 million, respectively.
	In addition, on the same day as the conversion, the Company sold 1.5 million shares of common stock in a private placement to the institutional investor, for $3.7 million or $2.45 per share. The Company recorded a loss on conversion of debt in the amount of $0.6 million, which represented the write-off of unamortized loan discount and debt issuance costs of $0.1 million and the difference between the proceeds received from the private placement and the fair value of the common stock issued based upon the closing price of the Company's stock on the day of the sale of $0.5 million. The remaining noteholders chose not to exercise their right to redeem their notes in amount up to 20% of the $3.7 million received by the Company within 10 days of the Company's public announcement of the closing of the private placement.
	During the period beginning on April 15, 2004 and May 20, 2004—a period which covered 25 consecutive trading days—the dollar volume-weighted average price of the Company's common stock exceeded 150% of the conversion price applicable to the outstanding convertible notes and the Company determined to exercise its right to convert the outstanding notes into shares of Company common stock. Accordingly, on May 20, 2004, the Company informed the institutional investors holding the outstanding convertible notes that it would exercise its right to convert that debt. On June 18, 2004, the Company completed the conversion of the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million shares of Viewpoint common stock. In the second quarter of 2004, the Company recorded a gain of $3.0 million related to the change in the fair value of the conversion feature during the period from April 1, 2004 through June 18, 2004, the date of the conversion.
	In addition, the Company recorded a loss on conversion which represented the difference between the fair value of the common stock issued in exchange for the notes and the carrying value of the convertible notes on the date of conversion. This change was primarily comprised of the write-off of unamortized loan discount and debt issuance costs.
(6)	In November 2003, the Company sold 3.1 million shares of common stock, in a private placement to Federal Partners, L.P., an affiliate of The Clark Estates, Inc. for $2.5 million or $0.80 per share. Under the terms of the investment, the Company was obliged to file a registration statement covering the resale of the shares within 45 days of the closing date, which occurred on November 12, 2003. The Company filed the registration statement on December 27, 2003.
	In March 2004, the Company sold 1.5 million shares of common stock, in a private placement to an institutional investor, for $3.7 million or $2.45 per share.
	In December 2004 the company sold 1.9 million shares of common stock in a private placement to an investor for $5.0 million or $2.65 per share.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

      The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

      In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “ Factors That May Affect Future Results of Operations.” You should carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission, including the Quarterly Reports on Form 10-Q to be filed in 2004. When used in this report, the words “wills,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “targets,” “estimates,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.

Overview

      Overview. Viewpoint Corporation (“Viewpoint” or the “Company”) is a leading internet advertising company that focuses on using its graphical platform's capabilities to provide consumers, advertisers, and website publishers an enhanced internet experience. Since 2003 we have extended the historical imaging capabilities of our proprietary graphics technology to develop a search business that provides internet consumers a flexible graphical searching experience and an advertising delivery system that specializes in deploying video and rich media advertising. The company supplements its revenues in these product segments by using its in-house services team to build sophisticated content that is used by customers in each product segment. Finally, the Company licenses its platform to internet publishers enabling them to deploy graphical sophisticated content at their websites.

      On March 17, 2004, Viewpoint entered the internet search business by launching a toolbar search product which the Company calls the “Viewpoint Toolbar”. The Viewpoint Toolbar attaches to the Internet Explorer browser, enabling web surfers to conduct internet searches without leaving the web page they are viewing. When a user enters a term or phrase in the search field of the Viewpoint Toolbar, search results appear not only as text links listed on a search results page but also as thumbnail icons of the web pages themselves in a “tray” that descends from the Viewpoint Toolbar. Additionally, if a user visits certain internet search engine sites the Viewpoint Toolbar will simultaneously receive a user's search request and provide the user comparative thumbnail search results in the Viewpoint Toolbar search results tray. Search results delivered to users of the Viewpoint Toolbar are supplied by Yahoo! Inc. and its wholly-owned subsidiary, Overture Services, Inc. (“Yahoo!”) Under its Agreement with Yahoo!, Viewpoint receives a share of the fees advertisers pay to Yahoo! to be listed in the search results as a “sponsored link”.

      Viewpoint also offers an online advertising campaign management and deployment product known as “Creative Innovator”. Creative Innovator permits publishers, advertisers, and their agencies to manage the process of deploying online advertising campaigns. This process includes creating the advertising assets, selecting the sites on which the advertisements will be deployed, setting the metrics (ad rotation, the frequency with which an ad may be deployed, and others) associated with the campaign, ad deployment, and tracking of campaign results. Creative Innovator enables users to manage advertising campaigns across many sites. In March 2004, Viewpoint announced the availability of “AirTime”, an extension of Creative Innovator that permits users to manage and deploy online video advertising campaigns.

      On January 3, 2005 Viewpoint purchased all the outstanding stock of Unicast Corporation (“Unicast”), a leader in the delivery of interstitial and superstitial video internet advertisements. Unicast delivered video advertisements for its customers using a format that complements Viewpoint's in-page and in-stream video advertising provided by AirTime. Additionally, Unicast

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generated monthly revenues from dozens of advertisers who purchased advertising on some of the internet's most active websites including Microsoft's MSN, Yahoo! and America Online. Viewpoint believes that the addition of Unicast will significantly accelerate the Company's growth in its advertising systems segment.

      We provide fee-based professional services for creating content and implementing visualization solutions. Clients include both content-related licensees and advertisers who use Creative Innovator as well as internal services provided to our marketing team. Our professional services group uses the Viewpoint platform, as well as a spectrum of tools and other technologies to create enhanced rich media solutions for a client's particular purpose, whether over the web, intranet systems or offline media and applications. We provide the support our clients need to implement the rich media content, to fully utilize the enhanced software, or to maximize the branding potential of the advertising opportunity. Clients supported during 2004 include America Online, Toyota Motor Services, General Electric and Sony.

      Viewpoint began business in 1987 as a software maker focused primarily on products that enabled content authors to create images in three dimensions and to “paint” artistic images digitally. Viewpoint initiated internet activities with the release of a beta version of the Viewpoint Media Player in 1999. Simultaneously, Viewpoint released a suite of free content authoring tools specifically designed to enable customers who published digital content on their websites to create material that can be “read” or “played back” by the VMP. With the VMP residing on the web consumer's computer and interpreting instructions delivered by our customers' web sites, web sites can transmit relatively small files that can yield “rich” media on the end user's computer. In this way, website owners can deploy digital content representing three-dimensional views of their products, include pre-set animations, and provide high-resolution two-dimensional views, video, audio, text, and other media types. For example, several of our licensing and creative services customers are auto manufacturers that deploy from their websites 3D representations of their vehicles which viewers can interact with by “opening” doors, zooming in on features, configuring accessories, or swapping colors.

      Viewpoint has a limited operating history upon which an evaluation of the Company and its prospects can be based. Viewpoint has had significant quarterly and annual operating losses since its inception, and, as of December 31, 2004, had an accumulated deficit of $255.3 million. Viewpoint's prospects must be considered in light of the risks and difficulties frequently encountered by early stage technology companies. There can be no assurance that Viewpoint will achieve or sustain profitability.

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RESULTS OF OPERATIONS

      The following table sets forth certain selected financial information expressed as a percentage of revenues for the periods indicated:

	Years Ended December 31,
	2004			2003			2002
Statements of Operations Data
Revenues:
Search		19	%		—	%		—	%
Advertising systems		2			—			—
Services		33			32			18
Related party services		17			38			12
Licenses		5			17			28
Related party licenses		24			13			42
Total revenues		100			100			100
Cost of revenues:
Search		—			—			—
Advertising systems		1			—			—
Services		21			42			20
Licenses		—			1			2
Total cost of revenues		22			43			22
Gross profit		78			57			78
Operating expenses:
Sales and marketing		26			64			92
Research and development		25			32			24
General and administrative		48			86			56
Depreciation		6			11			11
Restructuring charges related to office closure		(1	)		15			—
Amortization of intangible assets		—			—			4
Impairment of goodwill and other intangible assets		—			—			35
Total operating expenses		104			208			222
Loss from operations		(26	)		(151	)		(144	)
Other income (expense):
Interest and other income, net		—			2			1
Interest expense		(6	)		(7	)		—
Changes in fair values of warrants to purchase common stock and conversion options of convertible notes		(29	)		9			—
Loss on conversion of debt		(6	)		—
Loss on early extinguishment		—			(12	)		—
Other income		(41	)		(8	)		1
Loss before provision for income taxes		(67	)		(159	)		(143	)
Provision for income taxes		1			1			1
Net loss from continuing operations		(68	)		(160	)		(144	)
Adjustment to net loss on disposal of discontinued operations, net of tax		1			1			1
Net loss		(67	)		(159	)		(143	)
Net loss applicable to common shareholders		(67	)%		(159	)%		(143	)%

Critical Accounting Policies And Estimates

      Viewpoint's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent

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assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances though actual results may differ from these estimates under different assumptions or conditions. For a complete description of the Company's significant accounting policies, see Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K.

      Described below are the areas where we believe that the estimates, judgments or assumptions that we have made, if different, would have yielded the most significant differences in our financial statements:

Revenue Recognition

      The Company recognizes revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, Emerging Issues Task Force (“EITF”) No. 00-21 “Revenue Arrangements with Multiple Deliverables,” and Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition”. Per SOP 97-2 and SAB No. 104, the Company recognizes revenue when the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the Company's fee is fixed or determinable, and (d) collectibility is reasonably assured.

      Viewpoint generates revenues through four sources: (a) search advertising, (b) advertising systems, (c) services, and (d) software licenses. Search revenue, as explained in more detail below, is derived from a share of the fees charged by Yahoo! to advertisers who pay for sponsored links when a customer clicks on the paid link on the results provided by the Viewpoint Toolbar. Advertising systems revenue is generated by charging customers to host and deliver advertising campaigns based on a cost per thousand (“CPM”) impressions. Service revenues are generated from fee-based professional services, customer support services (maintenance arrangements), and training services performed for customers that license the company's products. License revenues are generated from licensing the rights to use products directly to customers and indirectly through Value Added Resellers (“VARs”).

      Search revenue is generated when a customer uses the Viewpoint Toolbar to search the internet, and clicks on a sponsored advertisement included in the search results. The Viewpoint Toolbar's search results are provided by Yahoo!, who collects a fee from the advertiser and remits a percentage of the fee to Viewpoint. Revenue generated is a function of the number of Viewpoint Toolbars performing searches, the number of searches that are sponsored by advertisers, the number of advertisements that are clicked on by Viewpoint Toolbar searchers, the rate advertisers pay for those advertisements, and the percentage retained by Yahoo! for providing the results.

      Viewpoint also offers an online advertising campaign management and deployment product. This advertising system permits publishers, advertisers, and their agencies to manage the process of deploying online advertising campaigns. The Company charges customer on a cost per thousand (“CPM”) impression basis, and recognizes revenue when the impressions are served, so long as all other revenue recognition criteria are satisfied.

      Fee-based professional services for customized software development are performed on a fixed-fee or time-and-materials basis under separate service arrangements. Revenues for fixed-fee arrangements are recognized over the pattern of performance in accordance with the provisions of SAB No. 104. The pattern of performance for service arrangements is measured by the percentage of costs incurred and accrued to date for each contract, which primarily consist of direct labor costs, cost of outsourcing, and overhead, to the estimated total cost for each contract at completion. The percentage approximates the percentage of a customer's contract that has been completed and would be available for the customer to use at that point in time. Use of this method is based on the availability of reasonably dependable estimates. If reasonably dependable estimates are not available due to the complexity of the services to be performed, the Company defers recognition of any revenues for the project until the project is completed, delivered and accepted by the customer, provided all other revenue recognition criteria are met and no further

17

significant obligations exist. Revenues from customer support services are recognized ratably over the term of the contract. Revenues from training services are recognized as services are performed.

      License revenues from direct customers include sales of perpetual and term-based licenses for broadcasting digital content in the Viewpoint format. License revenues are recognized up-front provided no further significant obligations exist and the resulting receivable is deemed collectible by management. Arrangements with VARs require (i) an up-front, non-refundable payment, (ii) a percentage royalty based on sell-through, or (iii) both as consideration for the right to resell the Viewpoint technology. Up-front, non-refundable payments are recognized as license revenues when the VARs right to resell the company's technology begins and the technology has been delivered to the VAR, which is upon contract signing, provided all other revenue recognition criteria are met and no further significant obligations exist. For arrangements that do not call for an up-front, non-refundable payment, revenues are recognized as the royalties are earned, which is upon notification of sell-through by the VAR, provided all other revenue recognition criteria are met and no further significant obligations exist. Term-based licenses that include upgrades, when and if available, over the term of the contract are recognized ratably over the term that the upgrades are provided.

      Fees from licenses sold together with fee-based professional services are generally recognized upon delivery of the software, provided that the payment of the license fees are not dependent upon the performance of the services, and the services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of the license fees are dependent upon the performance of the services, both the software license and service fees are recognized in accordance with SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The percentage of completion method is used for those arrangements in which reasonably dependable estimates are available. If reasonably dependable estimates are not available due to the complexity of the services to be performed, the Company defers recognition of any revenues for the project until the project is completed, delivered and accepted by the customer, provided all other revenue recognition criteria are met and no further significant obligations exist.

      For arrangements involving multiple elements, the Company defers revenue for the undelivered elements based on their relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of each undelivered element in multiple element arrangements is based on the price charged when the same element is sold separately. For maintenance and technical support elements, the Company uses renewal rates to determine the price when sold separately. The Company accounts for multiple element arrangements which involve only fee-based professional services in accordance with EITF 00-21. For licenses sold that include updates over a period of time the Company recognizes the license revenue over the period in which updates are provided.

      Standard terms for license arrangements require payment within 90 days of the contract date, which typically coincides with delivery. Standard terms for service arrangements, which are typically billed and collected on an installment basis, require final payment within 90 days of completion of the services. Standard terms for Advertising systems arrangements require payment within 30 days of billing which is generally at the end of each month. Standard terms for payment of Search revenue by Yahoo! requires payment within 45 days of the end of a month. Probability of collection is based upon the assessment of the customer's financial condition through the review of their current financial statements and/or credit reports. For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. The Company's arrangements with customers do not contain product return rights. If the fee is not fixed or determinable, revenue is recognized as payments become due or as cash is received from the customer. If a nonstandard acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period.

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Percentage of Completion

      The Company recognizes revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, Emerging Issues Task Force (“EITF”) Issue No. 00-21 “Revenue Arrangements with Multiple Deliverables,” Staff Accounting Bulletin (“SAB”) No. 101 “Revenue Recognition in Financial Statements” and SAB No. 104 “Revenue Recognition.” Per SOP 97-2 and SAB No. 101, the Company recognizes revenue when the following criteria are met: (a) persuasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the Company's fee is fixed or determinable, and (d) collectibility is reasonably assured.

      Fee-based professional services for customized software development are performed on a fixed-fee or time-and-materials basis under separate service arrangements. Revenues for fixed-fee arrangements are recognized over the pattern of performance in accordance with the provisions of SAB No. 101. The pattern of performance for service arrangements is measured by the percentage of costs incurred and accrued to date for each contract, which primarily consist of direct labor costs, cost of outsourcing, and overhead, to the estimated total cost for each contract at completion. The percentage approximates the percentage of a customer's contract that has been completed and would be available for the customer to use at that point in time. Use of this method is based on the availability of reasonably dependable estimates. If reasonably dependable estimates are not available due to the complexity of the services to be performed, the Company defers recognition of any revenues for the project until the project is completed, delivered and accepted by the customer, provided all other revenue recognition criteria are met and no further significant obligations exist.

Reserve for Bad Debt

      We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by a review of their current credit information. The company regularly monitors collections and payments from our customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified.

Valuation of goodwill and intangible assets

      The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 142 eliminates the amortization of goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with finite lives and addresses impairment testing and recognition for goodwill and intangible assets. SFAS No. 144 establishes a single model for the impairment of long-lived assets.

      We assess goodwill for impairment annually unless events occur that require more frequent reviews. Long-lived assets, including amortizable intangibles, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Discounted cash flow analyses are used to assess goodwill impairment while undiscounted cash flow analyses are used to assess long-lived asset impairment. If an assessment indicates impairment, the impaired asset is written down to its fair market value based on the best information available. Estimated fair market value is generally measured with discounted estimated future cash flows. Considerable management judgment is necessary to estimate undiscounted and discounted future cash flows. Assumptions used for these cash flows are consistent with internal forecasts.

      On an on-going basis, management reviews the value and period of amortization or depreciation of long-lived assets, including goodwill and other intangible assets. During this review, we re-evaluate the significant assumptions used in determining the original cost of long-lived assets. Although the assumptions may vary from transaction to transaction, they generally include revenue growth, operating results, cash flows and other indicators of value. Management then determines whether there has been an impairment of the value of long-lived assets based upon events or

19

circumstances that have occurred since acquisition. The impairment policy is consistently applied in evaluating impairment for each of our wholly owned subsidiaries and investments.

Investments

      We record an impairment charge when we believe an investment asset has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment's current carrying value, thereby possibly requiring an impairment charge in the future.

Derivatives

      In 2002 and 2003, the Company issued convertible notes and warrants which would require Viewpoint to issue registered shares of common stock upon conversion of these securities. The Company accounts for the fair values of these outstanding warrants to purchase common stock and conversion options of its convertible notes in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,” which requires the Company to bifurcate and separately account for the conversion option and warrants as embedded derivatives contained in the Company's convertible notes. The Company is required to carry these embedded derivatives on its balance sheet at fair value and the unrealized changes in the value of these embedded derivatives are reflected in net income as changes in fair values of warrants to purchase common stock and conversion options of convertible notes. Such changes in fair value are recorded as an adjustment to reconcile net loss to net cash used in operating activities in the consolidated statement of cash flows. In 2004 the convertible notes were converted into common stock.

Contingencies and Litigation

      We evaluate contingent liabilities including threatened or pending litigation in accordance with SFAS No. 5, “Accounting for Contingencies” and record accruals when the outcome of these matters is deemed probable and the liability is reasonably estimable. We make these assessments based on the facts and circumstances and in some instances based in part on the advice of outside legal counsel.

Restructuring Activities

      Restructuring activities are accounted for in accordance with SFAS No. 146 “Accounting for Costs Associated With Exit or Disposal Activities”. SFAS No. 146 requires, with respect to the recognition of severance expenses, management approval of the restructuring plan, the determination of the employees to be terminated, communication of benefit arrangements to employees and, with respect to costs associated with lease terminations, an estimation of sublease payments.

Financial Performance Summary

      Viewpoint reported total revenue of $14.5 million for 2004, compared to $13.5 million for 2003. Gross profit for the year ended December 31, 2004 was $11.3 million, compared to $7.7 million for the twelve months ended December 31, 2003. The improvement in gross profit in 2004 compared to 2003 was due to the addition of revenues from our higher margin search products of $2.7 million, and higher margin professional services contracts during 2004.

      Operating loss for the year ended December 31, 2004 was $3.9 million compared to $20.4 million for the year ended December 31, 2003. The lower level of operating losses came from a reduction in operating expenses due to steps management implemented in 2003 to reduce costs, primarily in payroll. Additionally, in 2003 the Company recognized $2.0 million in restructuring

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costs that had a small net positive adjustment in 2004 and experienced a $2.4 million decrease in non-cash stock based compensation charges in 2004 compared to 2003.

      The Company recognized a net loss of $9.7 million, or $(0.18) per share in 2004, compared to a net loss of $21.5 million, or $(0.47) per share in 2003. The lower level of net loss was principally due to reduced operating losses, offset by an increase in other expenses principally due to the $5.4 million expense associated with its obligation to convertible debt and warrant holders attributable to its March 2003 financing. This obligation increased in 2004 due to an increase in the Company's stock price during the year, and represents a non-cash expense to Viewpoint. Additionally, 6.7 million additional common shares were outstanding during 2004 when compared to the prior year due to two private placements, the conversion of debt to equity and the exercise of stock options that occurred during the year. These additional shares had the impact of reducing the net loss per share.

      From March through June, 2004 Viewpoint converted $2.7 million of convertible debt to equity. Additionally, in March 2004 the Company sold 1.5 million shares of stock in a private placement for $3.7 million or $2.45 per share. Finally, in December 2004, the Company sold 1.9 million shares of common stock in a private placement for $5.0 million or $2.65 per share.

      Viewpoint's cash, cash equivalents, and marketable securities as of December 31, 2004 were $8.7 million compared to cash, cash equivalents, and marketable securities of $9.5 million at December 31, 2003. This decrease can be attributed to the Company's operating loss less the recognition of deferred revenue, which was a non-cash item during the year ended December 31, 2004, offset by the first and fourth quarter's private placements. The Company believes that its current cash, cash equivalents, and marketable securities balances and cash provided by future operations, if any, are sufficient to meet its operating cash flow needs and anticipated capital expenditure requirements through at least the next twelve months. The Company may seek additional funds before that time through public or private equity financing or from other sources to fund our operations and pursue our growth strategy. We have no commitment for additional financing, and we may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing we obtain may contain covenants that restrict our freedom to operate our business or may have rights, preferences or privileges senior to our common stock and may dilute our current shareholders' ownership interest in Viewpoint. In the event the company is unable to obtain adequate financing or profitable operations in future periods, operations will need to be scaled back or activity in certain segments discontinued.

Revenues

	2004		% Change			2003		% Change			2002
	(Dollars in thousands)
Search	$	2,698		N/A	%	$	—		N/A	%	$	—
Advertising systems		305		N/A			—		N/A			—
Services		4,822		12			4,291		30			3,302
Related party services		2,468		(53	)		5,226		133			2,244
Licenses		704		(69	)		2,283		(55	)		5,039
Related party licenses		3,535		104			1,729		(77	)		7,554
Total revenues	$	14,532		7	%	$	13,529		(25	)%	$	18,139

      On March 17, 2004 Viewpoint entered the internet search business, by launching the Viewpoint Toolbar on a test basis. In April 2004, the Company ended the test phase, and began delivering the Viewpoint Toolbar Version 1.0. Search revenue is generated when a customer uses the Viewpoint Toolbar to search the internet, and clicks on a sponsored advertisement included in the search results. The Viewpoint Toolbar's search results are provided by Yahoo!, who collects a fee from the advertiser and remits a percentage of the fee to Viewpoint. Revenue generated is a function of the number of Viewpoint Toolbars performing searches, the number of searches that are sponsored by advertisers, the number of advertisements that are clicked on by Viewpoint

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Toolbar searchers, the rate advertisers pay for those advertisements, and the percentage retained by Yahoo! for providing the results.

      Viewpoint also offers an online advertising campaign management and deployment product. The product permits publishers, advertisers, and their agencies to manage the process of deploying online advertising campaigns. The Company charges customers on a cost per thousand impression (“CPM”) basis, and recognizes revenue when the impressions are served, so long as all other revenue recognition criteria are satisfied. The Company expects revenues from advertising systems to continue to grow in future quarters.

      Viewpoint has a creative services group that builds content in the Viewpoint format for customers. Viewpoint charges customers fees for these services based on the estimated time and materials to complete a creative project for the customer including an acceptable profit margin. Revenue is recognized on a percentage-of-completion basis if all other revenue recognition criteria are satisfied. During 2004 the Company concentrated on executing larger creative projects which improved overall financial performance of the segment.

      The Company also generates revenues by selling licenses to the Viewpoint graphical platform principally to internet content publishers. Prior to 2004, licenses were generally 15 months in duration. Revenues were recognized upon the completion of the sales and delivery process so long as all other revenue recognition criteria were satisfied. The Company supplemented its license revenue by providing content development services to licensees. The service revenues were recognized on a percentage of completion basis as computed by comparing the incurred costs of the project to the total estimated project cost and applying this percentage against the total contracted revenue.

      During 2004 the Company continues to recognize license sales upon delivery so long as all other revenue recognition criteria are satisfied. Since January 2004, licenses are generally sold for a 12 month term. The Company also adopted a new licensing price structure in 2004 whereby larger license sales, that are made less frequently, contain product upgrades when and if available for a period of 12 months. These license sales will be amortized over a 12 month period, due to the inclusion of when and if available upgrades.

      During October 2003, the Company entered into an amended license agreement with America Online, Inc. (“AOL”) which provided for payments by AOL of $10.0 million which was received in the fourth quarter of 2003. The agreement contains multiple elements consisting of a perpetual broadcast license, a perpetual source code license, quarterly updates to the source code through December 2005, and maintenance and consulting services. The Company is recognizing revenue from this agreement ratably as license and services revenue through December 2005 which represents the duration of the Company's obligation for post-contract support of the source code element, including quarterly upgrades and maintenance requirements.

      During 2004, the Company began to focus more resources on its Search and Advertising systems segments. While the Company was successful in selling some licenses during 2004 it is likely that License revenue will continue to decline relative to total revenues.

      Search revenues of $2.7 million for 2004 represent fees earned by Viewpoint since its introduction of the Viewpoint Toolbar in March 2004. Search revenues are generated when users of the Viewpoint Toolbar are provided search results from advertisers that they click on to see. These advertisers then pay a fee to Yahoo!, who remits a percentage of the fee to Viewpoint. The Company had installed 1.2 million Viewpoint Toolbars through June 30, 2004 and 4.7 million through September 30, 2004 and 8.7 million through December 31, 2004. Internet users can uninstall the Viewpoint Toolbar, and through December 31, 2004, 3.3 million users who had accepted the installation of the Toolbar had later uninstalled it during 2004. During 2004 the Company delivered search results to consumers over 400 million times. The Company believes that search revenues will continue to increase in 2005 if it is able to continue to increase the number of Viewpoint Toolbars that are distributed and remain installed.

      The Company recognized $0.3 million in advertising systems revenue during 2004. This revenue was generated by delivering advertising impressions to websites in several different formats

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including video, principally during the fourth quarter of the year. While growth in this product revenue has been slower than anticipated, the Company expects growth to continue to increase during 2005 since the Company had more success selling its advertising systems products during the fourth quarter of 2004. Viewpoint purchased Unicast Corporation (“Unicast”) on January 3, 2005. Unicast recognized advertising systems revenue in excess of $6.0 million during 2004. The Company believes it will be able to increase advertising systems revenues in 2005 due to the Unicast acquisition as well as an increase in spending by advertisers in the rich media advertising delivery market. Revenue increases may be negatively impacted by lower CPM rates if more competitors enter this market or website publishers develop delivery systems similar to those used by the Company.

      Service revenues of $4.8 million increased approximately $0.5 million or 12% for the year ended December 31, 2004 compared to the same period last year. The Company's revenues during 2004 included $0.5 million from a service project that was completed in the third quarter of 2003 for which the Company received a final payment and recognized revenue in February 2004. The Company recorded $1.2 million in revenue, along with all associated expenses, for this same service project during 2003. The $0.7 million decrease in revenue from this client was offset by the Company selling more services to other clients in 2004 who had purchased licenses during 2003 and 2004. Approximately $0.8 million in service revenues from AOL are also included in this category in 2004 as they ceased being a related party in December 2003 and two contracts underlying these service revenues were executed in 2004. The Company believes that it will be able to increase revenues in this segment if licensees continue to ask the Company for assistance in building more content using the Viewpoint Platform to be used at their websites.

      Related party service revenues of $2.5 million for the year ended December 31, 2004, decreased by approximately $2.8 million or 53% compared to the same period last year. This decrease is due to AOL use of the Company's engineering professional services extensively in 2003 which amounted to $2.1 million in revenue. These services were not used in 2004. In addition, revenues included in 2004 as related party service revenues relate to contracts that were entered into prior to December 2003. The Company believes that revenue in this segment will be significantly lower in 2005 since there is only one remaining agreement for the Company to provide services to AOL that was executed in 2003.

      License revenues of $0.7 million decreased approximately $1.6 million or 69% for the twelve months ended December 31, 2004, compared to the same period last year. License revenues in 2004 were essentially generated from licenses sold with upgrades offered when and if available over the term of the license. Conversely, during 2003, the Company generated license revenue from licenses sold without upgrades offered over the term of the contract. These licenses met the revenue recognition requirements and were therefore recognized upon delivery of the software. These licenses included three licenses purchased by international Value Added Resellers (“VAR”s), two international sales through its London office and two multi-year licenses. The Company has ceased pursuing sales through reseller channels and closed the department that supported this process at its headquarters. It has also closed its London office in December 2003 due to costs involved in supporting that location. One of the multi-year licenses remains in place and another was subsequently modified. The Company believes that revenues in this segment will continue to decrease as the Company focuses on increasing distribution of licenses through lower rates and focus efforts on other segments.

      Related party license revenues increased approximately $1.8 million, or 104% to $3.5 million, for the year ended December 31, 2004 compared to the same period last year. The increase is attributable to the difference in the agreements AOL was working under. In 2004, AOL was working under one agreement the whole year which amounted to $3.5 per year in license revenue. In 2003, this agreement was only outstanding for approximately 3 months, prior to which the Company recognized $1 million in license revenue. Revenues in this segment will remain constant in 2005 and will be eliminated in 2006.

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      Service revenues increased $1.0 million, or 30%, for 2003 compared to 2002. The increase was caused by an expanded use of our services group by long term licensees and companies licensing our software on a project basis.

      Related party service revenues increased by approximately $3.0 million, or 133%, for 2003 compared to 2002. The increase was caused by an increased demand by AOL to utilize our services group to produce creative material for use by AOL in part due to their launch of new software in 2003, as well as post-contract customer support for software licensed by AOL in 2002 and 2003.

      Total related party revenues for the year ended December 31, 2003 were $7.0 million and were for services and licenses provided to AOL. The Company considered AOL a related party from November 2000 through December 10, 2003 because an employee of AOL served on the Company's board of directors during that time and AOL held 1.8 million shares of Company common stock.

      License revenues decreased by $2.8 million, or 55%, for 2003 compared 2002. The decrease was principally due to the successful sale of licenses for extended periods for certain customers during 2002 that did not require renewal during 2003, and a decrease in the number of new customers we were able to sell our software licenses to during the year. In addition, in 2003 there was a sharp decline in the sales to VARs of the rights to license our software to third parties as compared to the prior year.

      Related party license revenues decreased by $5.8 million, or 77% for 2003 compared with 2002. The decrease was caused by a 2002 amendment to an AOL contract that originated in 2001. The 2002 amendment resulted in the Company recording revenues when payments were due, as compared to the partial deferral of those payments which would have otherwise occurred. This amendment resulted in the Company recognizing $5.8 million in license revenues in 2002 as opposed to $2.7 million if the contract had not been amended. In October 2003, the Company entered into an amended license agreement with AOL which provided for payments by AOL of $10.0 million which were all received during the fourth quarter of 2003. The agreement contains multiple elements consisting of a perpetual broadcast license, a perpetual source code license, quarterly updates to the source code through December 2005, and maintenance and consulting services. In 2003, the Company recognized license revenue of $0.7 million, and service revenue of $0.1 million related to this contract. The Company is recognizing the remaining revenue from this agreement ratably as License and Services revenue, through December 31, 2005, which represents the duration of the Company's obligation for post-contract customer support of the source code element including quarterly upgrades and maintenance requirements.

Cost of revenues

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Search	$	45			N/A	%	$	—			N/A	%	$	—
Advertising systems		132			N/A			—			N/A			—
Services		3,074			(47	)		5,776			61			3,587
Licenses		6			(94	)		97			(73	)		353
Total cost of revenues	$	3,257			(45	)%	$	5,873			49	%	$	3,940
Percentage of total revenues		22	%					43	%					22	%

      The Company incurs cost of revenues related to Search revenue for the hosting services associated with providing search results. Bandwidth costs utilized in providing results has been minimal. The Company believes that as Search revenue increases the hosting services associated with this revenue will increase although we do not anticipate an increase in the costs as a percentage of revenues.

      Cost of revenues from advertising systems consists of the web-hosting fees associated with serving advertising content and costs of developing certain advertisements in contracts that included a combined price for developing creative material and delivering that material. The

24

Company is continually evaluating pricing for hosting services in order to reduce the delivery expenses to the greatest extent practicable. During the third quarter of 2004 the Company separated creative development from delivery contracts which will separate the creative development revenues and costs into services revenues and costs in the future. The Company believes that as advertising system revenue increases, expenses for bandwidth will increase. However, the Company believes that costs as a percentage of revenue will decrease since it will receive improved pricing efficiencies for hosting and delivery services and it does not anticipate bundling the costs of developing creative advertising with contracts for delivery of such advertising impressions.

      Cost of revenues for services consists primarily of salaries, consulting fees and overhead for those who provide fee-based content creation and engineering professional services. Cost of revenues for services decreased by $2.7 million for the year ended December 31, 2004 as compared to the same period last year. The decrease in cost of revenues for services is attributable to the decrease in service revenues. Services expenses as a percentage of services revenues decreased from 61% to 42% because of the $0.5 million payment made in February 2004, which was recognized as revenue in 2004 against which the cost had been recognized in cost of revenues in 2003, and due to more effective cost controls, including a reduced reliance on outside contractors, by the services group. The Company believes that the costs for services as a percentage of revenue will remain fairly constant in 2005.

      Cost of revenues for licenses consists primarily of commissions to VARs. The decrease in cost of license revenues for 2004 is attributable to a decrease in sales to VARs that require commission payments, as compared to the same periods last year. The Company believes these costs will not change significantly in 2005.

      Cost of revenues-service in 2003 increased by $2.2 million or 61%, compared to 2002. This increase was directly attributable to an increase in service revenues of 72%. Cost of revenues-license in 2003 decreased by $0.3 million or 73% compared to 2002. The reduction in cost of revenues-licenses was due to the reduction in license sales made to VARs during 2003.

Sales and marketing

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Sales and Marketing	$	3,732			(57	)%	$	8,723			(48	)%	$	16,682
Percentage of total  revenues		26	%					64	%					92	%

      Sales and marketing expenses include salaries and benefits, sales commissions, non-cash stock-based compensation charges, consulting fees and travel and entertainment expenses for our sales and marketing personnel. Sales and marketing expenses also include the cost of programs aimed at increasing revenue, such as advertising, trade shows and public relations.

      Sales and marketing expenses decreased by $5.0 million, or 57%, for the year ended December 31, 2004 compared to the same period last year due to a decrease in personnel in the sales and marketing area. Personnel costs including fringe benefits decreased by $3.7 million due to a reduction in sales staff associated with slower license sales, and a change in marketing emphasis and support. Travel and entertainment expenses decreased by $0.4 million due to a reduction in sales staff and a decrease in the number of trade events attended by the Company. Consulting expenses, including marketing expenses such as trade shows, decreased by $0.7 million related to decreases in marketing efforts for certain products compared to the same period last year. Non-cash stock-based compensation charges decreased $0.5 million due to headcount reductions in sales and marketing personnel who had received option grants in the past where the exercise price was lower than the market value of the Company's common stock on the date of grant, or whose options became fully vested. Currently, the Company issues stock options to new personnel with an exercise price equal to the market value of the common stock on the date of grant. These decreases were offset by an increase in marketing expense related to launching and building the Company's search business of $0.9 million. The Company believes that sales and marketing

25

expenses will increase in 2005 primarily due to the net addition of 4 employees in this area related to the Unicast acquisition as well as increased commission and marketing costs associated with increases in revenues and generating revenues in search and advertising systems for a full year in 2005. However, the Company believes that costs as a percentage of revenue will decrease in 2005.

      Sales and marketing expenses decreased $8.0 million, or 48%, in 2003 compared to 2002. This decrease was principally attributable to a decrease in salaries and related fringes of approximately $4.7 million due to a decreased demand for our products and a corresponding reduction in our sales and marketing efforts. An additional $2.7 million reduction in sales and marketing expenses was due to a decrease in non-cash stock-based compensation as employees associated with these charges either left the company before their options fully vested or the options became fully vested in 2003; a $0.6 million decrease due to bad debt expense associated with certain officer loans that were written off in 2002, and a $0.5 million reduction was due to a curtailment of marketing efforts stemming from the slowdown in demand for our products. A quarterly reduction in total expense of approximately $0.5 million in sales and marketing costs were realized in the fourth quarter of 2003 compared to the third quarter of 2003 largely resulting from the Company's office consolidation and workforce reductions which occurred during the third quarter of 2003.

Research and development

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Research and development	$	3,432			(18	)%	$	4,209			(3	)%	$	4,348
Percentage of total revenues		25	%					32	%					24	%

      Research and development expenses consist primarily of salaries and benefits for software developers, contracted development efforts, and non-cash stock-based compensation charges related to the Company's product development efforts. The Company expenses as incurred research and development costs necessary to establish the technological feasibility of its internally developed software products and technologies. To date, the establishment of technological feasibility of the Company's products and general release has substantially coincided. As a result, the Company has not capitalized any software development costs since costs qualifying for such capitalization have not been significant. Additionally, the Company capitalizes costs of software, consulting services, hardware and payroll-related costs incurred to purchase or develop internal-use software, when technological feasibility has been established, it is probable that the project will be completed and the software will be used as intended. The Company expenses costs incurred during preliminary project assessment, research and development, re-engineering, training and application maintenance.

      The Company's research and development efforts are primarily directed at improving the overall quality of the Viewpoint Media Player and its proprietary software tools for creating digital content as well as development of the Viewpoint Toolbar and advertising systems products. During 2003, the Company developed significant enhancements to the video playback functionality of Viewpoint Media Player (which the Company made available in June 2003), an authoring tool for clients publishing advertising content, Computer Aided Design (“CAD”) workflow solutions and technology for converting CAD data into Viewpoint content, expanded capability of the Video Media Player onto new platforms, developed new configuration capabilities for user interfaces, and enhancements to the Viewpoint Media Player that allow print quality images to be generated from interactive online content. Additionally, the Company began to build an ad serving system, Creative Innovator, which is capable of deploying advertising on internet websites. Beginning in 2004 the Company expanded its efforts to build the Viewpoint Toolbar for searching and related advertising efforts. It also developed a creative assembly capability for the advertising systems product that is used to deploy advertising to publisher sites on the internet. Additionally, it developed the capability of delivering video advertising using its advertising system. The Company has also been building a software development kit that will simplify the creation of graphical content to be deployed on the Viewpoint platform that should be available to the market in 2005.

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      Research and development expenses decreased by $0.8 million or 18% for the year ended December 31, 2004 compared to the same period last year. The most significant decrease came in non-cash stock-based compensation which decreased $0.8 million due to headcount reductions in research and development personnel who had received option grants in the past where the exercise price was lower than the market value of the Company's common stock on the date of grant, or whose options became fully vested. These decreases were off-set by an increase in salaries and benefits of $0.3 million. Salaries and benefits increased due to specific engineering salaries and benefits that were classified as cost of revenues as a result of revenue generating customer specific development work during the first three quarters of 2003. Such contracts did not exist in the same period of 2004. This was offset by a reduction in bonuses of $0.2 million for payments made during 2003 for the completion of certain projects were not paid in 2004. Travel and entertainment expenses decreased by $0.1 million due to a reduction in travel associated with reductions in staffing levels during the year. The Company believes that costs in this area will increase due to the net addition of 10 employees during the year, due to the Unicast acquisition, however costs relative to revenues should decrease.

      Research and development expenses decreased $0.1 million or 3% in 2003 compared to 2002 due to a $0.3 million decrease in compensation and fringes associated with a reduction of employees in the research and development area as the company narrowed its focus on research and development efforts and certain employees were assigned to other departments. This decrease was offset by an increase of $0.1 million in non-cash stock-based compensation charges associated with the re-assignment of certain employees from other departments into research and development.

General and administrative

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
General and Administrative	$	7,220			(37	)%	$	11,549			12	%	$	10,334
Percentage of total revenues		48	%					86	%					56	%

      General and administrative expenses primarily consist of corporate overhead of the Company, which includes salaries and benefits related to finance, human resources, legal and executive personnel along with other administrative costs such as facilities costs, legal, accounting and investor relation fees, and insurance expense.

      General and administrative expenses decreased by $4.3 million or 37% for the year ended December 31, 2004 compared to the same period last year. Non-cash stock-based compensation decreased by $1.1 million due to headcount reductions in general and administrative personnel who had received option grants in the past where the exercise price was lower than the market value of the Company's common stock on the date of grant, or whose options became fully vested. Bad debt expense decreased by $1.2 million due in part to the collection of accounts written off during 2003. Facility costs decreased by $0.4 million associated with the closing of a facility in Utah in a restructuring completed in 2003. Total compensation costs including fringe benefits decreased by $0.6 million associated with the reduction in executive staff associated with the cost reduction programs implemented by management in 2003. Corporate costs were reduced by $0.6 million from 2003 due to costs incurred with outside counsel and accountants offset by additional costs associated with implementing the requirements of Sarbanes Oxley's Section 404 in 2004. The Company believes that costs in this area will increase in 2005 due to the net addition of 7 employees during the year, due to the Unicast acquisition, however costs relative to revenues should decrease.

      General and administrative expenses increased $1.2 million in 2003 compared to 2002 due to a $0.8 million increase in severance costs related to an unfavorable legal decision regarding an officer loan, bad debt expense of $0.4 million associated with an increase in the number of large license receivables that were written off, and $0.2 million of internal use software that was determined to

27

be obsolete after a review of future utility in the third quarter of 2003. These were offset by a decrease of $0.2 million in facilities costs associated with the closure of our Utah office.

Depreciation

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Depreciation	$	853			(45	)%	$	1,543			(21	)%	$	1,962
Percentage of total revenues		6	%					11	%					11	%

      Depreciation expense decreased $0.7 million or 45% in 2004 compared to 2003 due to a reduction in depreciable equipment used in our Company stemming from our restructurings in 2003 and the retirement of equipment at the conclusion of its useful life. Depreciation expense decreased $0.4 million or 21% in 2003 compared to 2002 due to the reduction of depreciable equipment associated with the reduction in staffing stemming from our restructurings and the retirement of equipment at the conclusion of its useful life.

Amortization of intangible assets

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Amortization of intangible assets	$	17			70	%	$	10			(98	)%	$	664
Percentage of total revenues		—	%					0	%					4	%

      Amortization of intangible assets relates to the amortization of patents and trademarks Amortization of intangible assets decreased $0.7 million or 98% in 2003 compared to 2002 as all intangible assets acquired in the Viewpoint Digital transaction were either fully amortized or written off in accordance with SFAS No. 144 during 2002.

Restructuring charges

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Restructuring charges	$	(106	)		(105	)%	$	2,023			N/A	%	$	—
Percentage of total revenues		(1	)%					15	%					—	%

      In 2003, the Company implemented three restructuring plans. The first plan, implemented in February 2003, reduced operating expenses by closing the Company's Utah office and related to the termination of 28 employees in that office who were primarily engaged in sales and marketing activities. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1.2 million. This charge is recorded on our income statement as restructuring charges. The restructuring charges represent the present value of remaining lease commitments discounted by 20% and reduced by estimated sublease rental income, employee severance and termination benefits, the write-off of the net book value of certain fixed assets used in the Utah office, and other miscellaneous charges. Subsequent to the restructuring, the Company re-evaluated market conditions surrounding its efforts to sub-lease the Utah office space and increased the restructuring charge by $0.2 million related to the fair value of the remaining lease commitment reduced by estimated sublease rental income. During October 2004 the Company signed an agreement releasing it from any additional obligation under the remaining lease commitment after a payment of $0.3 million. As a result of this release the Company reversed the remaining accrued amount of $0.1 million as the Company completed its obligations under the release agreement.

      The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 sales and marketing, research and development, and general and administrative positions. The Company incurred a restructuring charge of $0.5 million related to severance arrangements. The charge is recorded on the income statement as a restructuring and impairment charge. The second restructuring plan was completed

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by September 30, 2003. In November 2003, however, the Company increased the restructuring charge by $0.1 million in settlement of an action brought by one of the terminated employees. In January 2004 the Company recorded a non-cash adjustment to the restructuring accrual to reflect payments that were less than originally contemplated under the plan.

      The third plan was implemented in December 2003, and was designed to consolidate international operations to the New York office. Accordingly, the Company closed the London, England office, incurring a restructuring charge of $0.1 million related to severance arrangements. This severance payment was made in January 2004. As the lease relating to this office terminated in February 2004 the Company did not incur a charge related to rent expense. The severance charge is recorded on the income statement as a restructuring charge. The third restructuring plan was completed by December 31, 2003.

Impairment of goodwill and other intangible assets

	2004			% Change		2003			% Change			2002
	(Dollars in thousands)
Impairment of goodwill and other intangible assets	$	—			N/A	$	—			(100	)%	$	6,275
Percentage of total revenues		—	%				—	%					35	%

      In the first and second quarter of the year ended December 31, 2003, the market value of the Company's equity securities declined below the Company's carrying value indicating the existence of a potential goodwill impairment. In accordance with SFAS No. 142, the Company performed the first step of the goodwill impairment test as of March 31, 2003. The fair value of the Company was determined to exceed its carrying value using a market-based approach with selected multiples ranging from 1.5 to 2.0 times revenues and 1.8 to 2.5 times gross profit. In accordance with SFAS No. 142, the second step of the impairment test was unnecessary, and no goodwill impairment charges were recorded. Subsequent to March 31, 2003, the market value of the Company recovered and increased to a value in excess of its carrying value through December 2003.

      In conjunction with the implementation of SFAS No. 142, the Company completed a goodwill impairment review as of January 1, 2002 and found no impairment on that date. As of March 31, 2002, due to the persistence of unfavorable economic conditions, lower-than-expected revenues generated to date and reduced estimates of future performance of the Viewpoint Digital assets, the Company performed an additional impairment analysis on the goodwill and other intangible asset balances recorded upon the acquisition of Viewpoint Digital. In accordance with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded impairment charges totaling $6.3 million during the three months ended March 31, 2002. The fair value of the Viewpoint Digital assets was estimated using the expected present value of future cash flows. The assumptions supporting the cash flows, including the discount rate, were determined using the Company's best estimates as of the date the impairment was recorded.

Interest and other income, net

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Interest and other income, net	$	60			(76	)%	$	254			66	%	$	153
Percentage of total revenues		—	%					2	%					1	%

      Interest and other income primarily consists of interest and investment income on cash, cash equivalents and marketable securities. As a result, other income fluctuates with changes in the Company's cash, cash equivalents and marketable securities balances and market interest rates.

      Interest and other income decreased $0.2 million or 76%, in 2004 compared to 2003 and increased $0.1 million or 66%, in 2003 compared to 2002 based on the change in average cash, cash equivalents and marketable securities balances as well as the change in interest rates.

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Interest expense

	2004			% Change			2003			% Change		2002
	(Dollars in thousands)
Interest Expense	$	(936	)		(2	)%	$	(958	)		N/A	$	—
Percentage of total revenues		(6	)%					(7	)%				—	%

      Interest expense consists of interest paid and accrued, and amortization of debt discount and debt issue costs on the Company's outstanding convertible and subordinated notes. The Company issued convertible notes with a principal balance of $7.0 million on December 31, 2002, then subsequently redeemed $3.3 million of the notes at par, exchanged $1.0 million of the notes for common stock and exchanged $2.7 million of the notes for new notes on March 25, 2003. Additionally, the Company issued $3.5 million of subordinated notes on March 26, 2003. The $6.2 million aggregate principal balances of the convertible and subordinated notes, which were outstanding at December 31, 2003, bear interest at a rate of 4.95%.

      In March 2004, one of the institutional investors holding the convertible notes converted three $0.3 million convertible notes into Company common stock at $1.00, $1.00, and $1.10, respectively. In connection with this conversion, the Company issued the investor 0.9 million shares of Company common stock.

      During the period beginning on April 15, 2004 and ending on May 20, 2004, a period which covered 25 consecutive trading days, the dollar volume-weighted average price of the Company's common stock exceeded 150% of the conversion price applicable to the outstanding convertible notes and the Company determined to exercise its right to convert the outstanding notes into shares of Company common stock. Accordingly, on May 20, 2004, the Company informed the institutional investors holding the outstanding convertible notes that it would exercise its right to convert that debt. On June 18, 2004, the Company completed the conversion of the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million shares of Viewpoint common stock. In addition, the Company recorded a loss on conversion which represented the difference between the fair value of the common stock issued in exchange for the notes and the carrying value of the convertible notes on the date of conversion. This change was primarily comprised of the write-off of unamortized loan discount and debt issuance costs.

      The Company believes that interest expense will increase in 2005 as the Company assumed $2.8 million of debt in the Unicast acquisition.

Loss on conversion of debt

	2004			% Change		2003			% Change		2002
	(Dollars in thousands)
Loss on conversion of debt	$	(810	)		N/A	$	—			N/A	$	—
Percentage of total revenues		(6	)%				—	%				—	%

      On March 17, 2004, one of the institutional investors holding the convertible notes converted $0.9 million of outstanding notes for shares of the Company's common stock. In the first quarter of 2004, the Company recorded a loss of $1.4 million related to the change in the fair value of the conversion feature from January 1, 2004 through the date of the conversion. For the three months ended March 31, 2004 the Company also recorded a loss related to a change in the fair value of the conversion feature and warrants of $3.7 million and $1.3 million, respectively.

      In addition, on the same day as the conversion, the Company sold 1.5 million shares of common stock in a private placement to the institutional investor, for $3.7 million or $2.45 per share. The Company recorded a loss on conversion of debt in the amount of $0.6 million, which represented the write-off of unamortized loan discount and debt issuance costs of $0.1 million and the difference between the proceeds received from the private placement and the fair value of the common stock issued based upon the closing price of the Company's stock on the day of the sale of $0.5 million. The remaining noteholders chose not to exercise their right to redeem their notes

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in amount up to 20% of the $3.7 million received by the Company within 10 days of the Company's public announcement of the closing of the private placement.

      During the period beginning on April 15, 2004 and ending on May 20, 2004, a period which covered 25 consecutive trading days, the dollar volume-weighted average price of the Company's common stock exceeded 150% of the conversion price applicable to the outstanding convertible notes and the Company determined to exercise its right to convert the outstanding notes into shares of Company common stock. Accordingly, on May 20, 2004, the Company informed the institutional investors holding the outstanding convertible notes that it would exercise its right to convert that debt. On June 18, 2004, the Company completed the conversion of the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million shares of Viewpoint common stock. In addition, the Company recorded a loss on conversion which represented the difference between the fair value of the common stock issued in exchange for the notes and the carrying value of the convertible notes on the date of conversion. This change was primarily comprised of the write-off of unamortized loan discount and debt issuance costs.

Changes in fair value of warrants to purchase common stock and conversion options of convertible notes

	2004			% Change			2003			% Change		2002
	(Dollars in thousands)
Changes in fair value of warrants to purchase common stock and conversion options of convertible notes	$	(4,180	)		(446	)%	$	1,209			N/A	$	—
Percentage of total revenues		(29	)%					9	%				—	%

      Based on the provisions of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,” the Company recorded a loss for 2004 based on the changes in fair values of the conversion options of the convertible notes of $3.0 million and warrants to purchase common stock of $1.2 million and a gain for 2003 based on the changes in fair values of the conversion options of the convertible notes of $1.0 million and warrants to purchase common stock of $0.2 million. Gains and losses are calculated based upon changes in the company's common stock value and the number of common stock equivalents that the associated financial instruments may be settled in.

      The Company believes that expenses in this area will decrease in 2005 since it only has to account for the impact of the change in its common stock price on the outstanding stock warrants. The amount of the decrease, if, any, however, will be driven by changes in the Company's common stock price that is partially beyond the control of the Company.

Loss on early extinguishment of debt

	2004			% Change			2003			% Change		2002
	(Dollars in thousands)
Loss on early extinguishment of debt	$	—			(100	)%	$	(1,682	)		N/A	$	—
Percentage of total revenues		—	%					(12	)%				—	%

      On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed a $7.0 million private placement of convertible notes and warrants on December 31, 2002. Pursuant to these agreements, the Company redeemed an aggregate of $3.3 million principal amount of the outstanding convertible notes, exchanged an aggregate of $1.0 million principal amount of the outstanding convertible notes for shares of Viewpoint common stock at $0.74 per share, and exchanged the remaining $2.7 million principal amount of outstanding convertible notes for $2.7 million principal amount of new convertible notes. The warrants to purchase 0.7 million shares of Company common stock, which were issued to these investors on December 31, 2002, remain outstanding.

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      In accordance with the provisions of Accounting Principals Board (“APB”) Opinion No. 26 “Early Extinguishment of Debt,” and EITF 96-19 “Debtor's Accounting for a Modification or Exchange of Debt Instruments”, the Company recorded a loss on the early extinguishment of the original convertible notes in the amount of $1.7 million of which $0.7 million related to the write-off of deferred loan costs. The carrying value of the convertible notes at the time of the exchange was $5.6 million, inclusive of $0.1 million, which represented the fair value of the conversion options. In conjunction with the extinguishment, the Company paid $3.3 million, issued new convertible notes in the principal amount of $2.7 million and issued 1.4 million shares of its common stock with a market value of $0.7 million. The difference between (i) the carrying value of the outstanding convertible notes exchanged and (ii) cash paid and the fair value of the common stock and new convertible notes issued, amounted to $1.0 million and was included in the loss on early extinguishment of debt.

Adjustment to net loss on disposal of discontinued operations, net of tax

	2004			% Change			2003			% Change			2002
	(Dollars in thousands)
Adjustment to net loss on disposal of discontinued operations, net of tax	$	129			(18	)%	$	157			24	%	$	127
Percentage of total revenues		1	%					1	%					1	%

      In December 1999, the Board of Directors of the Company approved a plan to focus exclusively on its digital marketing technologies and services and to correspondingly divest itself of its prepackaged graphics software business. Accordingly, these operations are reflected as discontinued operations for all periods presented in the accompanying consolidated statements of operations.

      During the years ended December 31, 2004, 2003 and 2002, the Company recorded an adjustment to net loss on disposal of discontinued operations, net of tax, of $0.1 million, $0.2 million and $0.1 million respectively, as a result of changes in estimates related to accounts receivable and liabilities of the discontinued business. Changes in estimates, which are not expected to be significant, will be accounted for prospectively and included in adjustment to net loss on disposal of discontinued operations.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

      An investment in Viewpoint involves a high degree of risk. You should consider carefully the following information about these risks, before you decide to invest in Viewpoint. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In this case, the market price of our common stock could decline, and you could lose all or part of your investment.

WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR LOSSES IN THE FUTURE, WHICH MAY CAUSE OUR SHARE PRICE TO DECLINE.

      We have had significant quarterly and annual operating losses since our inception, and as of December 31, 2004, we had an accumulated deficit of approximately $255.3 million. We may continue to incur operating losses in the future, which may cause our share price to decline.

WE MAY HAVE TO OBTAIN FINANCING ON LESS FAVORABLE TERMS, WHICH COULD DILUTE CURRENT STOCKHOLDERS' OWNERSHIP INTERESTS IN THE COMPANY.

      In order to fund our operations and pursue our growth strategy we may seek additional financing through public or private equity funding or from other sources. We have no commitment for additional financing and we may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing we obtain may contain covenants that restrict our freedom

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to operate our business or may have rights, preferences, or privileges senior to our common stock and may dilute our current stockholders' ownership interest in Viewpoint.

OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND HAVE ONLY RELATIVELY RECENTLY LAUNCHED OUR SEARCH TOOLBAR AND CREATIVE INNOVATOR PRODUCTS.

      We began offering our Graphically Enhanced Search toolbar services in March 2004 and Creative Innovator in November 2003. Accordingly, we have limited relevant operating history upon which an investor can make an evaluation of the likelihood of our success with these products. An investor in our securities must consider the uncertainties, expenses, and difficulties frequently encountered by companies such as ours that are in the early stages of development. An investor should consider the likelihood of our future success to be speculative in light of our limited operating history, as well as the problems, limited resources, expenses, risks, and complications frequently encountered by similarly situated companies in the early stages of development, particularly companies in new and rapidly evolving markets, such as Internet advertising, Internet search, and e-commerce.

OUR COMPETITORS IN THE SEARCH BUSINESS INCLUDE MUCH LARGER COMPANIES LIKE GOOGLE, MICROSOFT, YAHOO! AND OTHERS THAT HAVE SIGNIFICANTLY GREATER RESOURCES THAN WE DO TO BUILD A BUSINESS.

      Developing a new business like our Search or Advertising delivery segments require significant resources to continue to develop product innovations and attract customers. These businesses generated minimal revenues for us prior to June 2004. Our competitors in these new businesses are much larger with more extensive resources which may enable them to develop product enhancements that attract new customers more successfully than we can. Our inability to keep pace with these developments may cause our revenue growth to be reduced or even eliminated.

OUR EFFORTS TO DISTRIBUTE OUR GRAPHICALLY ENHANCED SEARCH TOOLBAR MAY EXPERIENCE SETBACKS LIMITING OR REDUCING OUR SEARCH REVENUE.

      We distribute our Graphically Enhanced Search toolbar through a complicated process that relies on internet users visiting websites or seeing advertising for a sufficient period of time to receive the software that eventually offers them our search toolbar. We need to continue to expand our reach of internet users who visit affiliated websites or view our advertising in order to receive the software. We have had some success at reaching and offering our Viewpoint Toolbar to approximately 4.0 million internet users per month during the third and fourth quarters of 2004. However, there can be no assurance that this pace of growth, which is dependent on our ability to extend our internet reach, will continue. Additionally our reach is impacted by the rate of uninstallation of our Viewpoint Toolbars. We believe 3.3 million Viewpoint Toolbars were uninstalled during 2004 after being accepted by a consumer. The Viewpoint Toolbars could have been uninstalled for a variety of reasons including lack of use, concern over performance, acceptance of a competitor's product or user error. If we are not able to continue to offer the Viewpoint Toolbar at the current rate, the pace of uninstallations could lead to a decrease in our total net installed universe.

THE SUCCESS OF OUR GRAPHICALLY ENHANCED SEARCH OPERATIONS DEPENDS ON USERS' SATISFACTION WITH SEARCH RESULTS SUPPLIED BY YAHOO!.

      We entered into an agreement with Yahoo! which establishes Yahoo! as our exclusive supplier of search results for the Viewpoint Toolbar for two years. The market for products that enable and supply search results is relatively new, intensely competitive, and rapidly changing. Yahoo!'s principal competitors for supplying search results include Google Inc. and Microsoft. If these or other competitors develop more popular search results, end users may choose to use search toolbars or other search methods through which results from these competitors are supplied.

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WE MAY BE UNABLE TO SUCCESSFULLY REPLACE OUR SEARCH RESULTS VENDOR WHEN OUR DISTRIBUTION CONTRACT WITH YAHOO! EXPIRES IN MARCH 2006.

      We receive paid search results from Yahoo! Yahoo! is successful at attracting advertisers who seek to purchase internet search advertisements, and our agreement with Yahoo! provides us a satisfactory percentage of those revenues. Our contract with Yahoo! expires in March 2006. There can be no assurance that our agreement with Yahoo! will be renewed on the same terms, if at all. Furthermore, there can be no assurance that we would be able to successfully replace Yanoo! with another provider of search results on similar financial terms if necessary.

OUR SOFTWARE PRODUCTS MAY BE WRONGLY LABELED AS SPYWARE OR ADWARE WHICH MIGHT LEAD TO ITS UNINSTALLATION CAUSING A DECREASE IN OUR REVENUES.

      Our software products do not collect personally-identifiable information about users or track their activity on the internet. Nonetheless, our software products, including the Viewpoint Toolbar and the Viewpoint Media Player, have been wrongly characterized as spyware or adware by certain security software vendors. We monitor activity in this area and undertake efforts to educate vendors about the characteristics of our software, and thus far have been successful at getting these vendors to change their characterization of our Viewpoint Toolbar. Should we fail to persuade such vendors about the functionality of our Viewpoint Toolbar, or not learn about a false characterization on a timely basis, a substantial number of our Viewpoint Toolbars could be uninstalled leading to a decrease in our revenues and our business will be materially and adversely affected.

OUR BUSINESS MAY NOT GROW IF THE INTERNET ADVERTISING MARKET DOES NOT CONTINUE TO DEVELOP OR IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS MODEL.

      A significant part of our business model is to generate revenue by providing interactive marketing solutions to advertisers, ad agencies and web publishers. The profit potential for this business model is unproven. For our business to be successful, internet advertising will need to achieve increasing market acceptance by advertisers, ad agencies and web publishers. The intense competition among Internet advertising sellers has led to the creation of a number of pricing alternatives for Internet advertising. These alternatives make it difficult for us to project future levels of advertising revenue and applicable gross margin that can be sustained by us or the Internet advertising industry in general.

      Intensive marketing and sales efforts may be necessary to educate prospective advertisers regarding the uses and benefits of, and to generate demand for, our products and services. Advertisers may be reluctant or slow to adopt a new approach that may replace, limit or compete with their existing systems. Acceptance of our new solutions will depend on the continued emergence of Internet commerce, communication, and advertising, and demand for its solutions. We cannot assure you that use of the Internet will continue to grow or that current uses of the Internet are sustainable.

OUR FAILURE TO SUCCESSFULLY COMPETE MAY HINDER OUR GROWTH.

      The markets for Internet advertising and related products and services are intensely competitive and such competition is expected to increase. Our failure to successfully compete may hinder our growth. Many of our competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than ours. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services to address the needs of our prospective clients. We cannot be certain that we will be able to successfully compete against current or future competitors. In addition, the Internet must compete for a share of advertisers' total budgets with traditional advertising media, such as television, radio, cable and print, as well as content aggregation companies and other

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companies that facilitate Internet advertising. To the extent that the Internet is perceived to be a limited or ineffective advertising or direct marketing medium, advertisers and direct marketers may be reluctant to devote a significant portion of their advertising budgets to Internet marketing.

OUR REVENUES WILL BE SUBJECT TO SEASONAL FLUCTUATIONS.

      We believe that our revenues will be subject to seasonal fluctuations because advertisers generally place fewer advertisements during the first and third calendar quarters of each year and direct marketers mail substantially more marketing materials in the third quarter of each year. Furthermore, Internet user traffic typically drops during the summer months, which reduces the number of advertisements to sell and deliver and searches performed. Expenditures by advertisers and direct marketers tend to vary in cycles that reflect overall economic conditions as well as budgeting and buying patterns. Our revenue could be materially reduced by a decline in the economic prospects of advertisers, direct marketers or the economy in general, which could alter current or prospective advertisers' spending priorities or budget cycles or extend our sales cycle. Due to such risks, you should not rely on quarter-to-quarter comparisons of our results of operations as an indicator of our future results. Our staffing and other operating expenses are based in large part on anticipated revenues. It may be difficult for us to adjust our spending to compensate for any unexpected shortfall. If we are unable to reduce our spending following any such shortfall, our results of operations would be adversely affected.

WE MAY ENTER INTO BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES WHICH COULD BE DIFFICULT TO INTEGRATE AND MAY DISRUPT OUR BUSINESS.

      We acquired Unicast Communications Corp. on January 3, 2005 and may continue to pursue expansion of our operations or market presence by entering into additional business combinations, investments, joint ventures or other strategic alliances with other companies. These transactions create risks such as:

• difficulty assimilating the operations, technology and personnel of the combined companies;

• disruption of our ongoing business;

• problems retaining key technical and managerial personnel;

• expenses associated with amortization of purchased intangible assets;

• additional operating losses and expenses of acquired businesses; and

• impairment of relationships with existing employees, customers and business partners.

      The acquisition of Unicast includes all of the risks outlined above and may lead to a reduction of operating income if we are not able to successfully integrate the customers, employees and products into our offerings. We have not entered into negotiations to acquire any other businesses.

WE MAY NEED TO DEVELOP NEW PRODUCTS OR OTHER UNTESTED METHODS OF INCREASING SALES WITH OUR EXISTING PRODUCTS OR DISTRIBUTION NETWORK TO GENERATE SALES AND IF WE ARE UNSUCCESSFUL THE GROWTH OF OUR BUSINESS MAY CEASE OR DECLINE.

      Our license and services revenues have declined over recent quarters. If this decrease in sales of our products continues or our new products are unsuccessful, we will be unable to generate sufficient revenues to offset current costs. Accordingly, we may be required to develop new products or other untested methods to increase sales. If these new products or untested methods fail to increase sales, our business may cease or decline.

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WE WILL NEED TO KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE IN THE INTERNET SEARCH AND ADVERTISING INDUSTRIES.

      In order to remain competitive, we will be continually required to enhance and to improve the functionality and features of our Search and Advertising systems segments, which could require us to invest significant capital. If our competitors introduce new products and services embodying new technologies, or if new industry standards and practices emerge, our existing services, technology, and systems may become obsolete and we may not have the funds or technical know-how to upgrade our services, technology, and systems. We may face material delays in introducing new services, products, and enhancements. If such delays occur, our users may forego use of our services and select those of our competitors, in which event, our business, prospects, financial condition and results of operations could be materially adversely affected.

OUR AD CAMPAIGN MANAGEMENT AND DEPLOYMENT SOLUTION MAY NOT BE SUCCESSFUL AND MAY CAUSE BUSINESS DISRUPTION.

      Creative Innovator is our proprietary ad deployment technology. We must, among other things, ensure that this technology will function efficiently at high volumes, interact properly with our database, offer the functionality demanded by our customers and assimilate our sales and reporting functions. Customers may become dissatisfied by any system failure that interrupts our ability to provide our services to them, including failures affecting our ability to deploy advertisements without significant delay to the viewer. Sustained or repeated system failures would reduce the attractiveness of our solutions to advertisers, ad agencies, and web publishers and could result in contract terminations, fee rebates and make-goods, thereby reducing revenue. Slower response time or system failures may also result from straining the capacity of our deployed software or hardware due to an increase in the volume of advertising deployed through our servers. To the extent that we do not effectively address any capacity constraints or system failures, our business, results of operations and financial condition could be materially and adversely affected.

WE MIGHT EXPERIENCE SIGNIFICANT DEFECTS IN OUR PRODUCTS.

      Software products frequently contain errors or failures, especially when first introduced or when new versions are released. We might experience significant errors or failures in our products, or they might not work with other hardware or software as expected, which could delay the growth of our Viewpoint Toolbar or Creative Innovator products, or which could adversely affect market acceptance of our products. Any significant product errors or design flaws would slow the adoption of our products and cause damage to our reputation, which would seriously harm our business. If customers were dissatisfied with product functionality or performance, we could lose revenue or be subject to liability for service or warranty costs and claims, and our business, operating results and financial condition could be adversely affected.

OUR TECHNICAL SYSTEMS ARE VULNERABLE TO INTERRUPTION AND DAMAGE.

      A disaster could interrupt our services for an indeterminate length of time and severely damage our business, prospects, financial condition and results of operations. Our systems and operations are vulnerable to damage or interruption from fire, floods, power loss, telecommunications failures, break-ins, sabotage, computer viruses, penetration of our network by unauthorized computer users and “hackers,” and similar events. The occurrence of a natural disaster or unanticipated problems at our technical operations facilities could cause material interruptions or delays in our business, loss of data, or render us unable to provide services to customers. Failure to provide the data communications capacity we require, as a result of human error, natural disaster, or other operational disruptions could cause interruptions in our services and web sites. The occurrence of any or all of these events could adversely affect our business, prospects, financial condition and results of operations.

      In addition, interruptions in our services could result from the failure of our telecommunications providers to provide the necessary data communications capacity in the time

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frame we require. Our Creative Innovator technology resides on computer systems located in our data centers hosted by IBM and Savvis and use the networking capabilities of these companies and Akamai. These systems' continuing and uninterrupted performance is critical to our success. Despite precautions that we have taken, unanticipated problems affecting our systems in the future could cause interruptions in the delivery of our solutions. Our business, results of operations and financial condition could be materially and adversely affected by any damage or failure that interrupts or delays our operations. To improve the performance and to prevent disruption of our services, we may have to make substantial investments to deploy additional servers or one or more copies of our web sites to mirror our online resources. Although we believe we carry property insurance with adequate coverage limits, our coverage may not be adequate to compensate us for all losses, particularly with respect to loss of business and reputation, that may occur.

OUR STOCK PRICE IS VOLATILE, WHICH COULD SUBJECT US TO CLASS ACTION LITIGATION.

      The market price of our common stock has fluctuated significantly in the past. The price at which our common stock will trade in the future will depend on a number of factors including:

• actual or anticipated fluctuations in our operating results;

• general market and economic conditions affecting Internet companies;

• our announcement of new products, technologies or services; and

• developments regarding our products, technologies or services, or those of our competitors.

      In addition, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could have a material adverse effect on our business, financial condition, operating results and cash flows.

OUR CHARTER DOCUMENTS COULD MAKE IT MORE DIFFICULT FOR AN UNSOLICITED THIRD PARTY TO ACQUIRE US.

      Our certificate of incorporation and by-laws contain provisions that could make it difficult for an unsolicited third party to acquire control of us, even if a change in control would be beneficial to stockholders. For example, our certificate of incorporation authorizes our board of directors to issue up to 5,000,000 shares of “blank check” preferred stock. Without stockholder approval, the board of directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock. With these rights, preferred stockholders could make it more difficult for an unsolicited third party to acquire our company. In addition, we must receive a stockholders' proposal for an annual meeting within a specified period for that proposal to be included on the agenda. Because stockholders do not have the power to call meetings and stockholder proposals for consideration at an annual or special meeting are subject to timing requirements, any third-party takeover not supported by the board of directors would be subject to significant delays and difficulties.

THE MARKET FOR DIGITAL VISUALIZATION SOLUTIONS IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY, AND IF WE DO NOT RESPOND IN A TIMELY MANNER, OUR PRODUCTS AND TECHNOLOGIES MAY NOT SUCCEED IN THE MARKETPLACE.

      The market for e-commerce visualization solutions is characterized by rapidly changing technology. As a result, our success depends substantially upon our ability to continue to enhance our products and technologies and to develop new products and technologies that meet customers' increasing expectations. Additionally, we may not be successful in developing and marketing enhancements to our existing products and technologies or introducing new products and

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technologies on a timely basis. Our new or enhanced products and technologies may not succeed in the marketplace.

      In addition, the computer graphics industry is subject to rapidly changing methods and models of information delivery. If a general market migration to a method of information delivery that is not conforming with our technologies were to occur, our business and financial results would be adversely impacted.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS.

      Our success and ability to compete substantially depend on the uniqueness or value of our products and technologies. We rely on a combination of copyright, trademark, patent, trade secret laws, and employee and third-party nondisclosure agreements to protect our intellectual and proprietary rights, products, and technologies. Policing unauthorized use of our products and technologies is difficult and the steps we take may not prevent the misappropriation or infringement of technology or proprietary rights. In addition, litigation may be necessary to enforce our intellectual property rights. Such misappropriation or litigation could result in substantial costs and diversion of resources and the potential loss of intellectual property rights, any of which would adversely impair our business.

WE MAY BE LIABLE FOR INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.

      Our products and technologies may be the subject of infringement claims in the future. This could result in costly litigation and could require us to obtain a license to the intellectual property of third parties. We may be unable to obtain licenses from these third parties on favorable terms, if at all. Even if a license is available, we may have to pay substantial royalties to obtain it. If we cannot obtain necessary licenses on reasonable terms, our business would be adversely affected.

REGULATORY AND LEGAL UNCERTAINTIES COULD HARM OUR BUSINESS.

      We are not currently subject to direct regulation by any government agency other than laws or regulations applicable generally to e-commerce. Due to the increasing popularity and use of the Internet and other online services, federal, state, and local governments may adopt laws and regulations, or amend existing laws and regulations, with respect to the Internet or other online services covering issues such as user privacy, pricing, content, copyrights, distribution, and characteristics and quality of products and services. In 1998, the United States Congress established the Advisory Committee on Electronic Commerce which is charged with investigating, and making recommendations to Congress regarding, the taxation of sales by means of the Internet. Furthermore, the growth and development of the market for e-commerce may prompt calls for more stringent consumer protection laws and impose additional burdens on companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or other online services, which could, in turn, decrease the demand for our services and increase our cost of doing business, or otherwise have a material adverse effect on our business, prospects, financial condition and results of operations. Moreover, the relevant governmental authorities have not resolved the applicability to the Internet and other online services of existing laws in various jurisdictions governing issues such as property ownership and personal privacy and it may take time to resolve these issues definitively. Any new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could have a material adverse effect on our business, prospects, financial condition and results of operations.

INTERNET SECURITY POSES RISKS TO OUR ENTIRE BUSINESS.

      The process of e-commerce aggregation by means of our hardware and software infrastructure involves the transmission and analysis of confidential and proprietary information of the advertiser,

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as well as our own confidential and proprietary information. The compromise of our security or misappropriation of proprietary information could have a material adverse effect on our business, prospects, financial condition and results of operations. We rely on encryption and authentication technology licensed from other companies to provide the security and authentication necessary to effect secure Internet transmission of confidential information, such as credit and other proprietary information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments may result in a compromise or breach of the technology used by us to protect client transaction data. Anyone who is able to circumvent our security measures could misappropriate proprietary information or cause material interruptions in our operations. We may be required to expend significant capital and other resources to protect against security breaches or to minimize problems caused by security breaches. To the extent that our activities or the activities of others involve the storage and transmission of proprietary information, security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. Our security measures may not prevent security breaches. Our failure to prevent these security breaches may have a material adverse effect on our business, prospects, financial condition and results of operations.

Recent Accounting Pronouncements

      In March 2004, the EITF reached a consenus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”). EITF 03-01 provides guidance on the meaning of “other-than-temporary” impairment and its application to certain marketable debt and equity securities accounted for under SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” and non-marketable securities accounted for under the cost method. The EITF developed a basic three-step model to evaluate whether an investment is other-than-temporarily impaired. In September 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position EITF 03-01-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-01 to investments in securities that are impaired. However, the disclosure requirements are effective for annual periods ended after June 15, 2004. The proposed statement does not have an effect on the Company's financial position and results of operations.

      On September 30, 2004, the Emerging Issues Task Force (“EITF”) confirmed their tentative conclusion on EITF Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” EITF 04-8 requires contingently convertible debt instruments to be included in diluted earnings per share, if dilutive, regardless of whether a market price contingency for the conversion of the debt into common shares or any other contingent factor has been met. Prior to this consensus, such instruments were excluded from the calculation until one or more of the contingencies were met. EITF 04-8 is effective for reporting periods ending after December 15, 2004, and requires restatement of prior period earnings per share amounts. The effect of these adjustments would not effect diluted earnings per share for the three months ended June 30, 2004, the only period in which the Company had net income resulting in the Company reporting diluted earnings per share.

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires companies to recognize in the statement of operations all share-based payments to employees, including grants of employee stock options, based on their fair values. Accounting for share-based compensation transactions using the intrinsic method supplemented by pro forma disclosures will no longer be permissible. The new statement will be effective for public entities in periods beginning after June 15, 2005. The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (SFAS 153).

39

SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This standard is effective for fiscal periods beginning after June 15, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on our consolidated statement of income and financial condition.

LIQUIDITY AND CAPITAL RESOURCES

      Cash, cash equivalents, and marketable securities totaled $8.7 million at December 31, 2004, down from $9.5 million at December 31, 2003 and $11.6 million at December 31, 2002.

	2004			2003			2002
Cash used in operating activities	$	(9,656	)	$	(4,100	)	$	(10,040	)
Cash provided by (used in) investing activities		(2,158	)		13			5,139
Cash provided by financing activities		9,242			1,966			7,534

Operating activities

      In 2004 cash used in operating activities was $9.7 million, an increase of $5.6 million compared to 2003. The use of cash was caused by $9.7 million in net loss increased by the recognition of $5.1 million in revenue principally associated with the $9 million AOL amended license agreement that was executed and paid in the fourth quarter of 2003. Revenue for this agreement is recognized ratably over the nine quarters ending in December 2005. Additionally, outstanding billings for our new search and advertising systems segments increased by over $2.0 million in comparable fourth quarters which contributed to an increase of $1.9 million in accounts receivable. This was offset by several non-cash expenses that impacted the net loss including the $4.2 million non-cash loss related to the change in fair value of warrants to purchase common stock and conversion feature of the convertible debt caused by the increase in the Company's share price. Additionally non-cash stock based compensation, depreciation and amortization, and write-off of debt discount and issuance cost, and the loss related to the conversion of debt and issuance of stock below fair market value related to the private placement in March 2004 totaled $ 2.6 million decreasing the use of cash by operating activities.

      In 2003, cash used in operating activities was $4.1 million, a decrease of $5.9 million compared to 2002. The decrease is primarily due to an overall reduction in our expenses due to our restructurings that resulted from our lower level of sales and revenues. Additionally our October 2003 license sale to AOL resulted in our receipt of $10.0 million in payments for licenses and services that will be provided through December 2005. At December 31, 2003, $9.2 million of this contract remained in deferred revenue.

      In 2002, cash used by operating activities was $10.0. The decrease resulted primarily from a decrease in net loss of $26.5 million due to departmental operating expenses decreases of $6.4 million, and increased license sales of $2.9 million.

Investing activities

      In 2004, cash used by investing activities was $2.2 million, primarily due to net purchases of short-term marketable securities of $1.8 million. Capital expenditures were $0.4 million.

      In 2003, cash provided by investing activities was less than $0.1 million as we sold nearly as many investments as we made. Capital expenditures were $0.5 million.

      In 2002, cash provided by investing activities was $5.1 million as a result of cash provided through the sale of investments to fund operations. Capital expenditures were $0.9 million.

40

Financing activities

      In 2004 net cash provided by financing activities was $9.2 million. This resulted from the issuance of 1.5 million shares of common stock to an institutional investor, who had previously purchased Convertible Notes (“Convertible Notes”) on March 17, 2004 for $3.7 million and the issuance of 1.9 million shares of common stock to a private investor in December 2004 for $5.0 million. Proceeds from the exercise of stock options totaled $0.6 million. During 2004 the Company also issued $2.7 million of common stock in exchange for $2.7 million of Convertible Notes.

      In 2003, net cash provided by financing activities was $2.0 million. This resulted from the issuance of $3.3 million of Subordinated Notes (“Subordinated Notes”) in March 2003 and the issuance of stock of $2.5 million in November 2003 stemming from the sale of common stock offset by $3.3 million from the redemption of the Convertible Notes issued in December 2002.

      Convertible Notes

      On December 31, 2002, the Company completed a private placement of convertible notes and warrants in which it issued to three institutional investors, 4.95% convertible notes having an aggregate principal amount of $7.0 million, and warrants to purchase 0.7 million shares of Company common stock. The convertible notes were to mature on December 31, 2007, unless earlier converted into shares of Company common stock at a price of $2.26 per share. The warrants expire on December 31, 2006, and are exercisable at a price of $2.26 per share.

      On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed the private placement of convertible notes and warrants on December 31, 2002. In conjunction with the extinguishment, the Company paid $3.3 million, issued new convertible notes in the principal amount of $2.7 million and issued $1.4 million shares of its common stock with a market value of $0.7 million. The difference between (i) the carrying value of the outstanding convertible notes exchanged and (ii) cash paid and the fair value of the common stock and new convertible notes issued, amounted to $1.0 million and was included in the loss on early extinguishment of debt. The Company recorded a loss during 2003, on the early extinguishment of the original convertible notes in the amount of $1.7 million of which $0.7 related to the write-off of deferred loan costs.

      Interest on the convertible notes was payable quarterly in arrears in cash or, at the option of the Company, in shares of Company common stock provided the Company satisfies certain financial and other conditions. The new convertible notes matured on December 31, 2007, unless earlier converted into shares of Company common stock. The conversion price of the first $0.9 million tranche of notes was $1.10. The conversion price of the second and third tranche of notes was $1.00.

      Each tranche of the notes was convertible at the Company's election at any time after May 20, 2004 if the dollar volume-weighted average price of Company common stock exceeded 150% of the conversion price applicable to the notes for any 25 consecutive trading days following April 15, 2004.

      Pursuant to SFAS No. 133, the Company bi-furcated the fair value of the conversion options from the new convertible notes since the conversion options were determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion options is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion options as long-term liabilities, as it was assumed that the Company would be required to net-cash settle the underlying securities.

      The Company recorded income or loss based on the decrease or increase, respectively, in the fair values of the new conversion options and original warrants in the Company's consolidated statements of operations. The amortization of discount on the new convertible notes and debt issue costs were accounted for using the effective interest method.

41

      On March 17, 2004, one of the institutional investors holding the convertible notes converted $0.9 million of outstanding notes for shares of the Company's common stock. In addition, on the same day as the conversion, the Company sold 1.5 million shares of common stock in a private placement to the institutional investor, for $3.7 million or $2.45 per share. The Company recorded a loss on conversion of debt in the amount of $0.6 million, which represented the write-off of unamortized loan discount and debt issuance costs of $0.1 million and the difference between the proceeds received from the private placement and the fair value of the common stock issued based upon the closing price of the Company's stock on the day of the sale of $0.5 million.

      During the period beginning on April 15, 2004 and May 20, 2004—a period which covered 25 consecutive trading days—the dollar volume-weighted average price of the Company's common stock exceeded 150% of the conversion price applicable to the outstanding convertible notes and the Company determined to exercise its right to convert the outstanding notes into shares of Company common stock. Accordingly, on May 20, 2004, the Company informed the institutional investors holding the outstanding convertible notes that it would exercise its right to convert that debt.

      On June 18, 2004, the Company completed the conversion of the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million shares of Viewpoint common stock. In addition, the Company recorded a loss on conversion which represented the difference between the fair value of the common stock issued in exchange for the notes and the carrying value of the convertible notes on the date of conversion. This change was primarily comprised of the write-off of unamortized loan discount and debt issuance costs.

      For the year ended December 31, 2004, the Company recognized a change in valuation expense for the converted notes and outstanding warrants of $3 million and $1.2 million, respectively, resulting from an increase in the fair market value of the Company's common stock. For the year ended December 31, 2003, the Company recognized a gain related to the change in valuation for the converted notes and outstanding warrants of $1 million and $0.2 million, respectively, resulting from a decrease in the fair market value of the Company's common stock.

      Subordinated Notes

      On March 26, 2003, Viewpoint Corporation entered into a Securities Purchase Agreement with three other accredited investors, pursuant to which it received $3.5 million in exchange for an aggregate of $3.5 million principal amount of 4.95% subordinated notes and 3.6 million shares of Viewpoint common stock. The subordinated notes are scheduled to mature on March 31, 2006. Interest on these notes is payable quarterly in arrears in cash. The Company has the right at any time to redeem up to all of the outstanding notes at par plus accrued and unpaid interest.

      The $3.5 million of proceeds was allocated to subordinated notes, common stock, and additional paid in capital based on the market value of the Company's common stock on March 26, 2003. In accordance with the provisions of APB Opinion No. 21, the Company recorded a debt discount of $2.0 million. Debt issuance costs, which amounted to $0.2 million, were recorded as other assets in the Company's consolidated balance sheet. The amortization of the discount on the subordinated notes and debt issue costs totaled $0.6 million and $0.3 million for the years ended December 31, 2004 and 2003, respectively, and were accounted for using the effective interest method.

      Other Transactions

      In October 2003, the Company entered into an amended license agreement with AOL which provided for payments by AOL of $10.0 million. The agreement contains multiple elements consisting of a perpetual broadcast license, a perpetual source code license, quarterly updates to the source code through December 2005, and maintenance and consulting services. The Company will recognize revenue from this agreement ratably through December 31, 2005, which represents the duration of the Company's obligation for post-contract customer support including quarterly upgrades and maintenance requirements.

42

      In 2003, the Company implemented three restructuring plans. The first plan, implemented in February 2003, reduced operating expenses by closing the Company's Utah office and related to the termination of 28 employees in that office who were primarily engaged in sales and marketing activities. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1.2 million. This charge is recorded on our income statement as restructuring charges. The restructuring charges represent the present value of remaining lease commitments discounted by 20% and reduced by estimated sublease rental income, employee severance and termination benefits, the write-off of the net book value of certain fixed assets used in the Utah office, and other miscellaneous charges. Subsequent to the restructuring, the Company re-evaluated market conditions surrounding its efforts to sub-lease the Utah office space and increased the restructuring charge by $0.2 million related to the fair value of the remaining lease commitment reduced by estimated sublease rental income. During October 2004 the Company signed an agreement releasing it from any additional obligation under the remaining lease commitment after a payment of $0.3 million. As a result of this release the Company reversed the remaining accrued amount of $0.1 million as the Company completed its obligations under the release agreement.

      The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 sales and marketing, research and development, and general and administrative positions. The Company incurred a restructuring charge of $0.5 million related to severance arrangements. The charge is recorded on the income statement as a restructuring and impairment charge. The second restructuring plan was completed by September 30, 2003. In November 2003, however, the Company increased the restructuring charge by $0.1 million in settlement of an action brought by one of the terminated employees. In January 2004, the Company recorded a non-cash adjustment to the restructuring accrual to reflect payments that were less than originally contemplated under the plan.

      The third plan was implemented in December 2003, and was designed to consolidate international operations to the New York office. Accordingly, the Company closed the London, England office, incurring a restructuring charge of $0.1 million related to severance arrangements. This severance payment was made in January 2004. As the lease relating to this office terminated in February 2004, the Company did not incur a charge related to rent expense. The severance charge is recorded on the income statement as a restructuring charge. The third restructuring plan was completed by December 31, 2003.

      Pursuant to the agreement under which the Company acquired all of the outstanding capital stock of Viewpoint Digital on September 8, 2000, the Company issued two contingent promissory notes to Computer Associates each in the maximum amount of $15.0 million, but subject to reduction on the basis of the performance of the Viewpoint Digital assets. During 2001, the Company entered into certain agreements with Computer Associates whereby Computer Associates agreed to accept newly-issued shares of Viewpoint common stock having a value of $4.0 million, in partial repayment of the first contingent promissory note due June 8, 2001. In addition, Computer Associates agreed to accept, at the Company's election, either cash or newly-issued shares of Viewpoint common stock at an issue price of $4.00 per share in repayment of any additional amounts due under the promissory note due June 8, 2001, and the first $8.9 million of the $15.0 million contingent promissory note due April 30, 2002.

      In June 2002, Viewpoint issued 0.9 million shares of Viewpoint common stock to Computer Associates in full satisfaction of the first contingent promissory note due June 8, 2001. The amount due Computer Associates under the promissory note due April 30, 2002 was approximately $2.9 million and was reflected in “due to related parties” in the Company's consolidated balance sheet at December 31, 2002. During December 2003 the Company issued 0.7 million shares of common stock to Computer Associates in full satisfaction of this $2.9 million contingent promissory note and resolution of certain other outstanding issues surrounding the acquisition of Viewpoint Digital.

      As of December 31, 2004, the Company had cash commitments totaling approximately $10.2 million through 2011, related to long-term convertible notes, employee agreements, future minimum lease payments for office space, and equipment.

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	Payments Due By Period
	Total		1 Year or Less		2-3 Years		4-5 Years		More than 5 Years
	(Dollars in thousands)
Long-Term Debt Obligations	$	3,500	$	—	$	3,500	$	—	$	—
Operating Lease Obligations		4,558		923		1,950		1,595		90
Interest Payments on Long-Term Debt Obligations		260		217		43		—		—
Employee Agreement		165		165		—		—		—
Purchase Obligations		1,669		1,669		—		—		—
Total	$	10,152	$	2,974	$	5,493	$	1,595	$	90

      The Company believes that its current cash, cash equivalents, and marketable securities balances and cash provided by future operations, are sufficient to meet its operating cash flow needs and anticipated capital expenditure requirements through at least the next twelve months. The Company has contingency plans for 2005 if expected revenue targets are not achieved. These plans include further workforce reductions as well as reductions in overhead and capital expenditures. The Company may seek additional funds before that time through public or private equity financing or from other sources to fund our operations and pursue our growth strategy. We have no commitment for additional financing, and we may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing we obtain may contain covenants that restrict our freedom to operate our business or may have rights, preferences or privileges senior to our common stock and may dilute our current shareholders' ownership interest in Viewpoint. In the event the company is unable to obtain adequate financing or profitable operations in future periods, operations will need to be scaled back or discontinued.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

      The Company is subject to concentration of credit risk and interest rate risk related to cash, cash equivalents and marketable securities. The Company does not have any derivative financial instruments as of December 31, 2004. Credit risk is managed by limiting the amount of securities placed with any one issuer, investing in high-quality marketable securities and securities of the U.S. government and limiting the average maturity of the overall portfolio. The majority of the Company's portfolio, which is classified as available-for-sale, is composed of fixed income securities that are subject to the risk of market interest rate fluctuations, and all of the Company's securities are subject to risks associated with the ability of the issuers to perform their obligations under the instruments. The Company may suffer losses in principal if forced to sell securities, which have declined in market value due to changes in interest rates.

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Item 8. Financial Statements and Supplementary Data

      1. Index to Financial Statements

      The following financial statements are filed as part of this Report:

	Page
Audited Financial Statements
Report of Independent Registered Public Accounting Firm		48
Consolidated Balance Sheets as of December 31, 2004 and 2003		49
Consolidated Statement of Operations for each of the three Years in the period ended December 31, 2004		50
Consolidated Statement of Stockholders' Equity for each of the three years in the period ended December 31, 2004		51
Consolidated Statement of Cash Flows for each of the three Years in the period ended December 31, 2004		52
Notes to Consolidated Financial Statements		54

      2. Index to Financial Statement Schedule

	Page
Schedule
Schedule II—Valuation and Qualifying Accounts		78

      All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Viewpoint Corporation

      We have completed an integrated audit of Viewpoint Corporation's 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

      In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Viewpoint Corporation and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

      Also, in our opinion, management's assessment, included in Management's Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management's assessment and on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A

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company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of managment and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitionm, use, or disposition of the company's assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York
March 16, 2005

47

VIEWPOINT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

	December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	5,955		$	8,530
Marketable securities		2,707			958
Accounts receivable, net of reserve of $430 and $1,611, respectively		2,583			650
Related party accounts receivable		26			914
Prepaid expenses		421			694
Total current assets		11,692			11,746
Restricted cash		320			388
Property and equipment, net		1,485			1,859
Goodwill		31,276			31,276
Intangible assets, net		230			186
Other assets, net		270			288
Total assets	$	45,273		$	45,743
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,218		$	1,177
Accrued expenses		244			1,094
Deferred revenues		431			423
Related party deferred revenues		4,607			4,952
Accrued incentive compensation		545			545
Current liabilities related to discontinued operations		231			231
Total current liabilities		7,276			8,422
Deferred rent		365			400
Related party deferred revenue		—			4,706
Convertible notes		—			2,837
Warrants to purchase common stock		1,286			110
Subordinated notes		2,388			1,801
Total liabilities		11,315			18,276
Commitments and contingencies (note 12)
Stockholders' equity:
Preferred stock, $.001 par value; 5,000 shares authorized—no shares issued and outstanding at December 31, 2004 and 2003		—			—
Common stock, $.001 par value; 75,000 shares authorized—56,704 shares issued and 56,544 shares outstanding at December 31, 2004, and 49,965 shares issued and 49,805 shares outstanding at December 31, 2003		57			50
Paid-in capital		290,260			274,351
Deferred compensation		(5	)		(275	)
Treasury stock at cost; 160 at December 31, 2004 and 2003		(1,015	)		(1,015	)
Accumulated other comprehensive income (loss)		(60	)		(65	)
Accumulated deficit		(255,279	)		(245,579	)
Total stockholders' equity		33,958			27,467
Total liabilities and stockholders' equity	$	45,273		$	45,743

The accompanying notes are an integral part of these consolidated financial statements.

48

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)

	Years Ended December 31,
	2004			2003			2002
Revenues:
Search	$	2,698		$	—		$	—
Advertising systems		305			—			—
Services		4,822			4,291			3,302
Related party services		2,468			5,226			2,244
Licenses		704			2,283			5,039
Related party licenses		3,535			1,729			7,554
Total revenues		14,532			13,529			18,139
Cost of revenues:
Search		45			—			—
Advertising systems		132			—			—
Services		3,074			5,776			3,587
Licenses		6			97			353
Total cost of revenues		3,257			5,873			3,940
Gross profit		11,275			7,656			14,199
Operating expenses:
Sales and marketing		3,732			8,723			16,682
Research and development		3,432			4,209			4,348
General and administrative		7,220			11,549			10,334
Depreciation		853			1,543			1,962
Amortization of intangible assets		17			10			664
Restructuring charges		(106	)		2,023			—
Impairment of goodwill and other intangible assets		—			—			6,275
Total operating expenses		15,148			28,057			40,265
Loss from operations		(3,873	)		(20,401	)		(26,066	)
Other income (expense), net
Interest and other income; net		60			254			153
Interest expense		(936	)		(958	)		—
Changes in fair values of warrants to purchase common stock and conversion options of convertible notes		(4,180	)		1,209			—
Loss on conversion of debt		(810	)		—			—
Loss on early extinguishment of debt		—			(1,682	)		—
Total other income (expense)		(5,866	)		(1,177	)		153
Loss before provision for income taxes		(9,739	)		(21,578	)		(25,913	)
Provision for income taxes		90			81			107
Net loss from continuing operations		(9,829	)		(21,659	)		(26,020	)
Adjustment to net loss on disposal of discontinued operations, net of tax		129			157			127
Net loss	$	(9,700	)	$	(21,502	)	$	(25,893	)
Basic and diluted net loss per common share:
Net loss per common share from continuing operations	$	(0.18	)	$	(0.47	)	$	(0.64	)
Net income (loss) per common share from discontinued operations		0.00			0.00			0.00
Net loss per common share	$	(0.18	)	$	(0.47	)	$	(0.64	)
Weighted average number of shares outstanding—basic and diluted		52,955			45,280			40,759

The accompanying notes are an integral part of these consolidated financial statements.

49

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2004, 2003, and 2002
(In thousands)

	Series A Preferred Stock				Common Stock										Treasury Stock
	Shares		Amount		Shares		Amount		Paid-in Capital			Deferred Compensation			Shares			Amount			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholder's Equity			Comprehensive Loss
Balances at December 31, 2001		—	$	—		39,620	$	40	$	263,157		$	(11,279	)		(160	)	$	(1,015	)	$	18		$	(198,184	)	$	52,737		$	(52,364	)
Issuance of common stock upon the exercise of stock options		—		—		650		—		1,387			—			—			—			—			—			1,387			—
Issuance of common stock in connection with Viewpoint Digital, Inc. acquisition		—		—		909		1		4,752			—			—			—			—			—			4,753			—
Issuance / cancellation of common stock option awards		—		—		—		—		(2,010	)		2,010			—			—			—			—			—			—
Amortization of deferred compensation		—		—		—		—		—			5,139			—			—			—			—			5,139			—
Issuance of common stock options for services		—		—		—		—		283			—			—			—			—			—			283			—
Translation adjustment		—		—		—		—		—			—			—			—			(9	)		—			(9	)		(9	)
Unrealized gain on marketable securities		—		—		—		—		—			—			—			—			(45	)		—			(45	)		(45	)
Net loss		—		—		—		—		—			—			—			——			—			(25,893	)		(25,893	)		(25,893	)
Balances at December 31, 2002		—		—		41,179		41		267,569			(4,130	)		(160	)		(1,015	)		(36	)		(224,077	)		38,352			(25,947	)
Issuance of common stock upon the exercise of stock options		—		—		13		—		10			—			—			—			—			—			10			—
Issuance of common stock		—		—		3,125		3		2,497			—			—			—			—			—			2,500			—
Issuance of common stock to CA in repayment of promissory note		—		—		682		1		2,728			—															2,729			—
Issuance of common stock option awards		—		—		—		—		14			(14	)		—			—			—			—			—			—
Issuance / cancellation of common stock option awards		—		—		—		—		(1,162	)		1,162			—			—			—			—			—			—
Amortization of deferred compensation		—		—		—		—		0			2,707			—			—			—			—			2,707			—
Issuance of convertible debt		—		—		1,351		1		892																		893			—
Issuance of subordinated notes		—		—		3,615		4		1,803			—			—			—			—			—			1,807			—
Translation adjustment		—		—		—		—		—			—			—			—			(27	)		—			(27	)		(27	)
Unrealized gain on marketable securities		—		—		—		—		—			—			—			—			(2	)		—			(2	)		(2	)
Net loss		—		—		—		—		—			—			—			—			—			(21,502	)		(21,502	)		(21,502	)
Balances at December 31, 2003		—		—		49,965		50		274,351			(275	)		(160	)		(1,015	)		(65	)		(245,579	)		27,467			(21,531	)
Issuance of common stock upon the exercise of stock options		—		—		716		1		581			—			—			—			—			—			582			—
Issuance of common stock, net of issuance cost of $15		—		—		3,387		3		9,138			—			—			—			—			—			9,141			—
Issuance of common stock upon conversion of debt		—		—		2,636		3		6,130			—			—			—			—			—			6,133			—
Cancellation of common stock option awards		—		—		—		—		(18	)		18			—			—			—			—			—			—
Issuance of common stock option awards		—		—		—		—		59			—			—			—			—			—			59			—
Amortization of deferred compensation		—		—		—		—		—			252			—			—			—			—			252			—
Issuance of common stock for interest expense		—		—		—		—		19			—			—			—									19			—
Translation adjustment		—		—		—		—		—			—			—			—			5			—			5			5
Net loss		—		—		—		—		—			—			—			—			—			(9,700	)		(9,700	)		(9,700	)
Balances at December 31, 2004		—	$	—		56,704	$	57	$	290,260		$	(5	)		(160	)	$	(1,015	)	$	(60	)	$	(255,279	)	$	33,958		$	(9,695	)

The accompanying notes are an integral part of these consolidated financial statements.

50

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Years Ended December 31,
	2004			2003			2002
Cash flows from operating activities:
Net loss	$	(9,700	)	$	(21,502	)	$	(25,893	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustment to net loss on disposal of discontinued operations		—			—			(127	)
Non-cash stock-based compensation charges		312			2,707			5,422
Other income from issuance of common stock to Computer Associates in settlement of a promissory note		—			(200	)		—
Restructuring charges		(106	)		2,023			—
Impairment of goodwill and other intangible assets		—			—			6,275
Depreciation and amortization		870			1,554			2,626
Provision for bad debt		(33	)		1,160			741
Interest expense paid using common stock		18			—			—
Accrued interest income		—			—			(17	)
Loss on sale and disposal of equipment		31			226			45
Loss on sale of marketable securities		—			—			6
Forgiveness, reserve and recovery of notes receivables		—			750			612
Changes in fair values of warrants to purchase common stock and and conversion feature of convertible debt		4,180			(1,209	)		—
Loss on early extinguishment of debt		—			1,682			—
Amortization of debt discount and issuance costs		656			458			—
Loss on conversion of debt		810			—			—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(1,900	)		1,115			(700	)
Related party accounts receivable		888			(76	)		292
Prepaid expenses		235			(359	)		227
Accounts payable		(95	)		(1,008	)		1,186
Accrued expenses		(779	)		(927	)		(545	)
Due to/from related parties		—			8			(19	)
Deferred revenues		8			89			(40	)
Related party deferred revenues		(5,051	)		9,409			(284	)
Net cash provided by (used in) discontinued operations		—			—			153
Net cash used in operating activities		(9,656	)		(4,100	)		(10,040	)
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities		4,950			2,025			9,634
Purchases of marketable securities		(6,702	)		(2,093	)		(3,507	)
Net (increase)/decrease in restricted cash		68			566			(3	)
Purchases of property and equipment		(418	)		(461	)		(936	)
Sale of property and equipment		—			7			—
Unrealized gain (loss) on cash equivalent		5			—			—
Purchases of patents and trademarks		(61	)		(31	)		(49	)
Net cash provided by investing activities		(2,158	)		13			5,139
Cash flows from financing activities:
Proceeds from issuance of common stock net of issuance cost paid of $15		8,660			2,500			—
Proceeds from issuance of convertible notes, net of issuance costs paid of $160		—			—			6,552
Proceeds from issuance of subordinated notes and common stock, net of issuance costs paid of $194		—			3,306			—
Repayment of convertible notes					(3,300	)		—
Proceeds from issuance of warrants to purchase common stock		—			—			288
Payment of issuance costs on convertible notes		—			(583	)		—
Restricted cash in escrow for interest on convertible notes		—			33			(693	)
Proceeds from exercise of stock options		582			10			1,387
Net cash provided by financing activities		9,242			1,966			7,534
Effect of exchange rates changes on cash		—			(27	)		(9	)
Unrealized gain (loss) on cash equivalent		(3	)		—			—
Net increase (decrease) in cash and cash equivalents		(2,575	)		(2,148	)		2,624
Cash and cash equivalents at beginning of year		8,530			10,678			8,054
Cash and cash equivalents at end of year	$	5,955		$	8,530		$	10,678

51

VIEWPOINT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	Years Ended December 31,
	2004			2003		2002
Supplemental disclosure of cash flow activities:
Cash paid during the year for income taxes	$	89		$	139	$	152
Cash paid during the year for interest		169			316		—
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gains (losses) on marketable securities	$	(3	)	$	2	$	(45	)
Closing costs for convertible notes accrued and not yet paid		—			—		462
Issuance of common stock for convertible notes		2,700			—		—
Contingent consideration not yet issued in connection with the acquisition of Viewpoint Digital		—			—		2,928
Issuance of common stock in settlement of promissory note		—			2,728		—
Issuance of 1,351,351 shares of common stock as partial repayment of convertible notes		—			1,000		—
Acquisition costs accrued and not yet paid		50			—		—
Purchase of property and equipment accrued and not yet paid		86			—		—
Rent credit received related to lease-hold improvements		—			34		—

The accompanying notes are an integral part of these consolidated financial statements.

52

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Organization

      Overview. Viewpoint Corporation (“Viewpoint” or the “Company”) is a leading internet advertising company that focuses on using its graphical platform's capabilities to provide consumers, advertisers, and website publishers an enhanced internet experience. Since 2003 we have extended the historical graphical image capabilities of our proprietary graphics technology to develop a search business that provides internet consumers a flexible graphical searching experience and an advertising delivery system that specializes in deploying video and rich media advertising. The company supplements its revenues in these product segments by using its in-house services team to build sophisticated content that is used by customers in each product segment. Finally, the Company licenses its platform to internet publishers enabling them to deploy graphical sophisticated content at their websites.

      All of our four product segments have their roots in our core software offering, the Viewpoint Media Player (“VMP”). The VMP is a free software product installed by internet consumers on their computers to view specialized digital content displayed by websites. The Company has been distributing the VMP since 2000 and estimate that it has been installed on more than 120 million computers in the United States. The Company bases this (unaudited) estimate on independent surveys commissioned by us and by other industry participants as well as information we've received from our publishing clients who report to us the frequency with which visitors to their sites have the VMP installed upon arriving at their sites.

      On March 17, 2004, we entered the internet search business by launching a Graphically Enhanced Search toolbar product that we call the “Viewpoint Toolbar”. The Viewpoint Toolbar works within the Internet Explorer browser, enabling web surfers to conduct internet searches without leaving the web page they are viewing. When a user enters a term or phrase into the search field of the Viewpoint Toolbar, search results appear not only as text links listed on a search results page but also as thumbnail images of the web pages themselves in a horizontal “tray” that descends from the Viewpoint Toolbar. Search results delivered to users of the Viewpoint Toolbar are supplied by Yahoo! Inc. and its wholly-owned subsidiary, Overture Services, Inc. (“Yahoo!”) Under our Agreement with Yahoo! we receive a share of the fees advertisers pay to Yahoo! to be listed in the search results as “sponsored links”.

      The Company also offers an online advertising campaign management and deployment product known as “Creative Innovator”. Creative Innovator permits publishers, advertisers, and their agencies to manage the complex process of deploying online advertising campaigns. This process includes creating the advertising assets, selecting the sites on which the advertisements will be deployed, setting the campaign parameters (ad rotation, the frequency with which an ad may be deployed, and others), deployment, and tracking of campaign results.

      The Company provides fee-based professional services for creating content and implementing visualization solutions. Our professional services group uses the Viewpoint platform, as well as a spectrum of tools and other technologies to create enhanced rich media solutions for a client's particular purpose, whether over the web, intranet systems or offline media and applications. The Company provides the support our clients need to implement the rich media content, to fully utilize the enhanced software, or to maximize the branding potential of the advertising opportunity.

      Viewpoint launched a business in 1987 as a software maker focused primarily on products that enabled content authors to create images in three dimensions and to “paint” artistic images digitally. Viewpoint initiated internet activities with the release of a beta version of the Viewpoint Media Player in 1999. Simultaneously, Viewpoint released a suite of free content authoring tools specifically designed to enable customers who published digital content on their websites to create material that can be “read” or “played back” by the VMP. With the VMP residing on the web consumer's computer and interpreting instructions delivered by our customers' web sites, web sites can transmit relatively small files that can yield “rich” media on the end user's computer. In this

53

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

way, website owners can deploy digital content representing three-dimensional views of their products, include pre-set animations, and provide high-resolution two-dimensional views, video, audio, text, and other media types. For example, several of our licensing and creative services customers are auto manufacturers that deploy from their websites 3D representations of their vehicles which viewers can interact with by “opening” doors, zooming in on features, configuring accessories, or swapping colors.

      The licensing segment charge web site owners licensing fees for the right to display content in the Viewpoint format from their sites. Our technology is designed so that content in the Viewpoint format that is deployed from a website or otherwise distributed without a valid license or “key” can be spoiled by a “watermarking” image.

2. Summary of Significant Accounting Policies

Basis of Presentation

      The consolidated financial statements include the accounts of Viewpoint and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

      Certain reclassifications have been made to the prior years consolidated financial statements to conform to the 2004 presentation.

Liquidity

      The Company had cash, cash equivalents and marketable securities of $8.7 million at December 31, 2004. During the year ended December 31, 2004, net cash used in operations amounted to $9.7 million. Though the Company has converted $2.7 million in convertible debt to equity during 2004, it has had significant quarterly and annual operating losses since its inception, and as of December 31, 2004, had an accumulated deficit of $255.3 million. There can be no assurance that Viewpoint will achieve or sustain positive cash flows from operations or profitability.

      The Company believes that its current cash, cash equivalents, and marketable securities balances and cash provided by expected future operations are sufficient to meet its operating cash flow needs and anticipated capital expenditure requirements through the next twelve months. In the event that the Company is unable to reach profitable operations or raise additional capital in the future, operations will need to be scaled back or discontinued.

      The Company has contingency plans for 2005 if expected revenue targets are not achieved. These plans include further workforce reductions as well as reductions in overhead and capital expenditures. The Company may seek additional funds when necessary through public or private equity financing or from other sources to fund operations and pursue growth, although there are no assurances that the Company can obtain such financing with reasonable terms.

      The Company currently has no commitment for additional financing and may experience difficulty in obtaining additional financing on favorable terms, if at all. Any financing the Company obtains may contain covenants that restrict the Company's freedom to operate the business or may have rights, preferences or privileges senior to the Company's common stock and may dilute the Company's current shareholders' ownership interest in Viewpoint.

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.

54

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash Equivalents and Marketable Securities

      The Company considers all highly liquid investments purchased with an original maturity of three months or less at date of acquisition to be cash equivalents.

      The Company considers its marketable securities portfolio available-for-sale as defined in SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” These available-for-sale securities are accounted for at their fair value, and unrealized gains and losses on these securities are reported as a separate component of stockholders' equity.

      The Company invests its cash in accordance with a policy that seeks to maximize returns while ensuring both liquidity and minimal risk of principal loss. The policy limits investments principally to certain types of instruments issued by institutions with investment grade credit ratings, and places restrictions on maturities and concentration by type and issuer. The majority of the Company's portfolio is composed of fixed income securities that are subject to the risk of market interest rate fluctuations, and all of the Company's marketable securities are subject to risks associated with the ability of the issuers to perform their obligations under the instruments.

Restricted Cash

      The convertible notes agreement entered into on December 31, 2002, required the Company to set up an interest escrow account containing the total interest to be paid for the first two years the notes are outstanding. The balance in the interest escrow account as of December 31, 2004 and 2003 was $0.1 million and $0.1 million, respectively.

      Included in restricted cash at December 31, 2004 and 2003 was $0.2 million and $0.3 million, respectively, which was pledged as collateral to secure a letter of credit used for a security deposit on the Company's New York facility.

Goodwill and Intangible Assets

      Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” As required by SFAS No. 142, the Company discontinued amortizing the remaining balances of goodwill as of January 1, 2002. All remaining and future acquired goodwill will be subject to impairment tests annually, or earlier, if indicators of potential impairment exist, using a fair-value-based approach. When evaluating goodwill for potential impairment, the Company first compares the fair value of each reporting unit, based on market values of the reporting unit or on the present value of estimated future cash flows, with its carrying amount. If the estimated fair value of the reporting unit is less than its carrying amount, an impairment loss calculation is prepared. The impairment loss calculation compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. All other intangible assets continue to be amortized over their estimated useful lives and are assessed for impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

Property and Equipment

      Property and equipment are stated at cost less accumulated depreciation. Assets are depreciated on the straight-line method over their estimated useful lives, which range from 3 to 5 years. Computer hardware and software is depreciated over 3 years, while furniture is depreciated over 5 years. Leasehold improvements are amortized over the shorter of the life of the lease or the life of the asset. Upon sale, any gain or loss is included in the consolidated statements of operations. Maintenance and minor replacements are expensed as incurred.

55

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Software Development Costs

      In accordance with SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,” the Company provides for capitalization of certain software development costs once technological feasibility is established. The costs capitalized are amortized on a straight-line basis over the estimated product life, or on the ratio of current revenue to total projected product revenues, whichever is greater. To date, the establishment of technological feasibility of the Company's products and general release have substantially coincided. As a result, the Company has not capitalized any internal software development costs since costs qualifying for such capitalization have not been significant.

Software Developed for Internal Use

      In accordance with SOP No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” the Company capitalizes costs of software, consulting services, hardware and payroll-related costs incurred to purchase or develop internal-use software, when technological feasibility has been established, it is probable that the project will be completed and the software will be used as intended. The Company expenses costs incurred during preliminary project assessment, research and development, re-engineering, training and application maintenance. The Company's capitalization policies are all in accordance with EITF 00-02, “Accounting for Web Site Development Costs.”

      In 2003, the Company wrote off the remaining $0.2 million of internally developed software that had been previously capitalized. The Company re-evaluated its estimate of the software's utility and concluded that the write-off of the remaining balance was appropriate.

Stock-Based Compensation

      The Company accounts for stock option grants in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, Financial Accounting Standards Board (“FASB”) issued Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No. 25” (FIN 44), and complies with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure.” Under APB Opinion No. 25, compensation expense is recognized over the vesting period based on the difference, if any, at the date of grant between the fair value of the Company's stock and the exercise price. The Company accounts for stock issued to non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18 “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.”

      Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company has accounted for its Stock Option Plans under the fair value method of SFAS No. 123. The fair value of options issued under the Plans was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted average assumptions:

	Year Ended December 31,
	2004			2003			2002
Risk-free interest rate		3.41	%		2.80	%		3.80	%
Dividend yield		—			—			—
Volatility factor		1.00			1.00			1.00
Weighted average expected life in years		4.3			4.5			4.5

56

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

      The following summarizes the weighted average fair value of options granted during the years ended December 31, 2004, 2003 and 2002:

	Options Outstanding
	2004		2003		2002
Exercise price equal to fair value	$	1.85	$	0.79	$	5.10
Exercise price greater than fair value		1.73		—		—
Exercise price less than fair value		1.69		0.73		—

      For purposes of pro forma disclosures, the estimated fair value of the Company's options is amortized to expense over the options' vesting period. The Company's pro forma net loss and net loss per common share would approximate the following (in thousands, except per share amounts):

	December 31,
	2004			2003			2002
Net Loss	$	(9,700	)	$	(21,502	)	$	(25,893	)
Add: Stock-based employee expense included in reported net loss, net of related tax effects		311			2,707			5,139
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3,143	)		(5,711	)		(11,037	)
		(12,532	)		(24,506	)		(31,791	)
Basic and diluted net loss per share—as reported	$	(0.18	)	$	(0.47	)	$	(0.64	)
Basic and diluted net loss per share—pro forma	$	(0.24	)	$	(0.54	)	$	(0.78	)
Weighted average number of shares outstanding—basic and diluted		52,955			45,280			40,759

      The effects of applying SFAS No. 123 in this pro forma disclosure are not indicative of future amounts. The Company anticipates grants of additional awards in future years.

      On December 29, 2004, in anticipation of FAS 123R, the Company accelerated the vesting for 0.3 million options which represented out-of-the money options granted to all employees prior to December 31, 2002. On January 7, 2005, the Company extended (de-accelerated) the vesting, for these same options, based on the further review of this resolution.

      On April 14, 2003, the Company granted 2.3 million non-statutory stock options to acquire Company common stock, to certain executives of the Company at an exercise price equal to the fair market value of the Company's common stock on the date of grant. Twenty-five percent of the options vest on the first anniversary of the date of grant and the remaining options vest at the rate of 1/36th per month thereafter. On July 1, 2003, the Company modified the terms to accelerate the vesting of a grant to one executive. In addition the Company also extended the life of the options vested at the date of termination from three months to three years. In accordance with FIN 44, no compensation charge has been recorded through December 31, 2004. When the executive's employment ends for reasons other then cause, and if the options are still outstanding, the modification to the options would be determined to be beneficial to the executive and a non-cash compensation charge of up to $0.6 million would be charged to operations.

      In November 2003, the Company modified the terms of six stock option grants to certain employees and officers to reduce the vesting period from four years to two years. The Company may record a non-cash stock-based compensation charge based upon the difference between the closing price the day of the modification and the closing price on the date of the grant for any of the 1.25 million options modified. The weighted average grant price for these options is $0.76.

57

VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Such charge would be recorded if the executives are expected to derive a benefit from the acceleration. If any executive ceases employment during the original vesting period then the modification to accelerate will be determined to be beneficial, resulting in a non-cash compensation charge of less then $0.1 million.

Foreign Currency Translation

      The functional currency of each of the Company's foreign subsidiaries is its local currency. Financial statements of these foreign subsidiaries are translated to U.S. dollars for consolidation purposes using current rates of exchange for assets and liabilities and average rates of exchange for revenues and expenses. The effects of currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in the statements of stockholders' equity. Transaction gains and losses arising from transactions denominated in a currency other than the functional currency of the entity involved, are included in other income in the statements of operations.

Revenue Recognition

      The Company recognizes revenue in accordance with Statement of Position (“SOP”) 97-2, “Software Revenue Recognition,” as amended, Emerging Issues Task Force (“EITF”) No. 00-21 “Revenue Arrangements with Multiple Deliverables,” and Staff Accounting Bulletin (“SAB”) No. 104 “Revenue Recognition.” Per SOP 97-2 and SAB No. 104, the Company recognizes revenue when the following criteria are met: (a) pe suasive evidence of an arrangement exists, (b) delivery has occurred or services have been rendered, (c) the Company's fee is fixed or determinable, and (d) collectibility is reasonably assured.

      Viewpoint has generated revenues through four sources: (a) search advertising, (b) advertising systems revenue, (c) software licenses, and (d) services. Search revenue is derived from a share of the fees charged by Yahoo! to advertisers who pay for sponsored links when a customer clicks on the paid link on the results provided by the Viewpoint Toolbar. Advertising systems revenue is generated by charging customers to host advertising campaigns based on a cost per thousand (“CPM”) impressions. License revenues are generated from licensing the rights to use products directly to customers and indirectly through Value Added Resellers (“VARs”). Service revenues are generated from fee-based professional services, customer support services (maintenance arrangements), and training services performed for customers that license the company's products.

      Search revenue is generated when a customer uses the Viewpoint Toolbar to search the internet, and clicks on a sponsored advertisement included in the search results. The Viewpoint Toolbar's search results are provided by Yahoo!, who collects a fee from the advertiser and remits a percentage of the fee to Viewpoint. Revenue generated is a function of the number of Viewpoint Toolbars performing searches, the number of searches that are sponsored by advertisers, the number of advertisements that are clicked on by Viewpoint Toolbar searchers, the rate advertisers pay for those advertisements, and the percentage retained by Yahoo! for providing the results.

      Viewpoint also offers an online advertising campaign management and deployment product. This advertising system permits publishers, advertisers, and their agencies to manage the process of deploying online advertising campaigns. The Company charges customers on a cost per thousand (“CPM”) impression basis, and recognizes revenue when the impressions are served, so long as all other revenue recognition criteria are satisfied.

      Fee-based professional services for customized software development are performed on a fixed-fee or time-and-materials basis under separate service arrangements. Revenues for fixed-fee arrangements are recognized over the pattern of performance in accordance with the provisions of

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SAB No. 104. The pattern of performance for service arrangements is measured by the percentage of costs incurred and accrued to date for each contract, which primarily consist of direct labor costs, cost of outsourcing, and overhead, to the estimated total cost for each contract at completion. The percentage approximates the percentage of a customer's contract that has been completed and would be available for the customer to use at that point in time. Use of this method is based on the availability of reasonably dependable estimates. If reasonably dependable estimates are not available due to the complexity of the services to be performed, the Company defers recognition of any revenues for the project until the project is completed, delivered and accepted by the customer, provided all other revenue recognition criteria are met and no further significant obligations exist. Revenues from customer support services are recognized ratably over the term of the contract. Revenues from training services are recognized as services are performed.

      License revenues from direct customers include sales of perpetual and term-based licenses for broadcasting digital content in the Viewpoint format. License revenues are recognized up-front provided no further significant obligations exist and the resulting receivable is deemed collectible by management. Arrangements with VARs require (i) an up-front, non-refundable payment, (ii) a percentage royalty based on sell-through, or (iii) both as consideration for the right to resell the Viewpoint technology. Up-front, non-refundable payments are recognized as license revenues when the VARs right to resell the company's technology begins and the technology has been delivered to the VAR, which is upon contract signing, provided all other revenue recognition criteria are met and no further significant obligations exist. For arrangements that do not call for an up-front, non-refundable payment, revenues are recognized as the royalties are earned, which is upon notification of sell-through by the VAR, provided all other revenue recognition criteria are met and no further significant obligations exist. Term-based licenses that include upgrades, when and if available, over the term of the contract are recognized ratably over the term that the upgrades are provided.

      Fees from licenses sold together with fee-based professional services are generally recognized upon delivery of the software, provided that the payment of the license fees are not dependent upon the performance of the services, and the services are not essential to the functionality of the licensed software. If the services are essential to the functionality of the software, or payment of the license fees are dependent upon the performance of the services, both the software license and service fees are recognized in accordance with SOP 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” The percentage of completion method is used for those arrangements in which reasonably dependable estimates are available. If reasonably dependable estimates are not available due to the complexity of the services to be performed, the Company defers recognition of any revenues for the project until the project is completed, delivered and accepted by the customer, provided all other revenue recognition criteria are met and no further significant obligations exist.

      For arrangements involving multiple elements, the Company defers revenue for the undelivered elements based on their relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of each undelivered element in multiple element arrangements is based on the price charged when the same element is sold separately. For maintenance and technical support elements, the Company uses renewal rates to determine the price when sold separately. The Company accounts for multiple element arrangements which involve only fee-based professional services in accordance with EITF 00-21. For licenses sold that include updates over a period of time the Company recognizes the license revenue over the period in which updates are provided.

      Standard terms for license arrangements require payment within 90 days of the contract date, which typically coincides with delivery. Standard terms for service arrangements, which are typically

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

billed and collected on an installment basis, require final payment within 90 days of completion of the services. Probability of collection is based upon the assessment of the customer's financial condition through the review of their current financial statements and/or credit reports. For follow-on sales to existing customers, prior payment history is also used to evaluate probability of collection. The Company's arrangements with customers do not contain product return rights. If the fee is not fixed or determinable, revenue is recognized as payments become due or as cash is received from the customer. If a nonstandard acceptance period is required, revenues are recognized upon the earlier of customer acceptance or the expiration of the acceptance period.

Income Taxes

      The Company accounts for income taxes using the liability method as required by SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred income taxes are determined based on the differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

Concentration of Risk

      The Company is subject to concentration of credit risk and interest rate risk related to cash, cash equivalents, marketable securities, accounts receivable, and restricted cash. Credit risk is managed by limiting the amount of marketable securities placed with any one issuer, investing in high-quality marketable securities and securities of the U.S. government and limiting the average maturity of the overall portfolio. At December 31, 2004, and periodically from 2003 through 2004, the Company has maintained balances with various financial institutions in excess of the federally insured limits.

      Carrying amounts of financial instruments held by the Company, which include cash and cash equivalents, marketable securities, accounts receivable, accounts payable, and accrued expenses, approximate fair value.

Net Loss Per Common Share

      Basic net loss per common share is computed using the weighted average number of shares of outstanding and diluted net loss per common share is computed using the weighted average number of shares of common and common equivalent shares outstanding. Common equivalent shares related to stock options and warrants totaling 7.3 million, 7.7 million, and 6.3 million, for the years ended December 31, 2004, 2003, and 2002, respectively, are excluded from the computation of diluted net loss per common share because their effect was anti-dilutive.

      Basic and diluted net loss per common share for the year ended December 31, 2004 include the effect of 0.7 million shares of common stock issued to Computer Associates on June 24, 2002, as if the shares were issued and outstanding on June 8, 2001.

Common Stock Issuance

      In March 2004, the Company sold 1.5 million shares of common stock, in a private placement to an institutional investor for $3.7 million or $2.45 per share. The institutional investor was one of the holders of the convertible notes. Prior to the closing of the March 2004 private placement the institutional investor converted $0.9 million of outstanding notes and received 0.9 million shares of Company common stock in the exchange.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

      In June 2004, the Company exercised its right to convert the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million shares of Viewpoint common stock.

      In December 2004, the Company sold 1.9 million shares of common stock in a private placement for $5.0 million or $2.65 per share.

Derivatives

      In 2002 and 2003, the Company issued convertible notes and warrants which would require Viewpoint to issue registered shares of common stock upon conversion of these securities. The Company accounts for the fair values of these outstanding warrants to purchase common stock and conversion options of its convertible notes in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and EITF Issue No. 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock,” which requires the Company to bifurcate and separately account for the conversion option and warrants as embedded derivatives contained in the Company's convertible notes. The Company is required to carry these embedded derivatives on its balance sheet at fair value and the unrealized changes in the value of these embedded derivatives are reflected in net income as changes in fair values of warrants to purchase common stock and conversion options of convertible notes. In 2004 all the convertible notes were converted into common stock.

Comprehensive Loss

      All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net income (loss) and other comprehensive income (loss), are reported net of their related tax effect, to arrive at comprehensive income (loss).

Recent Accounting Pronouncements

      In March 2004, the EITF reached a consenus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-01”). EITF 03-01 provides guidance on the meaning of “other-than-temporary” impairment and its application to certain marketable debt and equity securities accounted for under SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” and non-marketable securities accounted for under the cost method. The EITF developed a basic three-step model to evaluate whether an investment is other-than-temporarily impaired. In September 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position EITF 03-01-1, which delays the effective date until additional guidance is issued for the application of the recognition and measurement provisions of EITF 03-01 to investments in securities that are impaired. However, the disclosure requirements are effective for annual periods ended after June 15, 2004. The proposed statement does not have an effect on the Company's financial position and results of operations.

      On September 30, 2004, the Emerging Issues Task Force (“EITF”) confirmed their tentative conclusion on EITF Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share.” EITF 04-8 requires contingently convertible debt instruments to be included in diluted earnings per share, if dilutive, regardless of whether a market price contingency for the conversion of the debt into common shares or any other contingent factor has been met. Prior to this consensus, such instruments were excluded from the calculation until one or more of the contingencies were met. EITF 04-8 is effective for reporting periods ending after December 15, 2004, and requires restatement of prior period earnings per share amounts. The effect of these

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

adjustments would not effect diluted earnings per share for the three months ended June 30, 2004, the only period in which the Company had net income resulting in the Company reporting diluted earnings per share.

      In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” which requires companies to recognize in the statement of operations all share-based payments to employees, including grants of employee stock options, based on their fair values. Accounting for share-based compensation transactions using the intrinsic method supplemented by pro forma disclosures will no longer be permissible. The new statement will be effective for public entities in periods beginning after June 15, 2005. The Company has not yet completed its analysis of the impact of adopting SFAS 123R and is therefore currently unable to quantify the effect on its financial statements. However, the adoption of this new statement will have a significant impact on the results of operations and net income per share of the Company as the Company will be required to expense the fair value of all share-based payments.

      In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions” (SFAS 153). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This standard is effective for fiscal periods beginning after June 15, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on our consolidated statement of income and financial condition.

3. Cash, Cash Equivalents and Marketable Securities

      The cost and fair value of the Company's cash, cash equivalents and marketable securities as of December 31, 2004, by type of security, contractual maturity, and its classification in the balance sheet, are as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Maturity
Type of security:
Cash	$	4,800	$	—	$	—		$	4,800
Money Market Funds		1,005		—		—			1,005
Corporate Bonds and Notes		1,252		—		—			1,252		2005
Equity Securities		99		1		—			100
U.S. Government Agencies		1,507		—		(2	)		1,505		2005
	$	8,663	$	1	$	(2	)	$	8,662
Classification in Balance Sheet:
Cash and Cash Equivalents	$	5,954	$	1	$	—		$	5,955
Marketable Securities		2,709		—		(2	)		2,707
	$	8,663	$	1	$	(2	)	$	8,662

      The cost and fair value of the Company's cash, cash equivalents and marketable securities as of December 31, 2003, by type of security, contractual maturity, and its classification in the balance sheet, is as follows (in thousands):

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Maturity
Type of security:
Cash	$	314	$	—	$	—		$	314
Money Market Funds		6,718		—		—			6,718		2004
Corporate Bonds and Notes		1,400		—		—			1,400		2004
Equity Securities		100		—		(2	)		98
U.S. Government Agencies		958		—		—			958		2004
	$	9,490	$	—	$	(2	)	$	9,488
Classification in Balance Sheet:
Cash and Cash Equivalents	$	8,532	$	—	$	(2	)	$	8,530
Marketable Securities		958		—		—			958
	$	9,490	$	—	$	(2	)	$	9,488

4. Discontinued Operations

      In December 1999, the Board of Directors of the Company approved a plan to focus exclusively on its digital marketing technologies and services and to correspondingly divest itself of its prepackaged graphics software business. Accordingly, these operations are reflected as discontinued operations for all periods presented in the accompanying consolidated statements of operations. During the years ended December 31, 2004, 2003 and 2002 the Company recorded adjustments to net loss on disposal of discontinued operations, net of tax, of $0.1 million, $0.2 million, and $0.1 million, respectively, as a result of changes in estimates related to assets and liabilities of the discontinued business. Changes in estimates are accounted for prospectively and included in adjustment to net loss on disposal of discontinued operations.

5. Property and Equipment

      Property and equipment consist of the following (in thousands):

	December 31,
	2004			2003
Computer equipment and software	$	4,828		$	4,627
Office furniture and equipment		1,131			1,453
Leasehold improvements		1,510			1,515
Other		—			170
		7,469			7,765
Less accumulated depreciation and amortization		(5,984	)		(5,906	)
	$	1,485		$	1,859

      Depreciation expense for the years ended December 31, 2004, 2003 and 2002 was approximately $0.9 million, $1.5 million, and $2.0 million, respectively.

6. Goodwill and Intangible Assets

      Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” As required by SFAS No. 142, the Company discontinued amortizing the remaining balances of goodwill as of January 1, 2002. All remaining and future acquired goodwill is subject to impairment tests annually, or earlier if indicators of potential impairment exist, using a fair-value-based approach. All other intangible assets continue to be amortized over their

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

estimated useful lives and are assessed for impairment under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” In conjunction with the implementation of SFAS No. 142, the Company completed a goodwill impairment review as of January 1, 2002 and found no impairment on that date.

      During the year ended December 31, 2004 there were no impairments recorded. During the year ended December 31, 2003, the market value of the Company's equity securities declined below the Company's carrying value indicating the existence of a potential goodwill impairment. In accordance with SFAS No. 142, the Company performed the first step of the goodwill impairment test as of September 30, 2003. The fair value of the Company was determined to exceed its carrying value using a market-based approach with selected multiples ranging from 1.5 to 2.0 times revenues and 1.8 to 2.5 times gross profit. In accordance with SFAS No. 142, the second step of the impairment test was unnecessary, and no goodwill impairment charges were recorded.

      The Company recorded $2.9 million of additional goodwill during the first quarter of 2002 in connection with a contingent promissory note due Computer Associates on April 30, 2002 for the acquisition of Viewpoint Digital. As of March 31, 2002, due to the persistence of unfavorable economic conditions along with lower-than-expected revenues generated to date and reduced estimates of future performance of the Viewpoint Digital assets, the Company performed an additional impairment analysis on the goodwill and other intangible asset balances recorded upon the acquisition of Viewpoint Digital. In accordance with the provisions of SFAS No. 142 and SFAS No. 144, the Company recorded impairment charges totaling $6.3 million. The fair value of the Viewpoint Digital assets were estimated using the expected present value of future cash flows. The assumptions supporting the cash flows, including the discount rate, were determined using the Company's best estimates as of the date the impairment was recorded. In accordance with SFAS No. 142, the effect of this accounting change is reflected prospectively.

      The changes in the carrying amount of goodwill and intangible assets during the year ended December 31, 2004 are as follows (in thousands):

	Goodwill		Intangible Assets			Total
Balance as of December 31, 2003	$	31,276	$	186		$	31,462
Additions during period		—		61			61
Amortization		—		(17	)		(17	)
Balance as of December 31, 2004	$	31,276	$	230		$	31,506

      The changes in the carrying amount of goodwill and intangible assets during the year ended December 31, 2003 are as follows (in thousands):

	Goodwill		Intangible Assets			Total
Balance as of December 31, 2002	$	31,276	$	165		$	31,441
Additions during period		—		31			31
Amortization		—		(10	)		(10	)
Balance as of December 31, 2003	$	31,276	$	186		$	31,462

      As of December 31, 2004 and 2003, the Company's intangible assets and related accumulated amortization consisted of the following (in thousands):

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	December 31, 2004							December 31, 2003
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Patents and Trademarks	$	260	$	(30	)	$	230	$	199	$	(13	)	$	186
Total Intangible Assets	$	260	$	(30	)	$	230	$	199	$	(13	)	$	186

      Amortization of intangible assets is estimated to be $15,000 a year for the next five years.

7. Related Party Transactions

      During 2004 and 2003, the Company recorded revenues totaling $6.0 million and $7.0 million respectively, related to agreements with AOL that were entered into prior to December 31, 2003. AOL had a representative on the Company's Board of Directors until December 2003. As of December 31, 2004, the Company has less then $0.1 million in related party accounts receivable, and has $4.6 million in deferred revenues relating to transactions with AOL. At December 31, 2003 the Company had $0.9 million in accounts receivable and $9.7 million in deferred revenue relating to transactions with both AOL and Computer Associates, Inc. (“CA”), who had a representative on the Company's Board of Directors until October 2004.

      In 2003, the Company entered into an amended license agreement with AOL which provides for payments by AOL of $10.0 million which were all received during the fourth quarter of 2003. The agreement contains multiple elements consisting of a perpetual broadcast license, a perpetual source code license, quarterly updates to the source code through December 2005, and maintenance and consulting services. The Company is recognizing $9.0 million of revenue from this agreement ratably as license and services revenue, through December 31, 2005, which represents the duration of the Company's obligation for post-contract customer support of the source code element including quarterly upgrades and maintenance requirements. License revenues will represent 85% of this $9.0 million portion of the revenue arrangement. At December 31, 2004, $4.5 million of this sale remained deferred.

      During 2002, the Company recorded revenues totaling $9.8 million, related to agreements, including reseller arrangements, with AOL, CA, and Adobe, all of whom had representatives on the Company's Board of Directors. The $9.8 million of revenues includes approximately $3.1 million due to a March 2002 amendment to a contract with AOL, which resulted in the Company recording revenues when payments are due, as contrasted to the partial deferral of those payments, which would otherwise have occurred.

8. Long Term Debt

Convertible Notes

      On December 31, 2002, the Company completed a private placement of convertible notes and warrants in which it issued to three institutional investors, 4.95% convertible notes having an aggregate principal amount of $7.0 million, and warrants to purchase 0.7 million shares of Company common stock. The convertible notes were to mature on December 31, 2007, unless earlier converted into shares of Company common stock at a price of $2.26 per share. The warrants expire on December 31, 2006, and are exercisable at a price of $2.26 per share.

      On March 25, 2003, the Company entered into Redemption, Amendment and Exchange Agreements with the three institutional investors with whom it had completed the private placement of convertible notes and warrants on December 31, 2002. In conjunction with the extinguishment, the Company paid $3.3 million, issued new convertible notes in the principal amount of $2.7 million and issued $1.4 million shares of its common stock with a market value of $0.7 million. The difference between (i) the carrying value of the outstanding convertible notes

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

exchanged and (ii) cash paid and the fair value of the common stock and new convertible notes issued, amounted to $1.0 million and was included in the loss on early extinguishment of debt. The Company recorded a loss for the year ended December 31, 2003, on the early extinguishment of the original convertible notes in the amount of $1.7 million of which $0.7 related to the write-off of deferred loan costs.

      Interest on the convertible notes was payable quarterly in arrears in cash or, at the option of the Company, in shares of Company common stock provided the Company satisfies certain financial and other conditions. The new convertible notes matured on December 31, 2007, unless earlier converted into shares of Company common stock. The conversion price of the first $0.9 million tranche of notes was $1.10. The conversion price of the second and third tranche of notes was $1.00.

      Each tranche of the notes was convertible at the Company's election at any time after May 20, 2004 if the dollar volume-weighted average price of Company common stock exceeded 150% of the conversion price applicable to the notes for any 25 consecutive trading days following April 15, 2004.

      Pursuant to SFAS No. 133, the Company bi-furcated the fair value of the conversion options from the new convertible notes since the conversion options were determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion options is an event outside of the control of the Company, pursuant to EITF Issue No. 00-19, the Company recorded the fair value of the conversion options as long-term liabilities, as it was assumed that the Company would be required to net-cash settle the underlying securities.

      The Company recorded income or loss based on the decrease or increase, respectively, in the fair values of the new conversion options and original warrants in the Company's consolidated statements of operations. The amortization of discount on the new convertible notes and debt issue costs were accounted for using the effective interest method.

      On March 17, 2004, one of the institutional investors holding the convertible notes converted $0.9 million of outstanding notes for shares of the Company's common stock. In addition, on the same day as the conversion, the Company sold 1.5 million shares of common stock in a private placement to the institutional investor, for $3.7 million or $2.45 per share. The Company recorded a loss on conversion of debt in the amount of $0.6 million, which represented the write-off of unamortized loan discount and debt issuance costs of $0.1 million and the difference between the proceeds received from the private placement and the fair value of the common stock issued based upon the closing price of the Company's stock on the day of the sale of $0.5 million. The remaining noteholders chose not to exercise their right to redeem their notes in amount up to 20% of the $3.7 million received by the Company within 10 days of the Company's public announcement of the closing of the private placement.

      During the period beginning on April 15, 2004 and May 20, 2004—a period which covered 25 consecutive trading days—the dollar volume-weighted average price of the Company's common stock exceeded 150% of the conversion price applicable to the outstanding convertible notes and the Company determined to exercise its right to convert the outstanding notes into shares of Company common stock. Accordingly, on May 20, 2004, the Company informed the institutional investors holding the outstanding convertible notes that it would exercise its right to convert that debt.

      On June 18, 2004, the Company completed the conversion of the remaining outstanding convertible notes of $1.8 million and the related outstanding interest into 1.7 million of $.02 million, shares of Viewpoint common stock. In addition, the Company recorded a loss on conversion which represented the difference between the fair value of the common stock issued in

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

exchange for the notes and the carrying value of the convertible notes on the date of conversion. This change was primarily comprised of the write-off of unamortized loan discount and debt issuance costs.

      For the year ended December 31, 2004, the Company recognized a change in valuation expense for the converted notes and outstanding warrants of $3.0 million and $1.2 million, respectively, resulting from an increase in the fair market value of the Company's common stock. For the year ended December 31, 2003, the Company recognized a gain related to the change in valuation for the converted notes and outstanding warrants of $1.0 million and $0.2 million, respectively, resulting from a decrease in the fair market value of the Company's common stock.

      Subordinated Notes

      On March 26, 2003, Viewpoint Corporation entered into a Securities Purchase Agreement with three other accredited investors, pursuant to which it received $3.5 million in exchange for an aggregate of $3.5 million principal amount of 4.95% subordinated notes and 3.6 million shares of Viewpoint common stock. The subordinated notes are scheduled to mature on March 31, 2006. Interest on these notes is payable quarterly in arrears in cash. The Company has the right at any time to redeem up to all of the outstanding notes at par plus accrued and unpaid interest.

      The $3.5 million of proceeds was allocated to subordinated notes, common stock, and additional paid in capital based on the market value of the Company's common stock on March 26, 2003. In accordance with the provisions of APB Opinion No. 21, the Company recorded a debt discount of $2.0 million. Debt issuance costs, which amounted to $0.2 million, were recorded as other assets in the Company's consolidated balance. The amortization of the discount on the subordinated notes and debt issue costs totaled $0.6 million and $0.3 million for the years ended December 31, 2004 and 2003, respectively, were accounted for using the effective interest method.

9. Agreements with Computer Associates

      On September 8, 2000, the Company purchased all the outstanding capital stock of Viewpoint Digital, a wholly owned subsidiary of Computer Associates. The acquisition was accounted for under the purchase method of accounting. The purchase price of $19 million, excluding contingent consideration in the maximum amount of $30 million in notes payable, consisted of 0.7 million shares of the Company's common stock valued at $8.9 million, cash consideration of $10 million and $0.2 million in direct acquisitions costs. The contingent consideration consisted of two promissory notes each in the amount of $15 million. Both notes were contingent upon the achievement of certain levels of future operating results and employee retention through March 8, 2002.

      During 2001, the Company entered into certain agreements with Computer Associates whereby Computer Associates agreed to accept newly-issued shares of Viewpoint common stock having a value of $4 million, in partial repayment of the first contingent promissory note due June 8, 2001. In addition, Computer Associates agreed to accept, at the Company's election, either cash or newly-issued shares of Viewpoint common stock at an issue price of $4.00 per share in repayment of any additional amounts due under the promissory note due June 8, 2001, and the first $8.9 million of the $15 million contingent promissory note due April 30, 2002.

      The amount due Computer Associates under the promissory note due June 8, 2001, and the subsequent agreements entered into in 2001, was approximately $4.7 million. For repayment of the first $4 million, the number of common shares to be issued was calculated on the basis of the average closing price of Viewpoint common stock over the ten-day trading period ending on and including June 8, 2001. The number of shares to be issued to Computer Associates was 0.7 million.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For repayment of the remaining $0.7 million, the Company had the option of paying cash or issuing unregistered shares of Viewpoint common stock valued at $4.00 per share. In connection with this promissory note, the Company recorded $4.8 million of additional goodwill and due to related parties in its consolidated balance sheet based on the closing price of Viewpoint common stock on June 8, 2001. In June 2002 Viewpoint issued Computer Associates 0.9 shares of common stock in full satisfaction of this promissory note.

      The amount due Computer Associates under the second contingent promissory note due April 30, 2002 was approximately $2.9 million for which the Company recorded additional goodwill and due to related parties in its consolidated balance sheet. In December 2003, the Company issued 0.7 million shares of common stock valued at $4.00 per share in full satisfaction of this promissory note. In connection with the satisfaction of this promissory note, the Company recorded $2.7 million in additional paid in capital. The remaining $0.2 million liability was forgiven in settlement of other claims in conjunction with this transaction and was recorded as other income.

10. Employee Benefit Plans

401(k) Plan

      In September 1995, the Company adopted a Defined Contribution Plan (the “401(k) Plan”). Participation in the 401(k) Plan is available to substantially all employees. Employees can contribute up to 20% of their salary, up to the Federal maximum allowable limit, on a before tax basis to the 401(k) Plan. Company contributions to the 401(k) Plan are discretionary. The Company made contributions totaling $0.1 million, to the 401(k) Plan during each of the years ended December 31, 2004, 2003, and 2002, respectively.

Stock Option Plans

1995 Stock Plan

      The Company's 1995 Stock Plan (the “1995 Plan”) provides for the grant to employees (including officers and employee directors) of incentive stock options and for the grant to employees (including officers and employee directors), non-employee directors and consultants of nonstatutory stock options and stock purchase rights. Upon the merger of the Company and Metastream, Metastream's Option Plan was merged into the Company's 1995 plan. As of December 31, 2004, options to purchase an aggregate of 6.4 million shares of common stock were outstanding under the 1995 Plan, with vesting provisions ranging up to four years. Options granted under the 1995 Plan are exercisable for a period of ten years. At December 31, 2004, an aggregate of 1.0 million shares of common stock were reserved for future issuance under the 1995 Plan.

1995 Director Option Plan

      The Company's 1995 Director Option Plan (the “Director Plan”) provides for an automatic grant of options to purchase shares of common stock to each non-employee director of the Company. Options granted under the 1995 Director Plan vest over one and a half to four and a half years and are exercisable for a period of ten years. As of December 31, 2004, 0.1 million options were outstanding under the 1995 Director Plan.

1996 Nonstatutory Stock Option Plan

      The Company's 1996 Nonstatutory Stock Option Plan (the “1996 Nonstatutory Plan”) provides for the grant to employees (including officers and employee directors) and consultants of

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

nonstatutory stock options and stock purchase rights. As of December 31, 2004, options to purchase an aggregate of 1.7 million shares of common stock were outstanding under the 1996 Nonstatutory Plan, with vesting provisions ranging up to four years. Options granted under the 1996 Nonstatutory Plan are exercisable for a period of ten years. At December 31, 2004, an aggregate of 0.3 million shares of common stock were reserved for future issuance under the 1996 Nonstatutory Plan.

Options Issued Outside the Option Plan

      During 2003, the Company issued 1.6 million non-qualified stock options outside the Option Plan in connection with the hiring of executive management. Certain options were issued at the opening price of the Company's common stock on the grant date, resulting in the options' exercise price being less then the fair market value at the time of the grant. In accordance with APB 25 and FIN 44, compensation expense is recognized over the vesting period, based on the difference at the date of grant between the fair value of the Company's stock and the exercise price.

      The terms and conditions of these grants are similar to the terms and conditions of options granted under the 1996 Nonstatutory Plan, with the exception that they vest over two years.

Options Issued Under Stock Option Plans

      The following summarizes activity in the Stock Option Plans for the years ended December 31, 2002, 2003 and 2004 (in thousands, except per share data):

				Options Outstanding
	Options Available for Grant			Number of Shares			Weighted Average Exercise Price
Options outstanding at December 31, 2001		589			10,397		$	3.79
Granted—exercise price equal to fair value		(1,677	)		1,677			5.10
Exercised		—			(650	)		2.12
Canceled		1,919			(1,919	)		5.75
Options outstanding at December 31, 2002		831			9,505		$	3.79
Granted—exercise price equal to fair value		(6,052	)		6,052			0.79
Granted—plan not approved by security holders		—			1,600			0.73
Exercised		—			(13	)		0.87
Canceled		6,704			(6,704	)		3.35
Options outstanding at December 31, 2003		1,483			10,440		$	1.82
Granted—exercise price equal to fair value		(993	)		993			1.85
Granted—exercise price > Market Value		—			54			1.73
Granted—exercise price < Market Value		—			40			1.69
Exercised		—			(717	)		0.81
Canceled		964			(964	)		2.75
Options outstanding at December 31, 2004		1,454			9,846		$	1.81

      The following summarizes information about the Company's stock options outstanding at December 31, 2004 (in thousands, except per share data and lives):

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Outstanding						Exercisable
Exercise Price Range	Shares		Average Life (a)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$0.46—$ 0.74		2,169		8.47	$	0.73		1,454	$	0.73
$0.75—$ 0.82		3,307		8.87		0.80		2,328		0.80
$0.87—$ 2.61		2,108		6.36		1.26		1,559		1.25
$2.69—$ 6.00		2,106		6.00		4.53		1,616		4.79
$6.10—$25.13		156		4.59		8.93		153		8.96
Total		9,846		7.56		1.81		7,110		1.97

(a) Average contractual remaining life in years.

      The Company accrued incentive compensation expense for the difference between the grant price and the deemed fair value of the common stock underlying options, which were issued in connection with the RTG acquisition in December 1996. At December 31, 2004 and 2003 accrued incentive compensation related to the options, which are fully vested totaled $0.5 million.

      The following summarizes options exercisable at December 31, 2004, 2003 and 2002, (in thousands):

	December 31,
	2004		2003		2002
Options exercisable		7,110		4,753		5,534

Deferred Compensation

      In connection with the grant and cancellation of stock options to certain employees and non-employee directors there were minimal cancellations in 2004, and the Company reduced total deferred compensation by approximately $1.2 million, and $2 million for the years ended December 31, 2003 and 2002, respectively. Non-cash stock-based compensation charges of $0.3 million, $2.7 million, and $5.1 million were recognized during the years ended December 31, 2004, 2003 and 2002, respectively.

      In connection with the issuance of stock options to non-employees for services performed, the Company did not record a non-cash stock-based compensation charge during the years ended December 31, 2004 and 2003 as the fair value of options issued were nominal, and recorded a non-cash stock-based compensation charge of $0.3 million for the year ended December 31, 2002. The non-cash stock-based compensation charge recorded for non-employees represents the fair value of options using a Black-Scholes option-pricing model with the following weighted average assumptions, varying with the specific details for each consultant agreement: risk-free interest rate of 1.19% contractual life of three months to one year, dividend yield of zero, and expected volatility ranging from 82.7% to 100%.

11. Restructuring and Impairment Charges

      In 2003, the Company implemented three restructuring plans. The first plan, implemented in February 2003, reduced operating expenses by closing the Company's Utah office and related to the termination of 28 employees in that office who were primarily engaged in sales and marketing activities. In accordance with SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded restructuring charges of $1.2 million. This charge was recorded on our income statement as restructuring charges. The restructuring charges represent the present value of remaining lease commitments discounted by 20% and reduced by estimated sublease rental income, employee severance and termination benefits, the write-off of the net book

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

value of certain fixed assets used in the Utah office, and other miscellaneous charges. Subsequent to the restructuring, the Company re-evaluated market conditions surrounding its efforts to sub-lease the Utah office space and increased the restructuring charge by $0.2 million related to the fair value of the remaining lease commitment reduced by estimated sublease rental income. During October 2004 the Company signed an agreement releasing it from any additional obligation under the remaining lease commitment after a payment of $0.3 million. As a result of this release the Company reversed the remaining accrued amount of $0.1 million as the Company completed its obligations under the release agreement.

	Lease Costs			Employee Severance and Termination Benefits			Asset Write-offs			Miscellaneous Charges			Restructuring Accrual
Restructuring and impairment charges	$	459		$	367		$	361		$	24		$	1,211
Cash paid		(200	)		(367	)		—			(24	)		(591	)
Restructuring charge		249			—			—			—			249
Non-cash charges		—			—			(361	)		—			(361	)
Balance at December 31, 2003		508			—			—			—			508
Cash paid		(420	)		—			—			—			(420	)
Restructuring expense reversed		(88	)		—			—			—			(88	)
Balance at December 31, 2004	$	—		$	—		$	—		$	—		$	—

      The second plan was implemented in September 2003, and was designed to streamline the business. Under the plan the Company eliminated 24 sales and marketing, research and development, and general and administrative positions. The Company incurred a restructuring charge of $0.5 million related to severance arrangements. The charge is recorded on the income statement as a restructuring and impairment charge. The second restructuring plan was completed by September 30, 2003. In November 2003, however, the Company increased the restructuring charge by $0.1 million in settlement of an action brought by one of the terminated employees. In January 2004 the Company recorded a non-cash adjustment to the restructuring accrual to reflect payments that were less than originally contemplated under the plan. The second restructuring plan was completed by March 31, 2004.

	Employee Severance and Termination Benefits			Restructuring Accrual
Restructuring and impairment charges	$	463		$	463
Cash paid		(355	)		(355	)
Additional restructuring charges		50			50
Non-cash adjustments		(2	)		(2	)
Balance at December 31, 2003		156			156
Cash paid		(140	)		(140	)
Non-cash adjustments		(16	)		(16	)
Balance at December 31, 2004	$	—		$	—

      The third plan was implemented in December 2003, and was designed to consolidate international operations to the New York office. Accordingly, the Company closed the London, England office, incurring a restructuring charge of $0.1 million related to severance arrangements. This severance payment was made in January 2004. As the lease relating to this office terminated in February 2004 the Company did not incur a charge related to rent expense. The severance

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

charge is recorded on the income statement as a restructuring charge. The third restructuring plan was completed by December 31, 2003.

	Employee Severance and Termination Benefits			Restructuring Accrual
Restructuring and impairment charges	$	52		$	52
Cash paid		—			—
Balance at December 31, 2003		52			52
Cash paid		(52	)		(52	)
Balance at December 31, 2004	$	—		$	—

12. Commitments and Contingencies

      Commitments

      The Company leases its primary office space in New York City pursuant to various lease agreements with terms through February of 2010. In conjunction with the acquisition of Viewpoint Digital in 2000, the Company also leases office space in Los Angeles, California, with a lease term through December of 2009.

      The Company also leases certain equipment and a vehicle for an executive of the Company with lease terms of up to three years. Rent expense for office space, equipment, and the executive's vehicle totaled approximately $1.0 million, $1.1 million, and $1.3 million, for the years ended December 31, 2004, 2003 and 2002, respectively.

      During December, 2004 the Company entered into an agreement with an executive extending their employment term with the Company until June 30, 2005. Additionally, if that employee satisfies the obligations of that agreement the Company agreed to pay the employee $0.2 million during the last six months of 2005 in addition to certain benefit expenses.

      Future minimum lease payments under non-cancelable operating leases and employment agreements for each twelve-month period subsequent to December 31, 2004 are as follows (in thousands):

2005		1,088
2006		967
2007		983
2008		799
2009		796
Thereafter		90
	$	4,723

      Legal Proceedings

      The Company is engaged in certain legal actions arising in the ordinary course of business. The Company believes it has adequate legal defenses in legal actions in which it is the defendant and believes that the ultimate outcome of such actions will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.

13. Income Taxes

      The components of the provision for income taxes for the years ended December 31, 2004, 2003 and 2002 are as follows (in thousands):

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Years Ended December 31,
	2004		2003		2002
Current:
Federal	$	—	$	—	$	—
State		89		79		45
Foreign		—		2		62
Total current	$	89	$	81	$	107
Deferred
Federal	$	—	$	—	$	—
State		—		—		—
Foreign		—		—		—
Total deferred	$	—	$	—	$	—

      The differences between the statutory rate and the Company's effective income tax rate are as follows:

	Years Ended December 31,
	2004			2003			2002
Federal tax benefit at the statutory rate		(34.00	)%		(34.00	)%		(34.00	)%
State income taxes, net of federal income tax benefit		(5.41	)		(6.13	)		(4.44	)
Other		2.13			1.38			0.94
Amortization and impairment of goodwill and other intangibles		—			—			9.13
Change in fair value of warrants and options		14.7			—			—
Loss on conversion of debt		2.86			—			—
Change in valuation reserve		20.65			38.96			28.78
Effective income tax rate		0.93	%		0.21	%		0.41	%

      Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, together with net operating loss and tax credit carry-forwards. Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2004			2003
Deferred tax assets:
Balance sheet reserves	$	133		$	1,028
Accrued expenses		2,486			4,557
Tax credit carryforwards		1,838			3,413
Other		465			—
Net operating loss carryforwards		77,831			72,324
		82,753			81,322
Valuation allowance		(82,753	)		(81,322	)
Net deferred taxes	$	—		$	—

      The valuation allowance for deferred taxes increased by approximately $1.4 million and $8.2 million during 2004 and 2003, respectively, providing a full valuation allowance against the Company's net deferred tax assets. The Company's net deferred tax assets include substantial amounts of net operating loss carryforwards. Included in the valuation allowance is $2.8 million and $2.3 million related to excess tax deductions over book expenses on deferred compensation

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

plans, which on recognition of these amounts will be added to paid in capital. Inability to generate taxable income within the carryforward period would affect the ultimate realizability of such assets. Consequently, management determined that sufficient uncertainty exists regarding the realizability of these assets to warrant the establishment of the full valuation allowance. Management's assessment with respect to the amount of deferred tax assets considered realizable may be revised over the near term-based on actual operating results and revised financial statement projections.

      At December 31, 2004, the Company has net operating loss and tax credit carryforwards of approximately $187.9 million and $1.8 million, respectively, for federal income tax purposes, which begin to expire in 2011. The Company's federal net operating loss carryforward relates to the Company's acquisitions of RTG and Specular and the net losses incurred by the Company. The Company also has net operating loss and tax credit carryforwards for state income tax purposes, which begin to expire in 2011. The Company's state net operating loss carryforward primarily relates to the net losses incurred by the Company. Additionally, the Company has net operating loss carryforwards of approximately $1.9 million for foreign income tax purposes, which begin to expire in 2006. The net operating loss carryforwards may be used to offset any future taxable income, subject to potential limitations on the Company's ability to utilize such loss carryforwards pursuant to the ownership rule changes of the Internal Revenue Code, Section 382.

14. Comprehensive Loss

      Total comprehensive loss consisted of the following (in thousands):

	Years Ended December 31,
	2004			2003			2002
Net loss	$	(9,700	)	$	(21,502	)	$	(25,893	)
Foreign currency translation adjustment		5			(27	)		(9	)
Unrealized gain (loss) on marketable securities		—			(2	)		(45	)
Comprehensive loss	$	(9,695	)	$	(21,531	)	$	(25,947	)

15. Segment Information and Enterprise-Wide Disclosures

      In 2003, the Company began to manage and analyze the business in segments. In 2003, sales and production employees became dedicated to its License or Service business and each business was managed separately. In 2004, the Company added Search and Advertising systems as businesses that it managed separately. Search revenue is generated when a customer uses the Viewpoint Toolbar to search the internet, and clicks on a sponsored advertisement included in the search results. The Viewpoint Toolbar's search results are provided by Yahoo! who collects a fee from the advertiser and remits a percentage of the fee to Viewpoint. Advertising systems revenue is generated by charging customers to host advertising campaigns based on a cost per thousand (“CPM”) impressions. The Service segment provides creative and support services to customers who generally have purchased or received licenses to use the Viewpoint software platform. Services are generally sold directly by the company's sales team and occasionally by VARs. Services revenues are generally earned by the delivery of product created or provided by Company employees or third parties that the Company has contracted to perform services under the guidance of the Company. The License segment sells software licenses to use the Viewpoint software platform. Licenses are sold directly by the company's sales employees and indirectly through VARs, for which the Company pays a commission.

      The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2. The Company does not currently evaluate the performance of its segments beyond gross profit. The Company does not allocate research and

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

development, sales and marketing or general and administrative costs, specifically, to any segment as it does not use that information to make key operating decisions and does not believe that allocating these expenses is necessary in evaluating performance.

	Years Ended December 31,
	2004			2003			2002
Revenues:
Search	$	2,698		$	—		$	—
Advertising systems		305			—			—
Services		4,822			4,291			3,302
Related party services		2,468			5,226			2,244
Licenses		704			2,283			5,039
Related party licenses		3,535			1,729			7,554
Total revenues		14,532			13,529			18,139
Cost of Revenues:
Search		45			—			—
Advertising systems		132			—			—
Services		3,074			5,776			3,587
Licenses		6			97			353
Total cost of revenues		3,257			5,873			3,940
Gross profit		11,275			7,656			14,199
Search		2,653			—			—
Advertising systems		173			—			—
Services		4,216			3,741			1,959
Licenses		4,233			3,915			12,240
Total gross profit	$	11,275		$	7,656		$	14,199
Gross profit margin
Search		98	%		—	%		—	%
Advertising systems		57			—			35
Services		58			39			35
Licenses		100			98			97
Total gross profit		78	%		57	%		78	%

16. Major Customers

      Customers whose revenues represent greater than 10 percent of the Company's consolidated revenues from continuing operations for the years ended December 31, 2004, 2003 and 2002 are as follows:

	Years Ended December 31,
	2004		2003		2002
Customer A		19%		0%		0%
Customer B		48%		51%		51%

      Customers whose accounts receivable represent greater than 10 percent of the Company's consolidated net accounts receivable from continuing operations at December 31, 2004 and 2003 are as follows:

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Years Ended December 31,
	2004		2003
Customer A		48%		0%
Customer B		11%		51%

17. Quarterly Results of Operations (Unaudited)

      Summarized quarterly financial information for the years 2004 and 2003 are as follows (in thousands, except per share amounts):

	Quarter Ended
	March 31			June 30			September 30			December 31
Fiscal year 2004:
Total revenues	$	3,592		$	2,805		$	3,367		$	4,768
Gross profit		2,840			2,004			2,578			3,853
Net income (loss) from continuing operations		(8,653	)		752			(1,385	)		(543	)
Adjustment to net loss on disposal of discontinued operations		19			20			90			—
Net income (loss)		(8,634	)		772			(1,295	)		(543	)
Basic and diluted net loss per share		(0.17	)		0.01			(0.02	)		(0.01	)
Fiscal year 2003:
Total revenues	$	4,025		$	4,474		$	2,518		$	2,512
Gross profit		2,802			2,074			1,078			1,702
Net loss from continuing operations		(6,596	)		(6,310	)		(5,559	)		(3,194	)
Adjustment to net loss on disposal of discontinued operations		90			26			41			—
Net loss		(6,506	)		(6,284	)		(5,518	)		(3,194	)
Basic and diluted net loss per share		(0.16	)		(0.14	)		(0.12	)		(0.07	)

18. Subsequent Events

      On January 3, 2005, Viewpoint Corporation completed the acquisition of all of the outstanding capital stock of Unicast Communications Corporation, a rich media ad serving business, in order to develop the Company's advertising systems segment.

      Under the terms of the agreement, Viewpoint issued an aggregate of 1.1 million shares of Viewpoint common stock to the selling stockholders of Unicast and paid $0.2 million in cash. Within one hundred ninety (190) days following the closing, Viewpoint will be obligated to issue up to an additional 0.4 million shares of Viewpoint common stock and to make an additional cash payment of up to $0.2 million. The number of shares issuable and the amount of cash payable within 190 days following closing will be subject to adjustments based on net working capital assumed by Viewpoint in accordance with terms set forth in the agreement. Due to these adjustments the purchase price has not been completed to date.

      Long-term debt issued by Unicast will remain outstanding at the Uniciast subsidiary level following the closing. This debt is comprised solely of the following:

— An unsecured promissory note issued by Unicast dated February 27, 2004 in the principal amount of $1 million. This promissory note bears interest at 5% per annum, compounding annually, and matures in February 2011. No payments of principal or interest are due until the maturity date.

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VIEWPOINT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

— A secured promissory note issued by Unicast amended and restated February 27, 2004 in the principal amount of $2 million. This promissory note bears interest of 5% per annum and is secured by substantially all of the Unicast subsidiary's assets. Concurrently with the closing of the Unicast acquisition, Viewpoint will cause a payment of $0.3 million to be made to the secured note holder which will be applied towards reducing the amount outstanding under the promissory note. Viewpoint will become an additional obligor under the promissory note and Viewpoint's assets will become additional collateral to secure the obligations if certain contingencies occur, such as Viewpoint's failure to operate the Unicast ad-serving business through the Unicast subsidiary or the ad-serving business fails to achieve certain revenue targets. No payments under the secured promissory note are due until March 2006. At that time, all unpaid principal and interest will be fully amortized and payable in 60 equal monthly installments through March 2011.

      Viewpoint assumed an obligation to make certain payments on behalf of the selling stockholders in the maximum amount of $0.4 million, payable in equal bi-monthly installments over the one-year period following the closing. If the obligation ceases over the course the year or is determined to be less than $0.4 million, Viewpoint will pay to the selling stockholders the difference between $0.4 million and the amount payable under the severance obligation.

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VIEWPOINT CORPORATION
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2004, 2003 and 2002

Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other		Deductions		Balance at End of Period
	(In thousands)
Allowance for Accounts Receivable:
Year Ended December 31, 2004	$	1,611	$	43	$	3	$	1,227	$	430
Year Ended December 31, 2003		1,557		1,187		13		1,146		1,611
Year Ended December 31, 2002		986		858		3		290		1,557
Allowance for Notes Receivable:
Year Ended December 31, 2004	$	—	$	—	$	—	$	—	$	—
Year Ended December 31, 2003		1,362		—		—		1,362		—
Year Ended December 31, 2002		750		612		—		—		1,362
Allowance for Discontinued Operations:
Year Ended December 31, 2004	$	—	$	—	$	—	$	—	$	—
Year Ended December 31, 2003		—		—		—		—		—
Year Ended December 31, 2002		595		—		—		595		—
Valuation Allowance for Deferred Tax Assets:
Year Ended December 31, 2004	$	81,322	$	1,431	$	—	$	—	$	82,753
Year Ended December 31, 2003		70,643		10,679		—		—		81,322
Year Ended December 31, 2002		60,593		10,050		—		—		70,643

(1) Reserves established in connection with the acquisition of Viewpoint Digital, Inc. (“Viewpoint Digital”).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      Not applicable.

Item 9A. Controls and Procedures

1. Disclosure Controls and Procedures

      Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2004. Based on this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2004, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including its consoldated subsidiaries, is made known to our chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

2. Internal Control over Financing Reporting

      (a) Management's Annual Report on Internal Control Over Financing Reporting

      Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors,

78

management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

      (1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company.

      (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and

      (3) Provide reasonable assurances regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control Integrated Framework.

      Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. Based on our assessment, we believe that as of December 31, 2004, our internal control over financial reporting is effective based on those criteria.

      Our Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP, has audited our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 as stated in their report which appears herein.

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PART III

Item 10. Directors and Executive Officers of the Registrant

      Information regarding our Executive Officers required by Item 10 of Part III is set forth in Item 1 of Part I “Business—Executive Officers of the Registrant.” Information required by Item 10 of Part III regarding our Directors is included in our Proxy Statement relating to our 2004 annual meeting of stockholders, and is incorporated herein by reference. Information relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 is set forth in the Proxy Statement relating to our 2004 annual meeting of stockholders and is incorporated herein by reference.

Audit Committee Financial Expert

      The Company has determined that Dennis R. Raney, chairman of the Audit Committee of the Board of Directors, qualifies as an “audit committee financial expert” as defined in Item 401 (h) of Regulation S-K, and that Mr. Raney is “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Securities Exchange Act.

Code of Business Conduct

      The Company has adopted a Code of Business Conduct and Ethics applicable to directors, officers, and all employees of the Company. Viewpoint's Code of Business Conduct and Ethics is available on the Company's web site at www.viewpoint.com under the Company tab and “Investor Relations” link. The Company intends to post on its web site any amendments to, or waivers from its Code of Business Conduct and Ethics applicable to any employees.

Item 11. Executive Compensation

      Information required by Item 11 of Part III is included in our Proxy Statement relating to our 2005 annual meeting of stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      Information required by Item 12 of Part III is included in our Proxy Statement relating to our 2005 annual meeting of stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

      Information required by Item 13 of Part III is included in our Proxy Statement relating to our 2005 annual meeting of stockholders and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

      Information required by Item 14 of Part III is included in our Proxy Statement relating to our 2005 annual meeting of stockholders and is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedule

      (a) The following documents are filed as part of this report:

      1. Financial Statements. See Index to Financial Statements at Item 8 on page 31 of this Report.

      2. Financial Statement Schedule. See Index to Financial Statements at Item 8 on page 31 of this Report.

      3. Exhibits.

		Exhibit No. 2: Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1	—	Stock Purchase Agreement, dated as of August 23, 2000, by and between the Registrant and Computer Associates International, Inc. (incorporated by reference from Exhibit 2.1 to the Registrant's Current Report on form 8-K, filed on September 8, 2000 (File No. 000-27168))
2.2	—	Stock Purchase Agreement between the Registrant and the selling stockholders of Unicast Communications Corp., dated December 1, 2004
		Exhibit No. 3: Articles of Incorporation and Bylaws
3.1	—	Restated Certificate of Incorporation of Registrant
3.2	—	Bylaws of Registrant, as amended on July 24, 1998 (incorporated by reference from Exhibit 3.6 to the Registrant's Form 10-Q for the quarter ended June 30, 1998, filed on August 14, 1998 (File No. 000-27168))
		Exhibit No. 4: Instruments Defining the Rights of Security Holders
4.1	—	Specimen of Common Stock Certificate of Registrant (incorporated by reference from Exhibit 2.4 to the Registrant's Form 8-K, filed on June 13, 1997 (File No. 000-27168))
4.2	—	Amended and Restated Rights Agreement, dated as of June 24, 1999 between the Registrant and BankBoston, N.A., including form of Certificate of Designations, Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C respectively (incorporated by reference from Exhibit 4 to the Registrant's Form 8-A/A, filed on October 29, 1999 (File No. 000-27168))
4.3	—	Amendment No. 1 to Amended and Restated Rights Agreement, dated as of June 24, 1999 between the Registrant and BankBoston, N.A. (incorporated by reference from Exhibit 5 to the Registrant's Form 8-A/A, filed on December 5, 2000 (File No. 000-27168))
		Exhibit No. 10: Material Contracts
10.1	—	1995 Stock Plan, as amended on November 28, 2000 (incorporated by reference from Exhibit 10.2 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001 (File No. 000-27168))
10.2	—	1995 Director Option Plan (incorporated by reference from Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2, filed on December 11, 1995, as amended (File No. 33-98628LA))
10.3	—	1996 Nonstatutory Stock Option Plan, as amended on June 29, 1999 (incorporated by reference from Exhibit 4.2 to the Registrant's Registration Statement on Form S-8, filed on September 9, 1999 (File No. 333-86817))
10.4	—	Employment Agreement between the Registrant and Robert E. Rice dated December 29, 2004 (incorporated by reference from Exhibit 10.1 to the Registrant's Report on Form 8-K filed by the Registrant on December 30, 2004
10.5	—	Employment Agreement between the Registrant and Jay S. Amato, dated August 7, 2003 (incorporated by reference from Exhibit 10.1 to Form 10-Q filed by the Registrant on November 14, 2003)

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10.6		—	Employment Agreement between the Registrant and William H. Mitchell dated July 18, 2003 (incorporated by reference from Exhibit 10.2 to Form 10-Q filed by Registrant on November 14, 2003)
10.7		—	Form of Indemnification Agreement for Executive Officers and Directors (incorporated by reference from Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2, filed on December 11, 1995, as amended (File No. 33-98628LA))
10.8		—	Securities Purchase Agreement, dated as of December 31, 2002, by and among the Registrant and the Buyers named therein, as amended by the Redemption, Amendment and Exchange Agreement, dated as of March 25, 2003, by and among the Registrant and the Buyers named therein (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on January 2, 2003)
10.9		—	Form of Replacement 4.95% Convertible Note of the Registrant, (incorporated by reference from Exhibit 10.2 to Form 8-K filed by the Registrant on January 2, 2003)
10.10		—	Form of Subsequent/Additional 4.95% Convertible Note of the Registrant, (incorporated by reference from Exhibit 10.3 to Form 8-K filed by the Registrant on January 2, 2003)
10.11		—	Form of Initial Warrant for Common Stock of the Registrant, (incorporated by reference from Exhibit 10.4 to Form 8-K filed by the Registrant on January 2, 2003)
10.12		—	Form of Subsequent/Additional Warrant for Common Stock of the Registrant, (incorporated by reference from Exhibit 10.5 to Form 8-K filed by the Registrant on January 2, 2003)
10.13		—	Registration Rights Agreement, dated as of December 31, 2002, by and among the Registrant and the Buyers named therein, as amended by the Redemption, Amendment and Exchange Agreement, dated as of March 25, 2003, by and among the Registrant and the Buyers named therein, (incorporated by reference from Exhibit 10.6 to Form 8-K filed by the Registrant on January 2, 2003)
10.14		—	Pledge Agreement, dated as of December 31, 2002, by Viewpoint Corporation as Pledgor, in favor of Smithfield Fiduciary LLC as collateral agent, for the benefit of the holders named therein, (incorporated by reference from Exhibit 10.7 to Form 8-K filed by the Registrant on January 2, 2003)
10.15		—	Redemption, Amendment and Exchange Agreement, dated as of March 25, 2003, by and among the Registrant and Smithfield Fiduciary LLC (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on March 25, 2003)
10.16		—	Redemption, Amendment and Exchange Agreement, dated as of March 25, 2003, by and among the Registrant and Riverview Group, LLC (incorporated by reference from Exhibit 10.2 to Form 8-K filed by the Registrant on March 25, 2003)
10.17		—	Redemption, Amendment and Exchange Agreement, dated as of March 25, 2003, by and among the Registrant and Portside Growth & Opportunity Fund (incorporated by reference from Exhibit 10.3 to Form 8-K filed by the Registrant on March 25, 2003)
10.18		—	Form of Redemption Warrant for Common Stock of the Registrant (incorporated by reference from Exhibit 10.9 to Form 8-K filed by the Registrant on March 25, 2003)
10.19		—	Stock Purchase Agreement, dated as of November 12, 2003, by and between the Registrant and Federal Partners, L.P. (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on November 13, 2003)
10.20		—	Registration Rights Agreement dated as of November 12, 2003, by and between the Registrant and Federal Partners, L.P. (incorporated by reference from Exhibit 10.2 to Form 8-K filed by Registrant on November 13, 2003)
10.21	*	—	Overture Master Agreement, dated January 14, 2004 by and between the Registrant and Overture Services, Inc.
10.22		—	Registration Rights Agreement, by and between the Registrant and the selling stockholders of Unicast Communications, Corp.

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10.23	—	Securities Purchase Agreement, by and between the Registrant and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on March 18, 2004)
10.24	—	Registration Rights Agreement, by and between the Registrant and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on March 18, 2004)
10.25	—	Securities Purchase Agreement, dated as of December 20, 2004, by and between the Registrant and EagleRock Master Fund, LP (incorporated by reference from Exhibit 10.1 to Form 8-K filed by the Registrant on December 22, 2004)
10.26	—	Registration Rights Agreement dated as of December 20, 2004, by and between the Registrant and EagleRock Master Fund, LP (incorporated by reference from Exhibit 10.2 to Form 8-K filed by Registrant on December 22, 2004)
		Exhibit No. 21: Subsidiaries of the Registrant
21.1	—	Listing of Registrant's Subsidiaries (incorporated by reference from Exhibit 21.1 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 2000, filed on March 30, 2001 (File No. 000-27168))
		Exhibit No. 23: Consents of Experts and Counsel
23.1	—	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
		Exhibit No. 24: Power of Attorney
24.1	—	Power of Attorney (included on the signature pages of this Annual Report on Form 10-K)
		Exhibit No. 99: Additional Exhibits
99.1	—	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2	—	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3	—	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99.4	—	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

* Confidential treatment has been requested for portions of this exhibit.

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EX-2

Exhibit 2.2

STOCK PURCHASE AGREEMENT

dated as of December 1, 2004

by and between

VIEWPOINT CORPORATION

and

THE STOCKHOLDERS LISTED ON THE SCHEDULE
OF SELLING STOCKHOLDERS ATTACHED HERETO

with respect to all

outstanding capital stock of

UNICAST COMMUNICATIONS CORP.

      This STOCK PURCHASE AGREEMENT (this “Agreement”) dated as of December 1, 2004 (the “Execution Date”) is made and entered into by and between Viewpoint Corporation, a Delaware corporation (“Purchaser”) on the one hand, and The MacManus Group, Inc. (“MacManus”), Kenneth Fadner (“Fadner”), James Lash (“Lash”), and Grace Internet Capital, LLC (“Grace”; each of Grace, Lash, MacManus, and Fadner a “Seller”, and collectively, the “Sellers”) on the other. Capitalized terms not otherwise defined herein have the meanings set forth in Section 13.01.

      WHEREAS, each Seller owns the number of shares of common stock, par value $0.01 per share, of Unicast Communications Corp., a Delaware corporation (the “Company”) set forth adjacent to its name on the Schedule of Selling Stockholders attached hereto;

      WHEREAS, the shares of common stock, par value $0.01 per share, of the Company listed on the Schedule of Selling Stockholders attached hereto constitute all issued and outstanding shares of capital stock of the Company (such shares being referred to herein as the “Shares”); and

      WHEREAS, Sellers desire to sell, and Purchaser desires to purchase, the Shares on the terms and subject to the conditions set forth in this Agreement;

      NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
SALEOF SHARESAND CLOSING

      1.01 Purchase and Sale. Sellers agree to sell to Purchaser, and Purchaser agrees to purchase from Sellers, all of the right, title and interest of Sellers in and to the Shares at the Closing on the terms and subject to the conditions set forth in this Agreement.

      1.02 Purchase Price. The purchase price (the “Purchase Price”) for the Shares is:

      (a) One million eighty four thousand seven hundred eleven (1,084,711) shares of common stock, par value $0.001 per share, of Purchaser (“Purchaser Common Stock”) which is equal to $2,625,000 divided by the Per Share Price (such shares, the “Purchaser Shares”). For purposes of this Agreement, “Per Share Price” means $2.42, which is the volume weighted average price of Purchaser Common Stock on the NASDAQ market for the ten (10) Trading Days immediately preceding the Execution Date multiplied by 0.95; and

      (b) $188,000 in cash, payable in immediately available United States funds at the Closing in the manner provided in Section 1.04.

      1.03 Purchase Price Adjustment to Reflect Net Liabilities.

      (a) Additional Purchase Price. The Purchase Price may be subject to adjustment as set forth below and all references to “Purchase Price” in this Agreement shall be deemed to be the Purchase Price as adjusted, if at all, pursuant to Sections 1.03(c) and (e) below.

      (b) Closing Date Balance Sheet, Certificate, and Net Liabilities. Within thirty (30) days following the Closing Date, Purchaser shall cause the Company, in consultation with Sellers, to deliver to Sellers and Purchaser (a) a balance sheet as of the Closing Date which presents fairly the financial position of the Company as of the Closing Date in accordance with GAAP (the “Closing Date Balance Sheet”), and (b) a certificate (the “Closing Date Certificate”) substantially in the form of the certificate attached hereto as Exhibit A, setting forth (i) in detail the amount of gross Accounts Receivable of the Company as of the Closing Date (the “Closing Date Accounts Receivable”) and (ii) Sellers' good faith estimate of the Closing Date Net Liabilities (as defined in the Closing Date Certificate) of the Company as determined from and supported by the Closing Date Balance Sheet. During normal business hours and upon reasonable notice from Purchaser, Seller shall make all of its work papers and other relevant documents in connection with the preparation of the Closing Date Balance Sheet available to Purchaser and Purchaser's independent public accountants (“Purchaser's Accountants”) and shall make the persons in charge of the

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preparation of the Closing Date Balance Sheet available for reasonable inquiry by Purchaser and Purchaser's Accountants.

      (c) First True-Up Date and Contingent Additional Cash Consideration. Within one hundred twenty (120) days following the Closing Date, Purchaser shall deliver to Sellers' representative a certificate, substantially in the form of the Closing Date Certificate (the “First True-Up Date Certificate”), executed by the Chief Financial Officer of Purchaser and setting forth the Closing Date Net Liabilities as calculated by Purchaser in good faith (and using the same principles as used and applied in preparing the Closing Date Balance Sheet and as set forth in the Closing Date Certificate) as of the date that is one hundred ten (110) days following the Closing Date (the “First True-Up Date”). If Closing Date Net Liabilities as of the First True-Up Date are less than eight hundred twelve thousand dollars ($812,000), Purchaser shall pay to Sellers pro rata (based on the Subsequent Distribution Allocation Percentages (defined below) one hundred eighty-seven thousand dollars ($187,000) by wire transfer of immediately available funds (to the accounts designated by each Seller) on or before the date that is one hundred twenty (120) days following the Closing Date.

      (d) Receivables Collection Shortfall. Purchaser shall, on and after the Closing Date, use its commercially reasonable best efforts to collect (and shall cause the Company to use the Company's commercially reasonable best efforts to collect) the Closing Date Accounts Receivable and shall not take or omit to take (or cause or allow the Company to take or omit to take) any action that could delay, impede or prevent the collection. Purchaser shall, after the Closing Date, also allow Sellers to participate in efforts to collect Closing Date Accounts Receivable as reasonably requested by Sellers and once every two weeks, will (or will cause the Company to) provide Sellers with updated reports as to Closing Date Accounts Receivable collected and actions taken by Purchaser in seeking to collect Closing Date Accounts Receivable. For purposes of determining Closing Date Net Liabilities as of the First True-Up Date, the parties hereby agree that the dollar value of any Closing Date Accounts Receivable uncollected as of the First True-Up Date shall be deemed to have no value. The parties hereby further agree that for purposes of calculating Net Liabilities as of the Second True-Up Date (as defined below), Closing Date Accounts Receivable collected between the First True-Up Date and the Second True-Up shall be deemed to have a value equal to ninety percent (90%) of the amount actually collected.

      (e) Second True-Up Date and Contingent Additional Purchaser Common Stock and Cash Consideration. Within one hundred ninety (190) days following the Closing Date, Purchaser shall deliver to Sellers' representative a second certificate, substantially in the form of the Closing Date Certificate, executed by the Chief Financial Officer of Purchaser and setting forth the Closing Date Net Liabilities as calculated by Purchaser in good faith (and using the same principles as used and applied in preparing the Closing Date Balance Sheet and as set forth in the Closing Date Certificate) as of the date that is one hundred eighty (180) days following the Closing Date (the “Second True-Up Date”). If Closing Date Net Liabilities are less than one million dollars ($1,000,000) as of the Second True-Up Date, Purchaser shall, within one hundred ninety (190) days following the Closing Date, issue to Sellers a number of shares of Purchaser Common Stock equal to (a) one million dollars ($1,000,000) less the Closing Date Net Liabilities calculated as of the Second True Up Date divided by (b) the Per Share Price (the “True-Up Shares”). Purchaser shall deliver to Sellers certificates representing the True-Up Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by duly executed stock powers endorsed in blank, with requisite stock transfer tax stamps, if any attached, and the True-Up Shares shall be allocated to and among the Sellers pro rata based on the allocation percentages (as defined set forth in the last sentence of Section 1.04. In addition, if (x) Purchaser was not obligated to make a payment to Sellers in accordance with the final sentence of Section 1.03(e) above because Closing Date Net Liabilities calculated as of the First True-Up Date exceeded eight hundred twelve thousand dollars ($812,000) and (b) Closing Date Net Liabilities calculated as of the Second True-Up Date are one million dollars ($1,000,000) or less, then, in addition to the shares of Purchaser Common Stock Purchaser is required to issue in accordance with the immediately preceding sentence, Purchaser shall pay to Sellers pro rata (based on the Subsequent Allocation Percentages), one hundred eighty-seven thousand dollars ($187,000) by wire transfer of immediately available funds (to the accounts

2

designated by each Seller) on or before the date that is one hundred ninety (190) days following the Closing Date.

      If (a) Purchaser was not obligated to make a payment to Sellers in accordance with the final sentence of Section 1.03(c) above because Closing Date Net Liabilities calculated as of the First True-Up Date exceeded eight hundred twelve thousand dollars ($812,000) and (b) Closing Date Net Liabilities calculated as of the Second True-Up Date are greater than one million dollars ($1,000,000) but less than one million one hundred eighty-seven thousand dollars ($1,187,000), then Purchaser shall pay to Sellers pro rata (based on the Subsequent Allocation Percentages), an amount equal to the amount by which one million one hundred eighty-seven thousand dollars ($1,187,000) exceeds Closing Date Net Liabilities calculated as of the Second True-Up Date, by wire transfer or immediately available funds (to the accounts designated by each Seller) on or before the date that is 190 days following the Closing Date.

      (f) Review; Disputes.

      (i) From and after the Closing, the Purchaser shall provide the Sellers and any accountants or advisors retained by the Sellers with reasonable access to the books and records of the Purchaser for the purposes of: (A) enabling the Sellers and their accountants and advisors to calculate, and to review the Purchaser's calculation of, the Closing Date Net Liabilities as of the First True-Up Date or Second True-Up Date pursuant to paragraphs (c) and (e), respectively, of this Section 1.03, as applicable; and (B) identifying any dispute related to the calculation of the Closing Date Net Liabilities as of such dates.

      (ii) If the Requisite Sellers (as defined herein) dispute the Purchaser's calculation of the Closing Date Net Liabilities as of either the First True-Up Date or the Second True-Up Date, then the Requisite Sellers shall deliver a written notice (a “Dispute Notice”) to the Purchaser during the 21-day period commencing upon receipt by the Sellers of the applicable certificate of the Purchaser's Chief Financial Officer, as prepared by the Purchaser in accordance with the requirements of paragraph (c) or (e) of this Section 1.03, as applicable (the “Review Period”). The Dispute Notice shall set forth, in summary form, the principal basis for the dispute of such calculation.

      (iii) If the Requite Sellers do not deliver a Dispute Notice to the Purchaser prior to the expiration of the Review Period, the Purchaser's calculation of the Closing Date Net Liabilities set forth in the Purchaser's certificate shall be deemed final and binding on the Purchaser and the Sellers for all purposes of this Agreement.

      (iv) If the Requisite Sellers deliver a Dispute Notice to the Purchaser prior to the expiration of the Review Period, then the Requisite Sellers and the Purchaser shall use commercially reasonable efforts to reach agreement on the amount of the Closing Date Net Liabilities. If the Requisite Sellers and the Purchaser are unable to reach agreement on the amount of the Closing Date Net Liabilities within 30 days after the end of the Review Period, either party shall have the right to refer such dispute to the New York, New York office of a mutually acceptable regional or national accounting firm that is not affiliated with (and has not previously worked for any of the Sellers or Purchaser) (such firm, or any successor thereto, being referred to herein as the “Designated Accounting Firm”) after such 30th day. In connection with the resolution of any such dispute by the Designated Accounting Firm: (i) each of the Purchaser and the Requisite Sellers shall have a reasonable opportunity to meet with the Designated Accounting Firm to provide their views as to any disputed issues with respect to the calculation of the Closing Date Net Liabilities; (ii) the Designated Accounting Firm shall determine the Closing Date Net Liabilities in accordance with the same principles used and applied in preparing the Closing Date Balance Sheet and as set forth in the Closing Date Certificate within 30 days of such referral and upon reaching such determination shall deliver a copy of its calculations (the “Expert Calculations”) to the Sellers and the Purchaser; and (iii) the determination of the Closing Date Net Liabilities made by the Designated Accounting Firm shall be final and binding on the Purchaser and the Sellers for all purposes of this Agreement, absent manifest error. In calculating the Closing Date Net Liabilities, the Designated Accounting Firm shall be limited to addressing any particular disputes referred to

3

in the Dispute Notice. The Expert Calculations shall reflect in detail the differences, if any, between the Closing Date Net Liabilities reflected therein and the Closing Date Net Liabilities set forth in the certificate of the Purchaser's Chief Financial Officer. The fees and expenses of the Designated Accounting Firm shall be borne equally by the Purchaser, on the one hand, and the Requisite Sellers, on the other hand, pro rata based on the relative number of Shares owned by each of the Requisite Sellers without giving effect to the transactions contemplated by this Agreement.

      1.04 Closing. The Closing will take place at the offices of Viewpoint Corporation, 498 Seventh Avenue, 18th Floor, New York, N.Y. 10018, or at such other place as Purchaser and Seller mutually agree, at 10:00 A.M. local time, on the Closing Date. At the Closing, Purchaser will pay the initial purchase price by (i) delivery to Sellers of certificates representing the Purchaser Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by duly executed stock powers endorsed in blank, with requisite stock transfer tax stamps, if any attached, and (ii) wire transfer of one hundred eighty-eight thousand dollars ($188,000) of immediately available funds to such account as MacManus may direct by written notice delivered to Purchaser by Seller at least two (2) Business Days before the Closing Date. Simultaneously, Sellers will assign and transfer to Purchaser all of Sellers' right, title and interest in and to the Shares by delivering to Purchaser certificates representing the Shares, in genuine and unaltered form, duly endorsed in blank or accompanied by duly executed stock powers endorsed in blank, with requisite stock transfer tax stamps, if any, attached. At the Closing, there shall also be delivered to Seller and Purchaser the certificates and other Contracts, documents and instruments to be delivered under Articles VI and VII. The Purchaser Shares shall be allocated among the Sellers in the following percentages: 37.461% to Lash, 41.849% to Fadner, 19.65% to MacManus, and 1.039% to Grace. All other payments or distributions to the Sellers under this Agreement shall be allocated among the Sellers pro rata to their ownership of the Shares in the following percentages: 34.958% to Lash, 39.052% to Fadner, 25.02% to MacManus and 0.97% to Grace (the “Subsequent Allocation Percentages”). At Closing, the Company (or to the extent the Company then has insufficient funds, the Purchasers shall pay by wire transfer of immediately available funds as directed by the following persons the following amounts: (x) the principal and accrued interest under the bridge notes issued to each of MacManus, Lash, and Fadner, which bridge notes are referenced in Section 2.10 of the Disclosure Schedule; and (y) the fees and expenses of Cooley Godward LLP, counsel to the Company.

      1.05 Further Assurances; Post-Closing Cooperation.

      (a) At any time or from time to time after the Closing, Seller shall execute and deliver to Purchaser such other documents and instruments, provide such materials and information and take such other actions as Purchaser may reasonably request to more effectively to vest title to the Shares in Purchaser and, to the full extent permitted by Law, to put Purchaser in actual possession and operating control of the Company and the Subsidiaries and their Assets and Properties and Books and Records, and otherwise to cause Seller to fulfill its obligations under this Agreement and the Operative Agreements to which it is a party.

      (b) Following the Closing, each party will afford the other party, its counsel and its accountants, during normal business hours, reasonable access to the books, records and other data relating to the Business or Condition of the Company in its possession with respect to periods prior to the Closing and the right to make copies and extracts therefrom, to the extent that such access may be reasonably required by the requesting party in connection with (i) the preparation or review of Tax Returns, (ii) the determination or enforcement of rights and obligations under this Agreement, (iii) compliance with the requirements of any Governmental or Regulatory Authority, (iv) the determination or enforcement of the rights and obligations of any party to this Agreement or any of the Operative Agreements or (v) in connection with any actual or threatened Action or Proceeding. Further, each party agrees for a period extending six (6) years after the Closing Date not to destroy or otherwise dispose of any such books, records and other data unless such party shall first offer in writing to surrender such books, records and other data

4

to the other party and such other party shall not agree in writing to take possession thereof during the ten (10) day period after such offer is made.

      (c) If, in order properly to prepare its Tax Returns, other documents or reports required to be filed with Governmental or Regulatory Authorities or its financial statements or to fulfill its obligations hereunder, it is necessary that a party be furnished with additional information, documents or records relating to the Business or Condition of the Company not referred to in paragraph (b) above, and such information, documents or records are in the possession or control of the other party, such other party shall use its best efforts to furnish or make available such information, documents or records (or copies thereof) at the recipient's request, cost and expense. Any information obtained by a Seller in accordance with this paragraph shall be held confidential by such Seller in accordance with Section 14.05.

      (d) Notwithstanding anything to the contrary contained in this Section, if the parties are in an adversarial relationship in litigation or arbitration, the furnishing of information, documents or records in accordance with any provision of this Section shall be subject to applicable rules relating to discovery.

ARTICLE II
REPRESENTATIONSAND WARRANTIESOF SELLERS

      Except as set forth or described in the Disclosure Schedule, Sellers hereby represent and warrant to Purchaser, severally and not jointly, as of the Execution Date as follows:

      2.01 Organization of Sellers. MacManus is a corporation duly organized, validly existing and in good standing under the Laws of Delaware and Grace is a limited liability company duly organized and existing and in good standing under the Laws of its jurisdiction of formation. Each Seller has full power and authority to execute and deliver this Agreement and the Operative Agreements to which it is a party and to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby, including without limitation to own, hold, sell and transfer (pursuant to this Agreement) the Shares.

      2.02 Authority. Each of Grace and MacManus represents that the execution and delivery by it of this Agreement and the Operative Agreements to which it is a party, and the performance by it of its obligations hereunder and thereunder, have been duly and validly authorized by all requisite corporate or limited liability company action on its part, as applicable. The execution and delivery by Messrs. Fadner and Lash of this Agreement and the Operative Agreements to which they are a party, and the performance of their respective obligations hereunder and thereunder, have been duly authorized, no other action being necessary. This Agreement has been duly and validly executed and delivered by each such Seller and constitutes, and upon the execution and delivery by each such Seller of the Operative Agreements to which each is a party, such Operative Agreements will constitute, legal, valid and binding obligations of such Seller enforceable against such Seller in accordance with their terms.

      2.03 Organization of the Company. The Company is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware, and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its Assets and Properties. Section 2.03 of the Disclosure Schedule lists all lines of business in which the Company is participating or engaged. The Company is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions specified in Section 2.03 of the Disclosure Schedule, which are the only jurisdictions in which the ownership, use or leasing of its Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except (x) for those jurisdictions in which the adverse effects of all such failures by the Company and the Subsidiaries to be qualified, licensed or admitted and in good standing can in the aggregate be eliminated without material cost or expense by the Company or a Subsidiary, as the case may be, becoming qualified or admitted and in good standing, or (y) for those jurisdictions where the failure to be so qualified would not have a Company Material Adverse Effect. The name of each director and officer of the Company on

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the date hereof, and the position with the Company held by each, are listed in Section 2.03 of the Disclosure Schedule. Seller has prior to the execution of this Agreement delivered to Purchaser true and complete copies of the certificate of incorporation and by-laws of the Company as in effect on the date hereof.

      2.04 Capital Stock. The authorized capital stock of the Company consists solely of seven hundred fifty thousand (750,000) shares of Common Stock, of which only the Shares have been issued. The Shares are duly authorized, validly issued, outstanding, fully paid and nonassessable. Sellers own the Shares, beneficially and of record, free and clear of all Liens. Except for this Agreement and as disclosed in Section 2.04 of the Disclosure Schedule, there are no outstanding Options with respect to the Company. The delivery of a certificate or certificates at the Closing representing the Shares in the manner provided in Section 1.04 will transfer to Purchaser good and valid title to the Shares, free and clear of all Liens.

      2.05 Subsidiaries. Section 2.05 of the Disclosure Schedule lists the name of each Subsidiary and all lines of business in which each Subsidiary is participating or engaged. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation identified in Section 2.05 of the Disclosure Schedule, and has full corporate power and authority to conduct its business as and to the extent now conducted and to own, use and lease its Assets and Properties. Each Subsidiary is duly qualified, licensed or admitted to do business and is in good standing in those jurisdictions specified in Section 2.05 of the Disclosure Schedule, which are the only jurisdictions in which the ownership, use or leasing of such Subsidiary's Assets and Properties, or the conduct or nature of its business, makes such qualification, licensing or admission necessary, except (x) for those jurisdictions in which the adverse effects of all such failures by the Company and the Subsidiaries to be qualified, licensed or admitted and in good standing can in the aggregate be eliminated without material cost or expense by the Company or a Subsidiary, as the case may be, becoming qualified, licensed or admitted and in good standing, or (y) for those jurisdictions where the failure to be so qualified would not have a Company Material Adverse Effect. Section 2.05 of the Disclosure Schedule lists for each Subsidiary the amount of its authorized capital stock, the amount of its outstanding capital stock and the record owners of such outstanding capital stock. Except as disclosed in Section 2.05 of the Disclosure Schedule, all of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, are fully paid and nonassessable, and are owned, beneficially and of record, by the Company or Subsidiaries wholly owned by the Company free and clear of all Liens. Except as disclosed in Section 2.05 of the Disclosure Schedule, there are no outstanding Options with respect to any Subsidiary. The name of each director and officer of each Subsidiary on the date hereof, and the position with such Subsidiary held by each, are listed in Section 2.05 of the Disclosure Schedule. Seller has prior to the execution of this Agreement delivered to Purchaser true and complete copies of the certificate or articles of incorporation and by-laws (or other comparable corporate charter documents) of each of the Subsidiaries as in effect on the date hereof.

      2.06 No Conflicts. The execution and delivery by each Seller of this Agreement do not, and the execution and delivery by each Seller of the Operative Agreements to which it is a party, the performance by Sellers of their respective obligations under this Agreement and such Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not:

      (a) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the certificate or articles of incorporation or by-laws (or other comparable corporate charter documents), of MacManus, Grace, the Company or any Subsidiary;

      (b) subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Section 2.07 of the Disclosure Schedule, conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to any Seller or the Company or any Subsidiary or any of their respective Assets and Properties; or

      (c) except as disclosed in Section 2.06 of the Disclosure Schedule, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require any Seller or the Company or any Subsidiary to obtain any

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consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, (iv) result in or give to any Person any right of termination, cancellation, acceleration or modification in or with respect to, (v) result in or give to any Person any additional rights or entitlement to increased, additional, accelerated or guaranteed payments under, or (vi) result in the creation or imposition of any Lien upon any Seller, the Company or any Subsidiary or any of their respective Assets and Properties under, any Contract or License to which any Seller or the Company or any Subsidiary is a party or by which any of their respective Assets and Properties is bound.

      2.07 Governmental Approvals and Filings. Except as disclosed in Section 2.07 of the Disclosure Schedule, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Seller or the Company or any Subsidiary is required in connection with the execution, delivery and performance by the Sellers or the Company of this Agreement or any of the Operative Agreements to which any of those is a party or the consummation of the transactions contemplated hereby or thereby.

      2.08 Books and Records. The minute books and other similar records of the Company and the Subsidiaries as made available to Purchaser prior to the execution of this Agreement contain a true and complete record, in all material respects, of all action taken at all meetings and by all written consents in lieu of meetings of the stockholders, the boards of directors and committees of the boards of directors of the Company and the Subsidiaries. The stock transfer ledgers and other similar records of the Company and the Subsidiaries as made available to Purchaser prior to the execution of this Agreement accurately reflect all record transfers prior to the execution of this Agreement in the capital stock of the Company and the Subsidiaries. Except as set forth in Section 2.08 of the Disclosure Schedule, neither the Company nor any Subsidiary has any of its Books and Records recorded, stored, maintained, operated or otherwise wholly or partly dependent upon or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Company or a Subsidiary.

      2.09 Financial Statements. Prior to the execution of this Agreement, Seller has delivered to Purchaser true and complete copies of the following financial statements:

      (a) the unaudited balance sheets of the Company and its consolidated subsidiaries as of December 31, 2003, and 2002, and the related audited consolidated statements of operations, stockholders' equity and cash flows for each of the fiscal years then ended; and

      (b) the unaudited balance sheet of the Company and its consolidated subsidiaries as of October 31, 2004, and the related unaudited consolidated statements of operations, stockholders' equity and cash flows for the portion of the fiscal year then ended.

Except as set forth in the notes thereto and as disclosed in Section 2.09 of the Disclosure Schedule, all such financial statements (i) were prepared in accordance with GAAP (except that such financial statements do not contain any footnotes required under GAAP), (ii) fairly present the consolidated financial condition and results of operations of the Company and its consolidated subsidiaries as of the respective dates thereof and for the respective periods covered thereby, and (iii) were compiled from the Books and Records of the Company and the Subsidiaries regularly maintained by management and used to prepare the financial statements of the Company and the Subsidiaries in accordance with the principles stated therein. The Company and the Subsidiaries have maintained their respective Books and Records in a manner sufficient to permit the preparation of financial statements in accordance with GAAP. Except for those Subsidiaries listed in Section 2.09 of the Disclosure Schedule, the financial condition and results of operations of each Subsidiary are, and for all periods referred to in this Section 2.09 have been consolidated with those of the Company.

      2.10 Absence of Changes. Except for the execution and delivery of this Agreement and the transactions and events to take place pursuant hereto on or prior to the Closing Date (whether contemplated by this Agreement or set forth or described in the Disclosure Schedule), since October 31, 2004 there has not been any material adverse change, or any event or development

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which, individually or together with other such events, could reasonably be expected to result in a Company Material Adverse Effect. Without limiting the foregoing, except as disclosed in Section 2.10 of the Disclosure Schedule, there has not occurred between October 31, 2004 and the date hereof:

      (i) any declaration, setting aside or payment of any dividend or other distribution in respect of the capital stock of the Company or any Subsidiary not wholly owned by the Company, or any direct or indirect redemption, purchase or other acquisition by the Company or any Subsidiary of any such capital stock of or any Option with respect to the Company or any Subsidiary not wholly owned by the Company;

      (ii) any authorization, issuance, sale or other disposition by the Company or any Subsidiary of any shares of capital stock of or Option with respect to the Company or any Subsidiary, or any modification or amendment of any right of any holder of any outstanding shares of capital stock of or Option with respect to the Company or any Subsidiary;

      (iii) (x) any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company or any Subsidiary; (y) any establishment or modification of (A) targets, goals, pools or similar provisions in respect of any fiscal year under any Benefit Plan, employment-related Contract or other employee compensation arrangement or (B) salary ranges, increase guidelines or similar provisions in respect of any Benefit Plan, employment-related Contract or other employee compensation arrangement; or (z) any adoption, entering into or becoming bound by any Benefit Plan, employment-related Contract or collective bargaining agreement, or amendment, modification or termination (partial or complete) of any Benefit Plan, employment-related Contract or collective bargaining agreement, except to the extent required by applicable Law and, in the event compliance with legal requirements presented options, only to the extent the option which the Company or Subsidiary reasonably believed to be the least costly was chosen;

      (iv) (A) incurrences by the Company or any Subsidiary of Indebtedness, or (B) any voluntary purchase, cancellation, prepayment or complete or partial discharge in advance of a scheduled payment date with respect to, or waiver of any right of the Company or any Subsidiary under, any Indebtedness of or owing to the Company or any Subsidiary;

      (v) any physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the plant, real or personal property or equipment of the Company or any Subsidiary;

      (vi) any material change in (x) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy of the Company, or any Subsidiary or (y) any method of calculating any bad debt, contingency or other reserve of the Company or any Subsidiary for accounting, financial reporting or Tax purposes, or any change in the fiscal year of the Company or any Subsidiary;

      (vii) any write-off or write-down of or any determination to write off or write down any of the Assets and Properties of the Company or any Subsidiary;

      (viii) any acquisition or disposition of, or incurrence of a Lien (other than a Permitted Lien) on, any Assets and Properties of the Company or any Subsidiary other than in the ordinary course of business consistent with past practice;

      (ix) any (x) amendment of the certificate or articles of incorporation or by-laws (or other comparable corporate charter documents) of the Company or any Subsidiary, (y) recapitalization, reorganization, liquidation or dissolution of the Company or any Subsidiary or (z) merger or other business combination involving the Company or any Subsidiary and any other Person;

      (x) any entering into, amendment, modification, termination (partial or complete) or granting of a waiver under or giving any consent with respect to (A) any Contract which is required (or had it been in effect on the date hereof would have been required) to be

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disclosed in the Disclosure Schedule pursuant to Section 2.19(a) or (B) any material License held by the Company or any Subsidiary;

      (xi) capital expenditures or commitments for additions to property, plant or equipment of the Company and the Subsidiaries constituting capital assets;

      (xii) any commencement or termination by the Company or any Subsidiary of any line of business;

      (xiii) any transaction by the Company or any Subsidiary with any Seller or any officer, director or Affiliate (other than the Company or any Subsidiary) of any Seller (A) outside the ordinary course of business consistent with past practice or (B) other than on an arm's-length basis, other than pursuant to any Contract in effect on October 31, 2004 and disclosed pursuant to Section 2.19(a)(vii) of the Disclosure Schedule or disclosed elsewhere in the Disclosure Schedule;

      (xiv) any entering into of a Contract to do or engage in any of the foregoing after the date hereof; or

      (xv) any other transaction involving or development affecting the Company or any Subsidiary outside the ordinary course of business consistent with past practice.

      2.11 No Undisclosed Liabilities. Except as reflected or reserved against in the balance sheet as of October 31, 2004 or in the notes thereto or as disclosed in Section 2.11 of the Disclosure Schedule or any other Section of the Disclosure Schedule, there are no Liabilities of the type required under GAAP to be recorded or disclosed in the Company's financial statements against, relating to or affecting the Company or any Subsidiary or any of their respective Assets and Properties, other than Liabilities (i) incurred in the ordinary course of business consistent with past practice or (ii) which, individually or in the aggregate, are not material to the Business or Condition of the Company.

      2.12 Taxes. Except as disclosed in Section 2.12 of the Disclosure Schedule (with paragraph references corresponding to those set forth below):

      (a) The Company and its Subsidiaries have filed all material Tax Returns and reports required to be filed by or on behalf of each of them, or requests for extensions to file such returns or reports have been timely filed or granted and have not expired, and all such Tax Returns and reports are complete and accurate in all respects, except to the extent that such failures to file, have extensions granted that remain in effect or be complete and accurate in all respects, as applicable, individually or in the aggregate, would not have a Company Material Adverse Effect on the Business or Condition of the Company. The Company and each of its Subsidiaries has paid (or there has been paid on their behalf) all Taxes shown as due on such Tax Returns and reports. The balance sheet of the Company and its Subsidiaries as of October 31, 2004 reflects an adequate reserve for all Taxes payable by the Company and its Subsidiaries for all taxable periods and portions thereof accrued through the date of such financial statements, and no deficiencies for any taxes have been proposed, asserted or assessed for which the Company or any of its Subsidiaries could be held liable that are not adequately reserved for, except for inadequately reserved Taxes and inadequately reserved deficiencies that would not, individually or in the aggregate, have a Company Material Adverse Effect. No requests for waivers of the time to assess any Taxes against the Company or any of its Subsidiaries have been granted or are pending.

      (b) Neither the Company nor any of its Subsidiaries is a party to, is bound by, or has any obligation under, any agreement relating to the allocation or sharing of Taxes or has any liability for the Taxes of any person other than the Company or its Subsidiaries, as a transferee, or successor or otherwise (including, without limitation, any liability under Treasury Regulations Section 1.1502-6 or any similar provision of state, local or foreign law).

      (c) Neither the Company nor any of its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that under Code Section 280G will not be deductible.

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      (d) Neither the Company nor any of its Subsidiaries has ever been a member of an affiliated group of corporations (within the meaning of Code Section 1504(a)) filing consolidated Tax Returns.

      2.13 Legal Proceedings. Except as disclosed in Section 2.13 of the Disclosure Schedule (with paragraph references corresponding to those set forth below):

      (a) there are no Actions or Proceedings pending or, to the Knowledge of Seller, threatened against, relating to or affecting Seller, the Company or any Subsidiary or any of their respective Assets and Properties which (i) could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Operative Agreements or otherwise result in a material diminution of the benefits contemplated by this Agreement or any of the Operative Agreements to Purchaser, or (ii) if determined adversely to Seller, the Company or a Subsidiary, could reasonably be expected to result in (x) any injunction or other equitable relief against the Company or any Subsidiary that would interfere in any material respect with its business or operations or (y) Losses by the Company or any Subsidiary, individually or in the aggregate with Losses in respect of other such Actions or Proceedings, exceeding $25,000;

      (b) there are no facts or circumstances Known to Seller that could reasonably be expected to give rise to any Action or Proceeding that would be required to be disclosed pursuant to clause (a) above; and

      (c) there are no Orders outstanding against the Company or any Subsidiary.

      2.14 Compliance With Laws and Orders. Except as disclosed in Section 2.14 of the Disclosure Schedule, neither the Company nor any Subsidiary is or has at any time within the last five (5) years been, or has received any notice that it is or has at any time within the last five (5) years been, in violation of or in default under, in any material respect, any Law or Order applicable to the Company or any Subsidiary or any of their respective Assets and Properties.

      2.15 Benefit Plans; ERISA.

      (a) Section 2.15(a) of the Disclosure Schedule (i) contains a true and complete list of each of the Benefit Plans, (ii) identifies each of the Benefit Plans that is a Qualified Plan, (iii) identifies each Benefit Plan which at any time during the five-year period preceding the date of this Agreement was a Defined Benefit Plan and (iv) lists, describes and identifies each other Plan maintained, established, sponsored or contributed to by an ERISA Affiliate, or any predecessor thereof, which, during the five-year period preceding the date of this Agreement, was at any time a Defined Benefit Plan. Neither the Company nor any Subsidiary has scheduled or agreed upon future increases of benefit levels (or creations of new benefits) with respect to any Benefit Plan (other than those already provided for under the terms of any Benefit Plan), or as otherwise required by applicable law and no such increases or creation of benefits have been proposed, made the subject of representations to employees or requested or demanded by employees under circumstances which make it reasonable to expect that such increases will be granted. Except as disclosed in Section 2.15(a) of the Disclosure Schedule, no loan is outstanding between the Company or any Subsidiary and any employee.

      (b) Neither the Company nor any Subsidiary maintains or is obligated to provide benefits under any life, medical or health plan (other than as an incidental benefit under a Qualified Plan) which provides benefits to retirees or other terminated employees other than benefit continuation rights under the Consolidated Omnibus Budget Reconciliation of 1985, as amended, or any similar state or local benefit continuation law.

      (c) Except as set forth in Section 2.15(c) of the Disclosure Schedule, each Benefit Plan covers only employees who are employed by the Company or a Subsidiary (or former employees or beneficiaries with respect to service with the Company or a Subsidiary), so that the transactions contemplated by this Agreement will require no spin-off of assets and liabilities or other division or transfer of rights with respect to any such plan.

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      (d) Neither the Company, any Subsidiary, any ERISA Affiliate nor any other corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA has at any time contributed to any “multiemployer plan”, as that term is defined in Section 4001 of ERISA.

      (e) Each of the Benefit Plans is in form, and its administration is and has been since inception to the Company's knowledge, in all material respects in compliance with, and neither the Company nor any Subsidiary has received any claim or notice that any such Benefit Plan is not in compliance in material respects with, all applicable Laws and Orders and prohibited transactions exemptions, including the requirements of ERISA, the Code, the Age Discrimination in Employment Act, the Equal Pay Act and Title VII of the Civil Rights Act of 1964. Each Qualified Plan is qualified under Section 401(a) of the Code, and, if applicable, complies with the requirements of Section 401(k) of the Code, or any form or operational violations are immaterial or not likely to result in disqualification of the Plan. Each Benefit Plan that is not a Qualified Plan which is intended to provide for the deferral of income, the reduction of salary or other compensation or to afford other Tax benefits complies to the Company's knowledge with the requirements of the applicable provisions of the Code or other Laws required in order to provide such Tax benefits.

      (f) Neither Seller, the Company nor any Subsidiary is in default in performing any of its contractual obligations under any of the Benefit Plans or any related trust agreement or insurance contract. Except for any de minimis or immaterial amounts, all contributions and other payments required to be made by Seller, the Company or any Subsidiary to any Benefit Plan with respect to any period ending before or at or including the Closing Date have been made or reserves adequate for such contributions or other payments have been or will be set aside therefor and have been or will be reflected in Financial Statements in accordance with GAAP. There are no material outstanding liabilities of any Benefit Plan other than liabilities for benefits to be paid to participants in such Benefit Plan and their beneficiaries in accordance with the terms of such Benefit Plan, and other than ordinary expenses related to the administration or operation of the Benefit Plans.

      (g) No event has occurred, and the Company is unaware of any condition or set of circumstances in connection with any Benefit Plan, under which the Company or any Subsidiary, directly or indirectly (through any indemnification agreement or otherwise), could reasonably be expected to incur material liability under Section 409 of ERISA, Section 502(i) of ERISA, Title IV of ERISA or Section 4975 of the Code.

      (h) No transaction contemplated by this Agreement will result in liability to the PBGC under Section 302(c)(ii), 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with respect to the Company, any Subsidiary, Purchaser or any corporation or organization controlled by or under common control with any of the foregoing within the meaning of Section 4001 of ERISA, and no event or condition exists or has existed which could reasonably be expected to result in any such liability with respect to Purchaser, the Company, any Subsidiary or any such corporation or organization. No “reportable event” within the meaning of Section 4043 of ERISA has occurred with respect to any Defined Benefit Plan. No termination re-establishment or spin-off re-establishment transaction has occurred with respect to any Subject Defined Benefit Plan. No Subject Defined Benefit Plan has incurred any accumulated funding deficiency whether or not waived. No filing has been made and no proceeding has been commenced for the complete or partial termination of, or withdrawal from, any Benefit Plan which is a Pension Benefit Plan.

      (i) Except as set forth in Section 2.15(i) of the Disclosure Schedule, no benefit under any Benefit Plan, including, without limitation, any severance or parachute payment plan or agreement, will be established or become accelerated, vested, funded or payable by reason of the purchase of stock under this Agreement.

      (j) To the Knowledge of Seller, there are no pending or threatened claims by or on behalf of any Benefit Plan, by any Person covered thereby, or otherwise, which allege violations of Law which could reasonably be expected to result in material liability on the part of Purchaser, the

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Company, any Subsidiary or any fiduciary of any such Benefit Plan, nor is there any reasonable basis for such a claim.

      (k) No employer securities, employer real property or other employer property is included in the assets of any Benefit Plan.

      (l) The fair market value of the assets of each Subject Defined Benefit Plan, as determined as of the last day of the plan year of such plan which coincides with or first precedes the date of this Agreement, was not less than the present value of the projected benefit obligations under such plan at such date as established on the basis of the actuarial assumptions applicable under such Subject Defined Benefit Plan at said date and, to the Knowledge of Seller, there have been no material changes in such values since said date.

      (m) Complete and correct copies of the following documents have been furnished to Purchaser prior to the execution of this Agreement:

      (i) the Benefit Plans and any predecessor plans referred to therein, any related trust agreements, and service provider agreements, insurance contracts or agreements with investment managers, including without limitation, all amendments thereto (but limited to documents that are currently effective);

      (ii) current summary Plan descriptions of each Benefit Plan subject to ERISA, and any similar descriptions of all other Benefit Plans;

      (iii) the most recent Form 5500 and Schedules thereto for each Benefit Plan subject to ERISA reporting requirements;

      (iv) the most recent determination of the IRS with respect to the qualified status of each Qualified Plan;

      (v) the most recent accountings with respect to any Benefit Plan funded through a trust;

      (vi) the most recent actuarial report of the qualified actuary of any Subject Defined Benefit Plan or any other Benefit Plan with respect to which actuarial valuations are conducted; and

      (vii) all qualified domestic relations orders or other orders governing payments from any Benefit Plan.

      2.16 Real Property.

      (a) Neither the Company nor any Subsidiary owns any real property. Section 2.16(a) of the Disclosure Schedule contains a true and correct list of each parcel of real property leased by the Company or any Subsidiary (as lessor or lessee).

      (b) The Company and the Subsidiaries have adequate rights of ingress and egress with respect to the real property listed in Section 2.16(a) of the Disclosure Schedule and all buildings, structures, facilities, fixtures and other improvements thereon. None of such real property, buildings, structures, facilities, fixtures or other improvements, or the use thereof, contravenes or violates any building, zoning, administrative, occupational safety and health or other applicable Law in any material respect (whether or not permitted on the basis of prior nonconforming use, waiver or variance).

      (c) The Company or a Subsidiary has a valid and subsisting leasehold estate in and the right to quiet enjoyment of the real properties leased by it for the full term of the lease thereof. Each lease referred to in paragraph (a) above is a legal, valid and binding agreement, enforceable in accordance with its terms, of the Company or a Subsidiary and of each other Person that is a party thereto, and except as set forth in Section 2.16(c) of the Disclosure Schedule, there is no, and neither the Company nor any Subsidiary has received notice of any, default (or any condition or event which, after notice or lapse of time or both, would constitute a default) thereunder. Neither the Company nor any Subsidiary owes any brokerage commissions with respect to any such leased space.

      (d) Seller has delivered to Purchaser prior to the execution of this Agreement true and complete copies of all leases (including any amendments and renewal letters).

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      (e) Except as disclosed in Section 2.16(e) of the Disclosure Schedule, the improvements on the real property identified in Section 2.16(a) of the Disclosure Schedule are in good operating condition and in a state of good maintenance and repair, ordinary wear and tear excepted, are adequate and suitable for the purposes for which they are presently being used and, to the Knowledge of Seller, there are no condemnation or appropriation proceedings pending or threatened against any of such real property or the improvements thereon.

      2.17 Tangible Personal Property; Investment Assets.

      (a) The Company or a Subsidiary is in possession of and has good title to, or has valid leasehold interests in or valid rights under Contract to use, all tangible personal property used in or reasonably necessary for the conduct of their business, including all tangible personal property reflected on the balance sheet for October 31, 2004 and tangible personal property acquired since October 31, 2004 other than property disposed of since such date in the ordinary course of business consistent with past practice. All such tangible personal property is free and clear of all Liens, other than Permitted Liens and Liens disclosed in Section 2.17(a) of the Disclosure Schedule, and is in good working order and condition, ordinary wear and tear excepted, and its use complies in all material respects with all applicable Laws.

      (b) Section 2.17(b) of the Disclosure Schedule describes each Investment Asset owned by the Company or any Subsidiary on the date hereof. Except as disclosed in Section 2.17(b) of the Disclosure Schedule, all such Investment Assets are owned by the Company or a Subsidiary free and clear of all Liens other than Permitted Liens.

      2.18 Intellectual Property Rights. The Company and the Subsidiaries have interests in or use only the Intellectual Property disclosed in Section 2.18 of the Disclosure Schedule, each of which the Company or a Subsidiary either has all right, title and interest in or valid and binding rights under Contract to use. No other Material Intellectual Property is used or necessary in the conduct of the business of the Company or any Subsidiary. To the knowledge of the Company, except as disclosed in Section 2.18 of the Disclosure Schedule, (i) the Company or a Subsidiary has the exclusive right to use the Intellectual Property disclosed in Section 2.18 of the Disclosure Schedule, (ii) all registrations with and applications to Governmental or Regulatory Authorities in respect of such Intellectual Property are valid and in full force and effect and are not subject to the payment of any Taxes or maintenance fees or the taking of any other actions by the Company or a Subsidiary to maintain their validity or effectiveness, (iii) there are no restrictions on the direct or indirect transfer of any Contract, or any interest therein, held by the Company or any Subsidiary in respect of such Intellectual Property, (iv) Seller has delivered to Purchaser prior to the execution of this Agreement documentation with respect to any invention, process, design, computer program or other know-how or trade secret included in such Intellectual Property, which documentation is accurate in all material respects and reasonably sufficient in detail and content to identify and explain such invention, process, design, computer program or other know-how or trade secret and to facilitate its full and proper use without reliance on the special knowledge or memory of any Person, (v) the Company and the Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their trade secrets, (vi) neither the Company nor any Subsidiary is, or has received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any Contract to use such Intellectual Property and (vii) to the Knowledge of Seller, no such Intellectual Property is being infringed by any other Person. None of the Sellers and neither the Company nor any Subsidiary has received notice that the Company or any Subsidiary is infringing any Intellectual Property of any other Person, no claim is pending or, to the Knowledge of Seller, has been made to such effect that has not been resolved and, to the Knowledge of Seller, neither the Company nor any Subsidiary is infringing any Intellectual Property of any other Person.

      2.19 Contracts.

      (a) Section 2.19(a) of the Disclosure Schedule (with paragraph references corresponding to those set forth below) contains a true and complete list of each of the following Contracts or other arrangements (true and complete copies or, if none, reasonably complete and accurate written descriptions of which, together with all amendments and supplements thereto and all

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waivers of any terms thereof, have been delivered to Purchaser prior to the execution of this Agreement), to which the Company or any Subsidiary is a party or by which any of their respective Assets and Properties is bound:

      (i) (A) all Contracts (excluding Benefit Plans) providing for a commitment of employment or consultation services for a specified or unspecified term or otherwise relating to employment or the termination of employment, the name, position and rate of compensation of each Person party to such a Contract and the expiration date of each such Contract; and (B) any written or unwritten representations, commitments, promises, communications or courses of conduct (excluding Benefit Plans and any such Contracts referred to in clause (A)) involving an obligation of the Company or any Subsidiary to make payments in any year, other than with respect to salary or incentive compensation payments in the ordinary course of business, to any employee exceeding $2,000 or any group of employees exceeding $15,000 in the aggregate;

      (ii) all Contracts with any Person containing any provision or covenant prohibiting or limiting the ability of the Company or any Subsidiary to engage in any business activity or compete with any Person or prohibiting or limiting the ability of any Person to compete with the Company or any Subsidiary;

      (iii) all material partnership, joint venture, shareholders' or other similar Contracts with any Person;

      (iv) all Contracts relating to Indebtedness of the Company or any Subsidiary;

      (v) all material Contracts with distributors, dealers, manufacturer's representatives, sales agencies or franchisees;

      (vi) all Contracts relating to (A) the future disposition or acquisition of any Assets and Properties, other than dispositions or acquisitions in the ordinary course of business consistent with past practice, and (B) any merger or other business combination;

      (vii) all Contracts between or among the Company or any Subsidiary, on the one hand, and Seller, any officer, director or Affiliate (other than the Company or any Subsidiary) of Seller, on the other hand;

      (viii) all collective bargaining or similar labor Contracts;

      (ix) all Contracts that (A) limit or contain restrictions on the ability of the Company or any Subsidiary to declare or pay dividends on, to make any other distribution in respect of or to issue or purchase, redeem or otherwise acquire its capital stock, to incur Indebtedness, to incur or suffer to exist any Lien, to purchase or sell any Assets and Properties, to change the lines of business in which it participates or engages or to engage in any Business Combination or (B) require the Company or any Subsidiary to maintain specified financial ratios or levels of net worth or other indicia of financial condition; and

      (x) all other Contracts (other than Benefit Plans, leases listed in Section 2.16(a) of the Disclosure Schedule and insurance policies listed in Section 2.21 of the Disclosure Schedule) that (A) involve the payment or potential payment, pursuant to the terms of any such Contract, by or to the Company or any Subsidiary of more than $25,000 annually and (B) cannot be terminated within sixty (60) days after giving notice of termination without resulting in any material cost or penalty to the Company or any Subsidiary.

      (b) Each Contract required to be disclosed in Section 2.19(a) of the Disclosure Schedule is in full force and effect and constitutes a legal, valid and binding agreement, enforceable in accordance with its terms against the Company and, to the Knowledge of Sellers, of each party thereto; and except as disclosed in Section 2.19(b) of the Disclosure Schedule neither the Company, any Subsidiary nor, to the Knowledge of Sellers, any other party to such Contract is, or has received notice that it is, in violation or breach of or default under any such Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Contract) in any material respect.

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      2.20 Licenses. Section 2.20 of the Disclosure Schedule contains a true and complete list of all Licenses used in and material, individually or in the aggregate, to the business or operations of the Company or any Subsidiary (and all pending applications for any such Licenses), setting forth the grantor, the grantee, the function and the expiration and renewal date of each. Prior to the execution of this Agreement, Seller has delivered to Purchaser true and complete copies of all such Licenses. Except as disclosed in Section 2.20 of the Disclosure Schedule:

      (i) the Company and each Subsidiary owns or validly holds all Licenses that are material, individually or in the aggregate, to its business or operations;

      (ii) each License listed in Section 2.20 of the Disclosure Schedule is valid, binding and in full force and effect; and

      (iii) neither the Company nor any Subsidiary is, or has received any notice that it is, in default (or with the giving of notice or lapse of time or both, would be in default) under any such License.

      2.21 Insurance. Section 2.21 of the Disclosure Schedule contains a true and complete list (including the names and addresses of the insurers, the names of the Persons to whom such Policies have been issued, the expiration dates thereof, the annual premiums and payment terms thereof, whether it is a “claims made” or an “occurrence” policy and a brief description of the interests insured thereby) of all liability, property, workers' compensation, directors' and officers' liability and other insurance policies currently in effect that insure the business, operations or employees of the Company or any Subsidiary or affect or relate to the ownership, use or operation of any of the Assets and Properties of the Company or any Subsidiary and that (i) have been issued to the Company or any Subsidiary or (ii) have been issued to any Person (other than the Company or any Subsidiary) for the benefit of the Company or any Subsidiary. The insurance coverage provided by any of the policies described in clause (i) above will not terminate or lapse by reason of the transactions contemplated by this Agreement. Each policy listed in Section 2.21 of the Disclosure Schedule is valid and binding and in full force and effect, no premiums due thereunder have not been paid and neither the Company, any Subsidiary nor the Person to whom such policy has been issued has received any notice of cancellation or termination in respect of any such policy or is in default thereunder. The insurance policies listed in Section 2.21 of the Disclosure Schedule are placed with financially sound and reputable insurers and, in light of the respective business, operations and Assets and Properties of the Company and the Subsidiaries, are in amounts and have coverages that are reasonable and customary for Persons engaged in such businesses and operations and having such Assets and Properties. Neither the Company, any Subsidiary nor the Person to whom such policy has been issued has received notice that any insurer under any policy referred to in this Section is denying liability with respect to a claim thereunder or defending under a reservation of rights clause.

      2.22 Affiliate Transactions. Except as disclosed in Section 2.19(a)(vii) or Section 2.22(a) of the Disclosure Schedule, or as disclosed elsewhere in the Disclosure Schedule: (i) there are no intercompany Liabilities between the Company or any Subsidiary, on the one hand, and Seller, any officer, director or Affiliate (other than the Company or any Subsidiary) of Seller, on the other, (ii) neither Seller nor any such officer, director or Affiliate provides or causes to be provided any assets, services or facilities to the Company or any Subsidiary, (iii) neither the Company nor any Subsidiary provides or causes to be provided any assets, services or facilities to Seller or any such officer, director or Affiliate and (iv) neither the Company nor any Subsidiary beneficially owns, directly or indirectly, any Investment Assets issued by Seller or any such officer, director or Affiliate. Except as disclosed in Section 2.22(b) of the Disclosure Schedule, each of the Liabilities and transactions listed in Section 2.22(a) of the Disclosure Schedule was incurred or engaged in, as the case may be, on an arm's-length basis. Except as disclosed in Section 2.22(c) of the Disclosure Schedule, since the December 31, 2003, all settlements of intercompany Liabilities between the Company or any Subsidiary, on the one hand, and Seller or any such officer, director or Affiliate, on the other, have been made, and all allocations of intercompany expenses have been applied, in the ordinary course of business consistent with past practice.

      2.23 Employees; Labor Relations.

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      (a) Section 2.23 of the Disclosure Schedule contains a list of the name of each officer and employee of the Company and the Subsidiaries at the date hereof, together with each such person's position or function, annual base salary or wages and any incentive or bonus arrangement with respect to such person in effect on such date. Sellers have not received any information that would lead it to believe that a material number of such persons will or may cease to be employees of the Company, or will refuse offers of employment from Purchaser, because of the consummation of the transactions contemplated by this Agreement.

      (b) Except as disclosed in Section 2.23 of the Disclosure Schedule, (i) no employee of the Company or any Subsidiary is presently a member of a collective bargaining unit and, to the Knowledge of Sellers, there are no threatened or contemplated attempts to organize for collective bargaining purposes any of the employees of the Company or any Subsidiary, and (ii) no unfair labor practice complaint or sex, age, race or other discrimination claim has been brought during the last five (5) years against the Company or any of the Subsidiaries before the National Labor Relations Board, the Equal Employment Opportunity Commission or any other Governmental or Regulatory Authority. Since December 31, 2001, there has been no work stoppage, strike or other concerted action by employees of the Company or any Subsidiary. During that period, the Company and the Subsidiaries have complied in all material respects with all applicable Laws relating to the employment of labor, including, without limitation those relating to wages, hours and collective bargaining.

      2.24 Substantial Customers and Suppliers. Section 2.24(a) of the Disclosure Schedule lists the ten (10) largest customers of the Company and the Subsidiaries, on the basis of revenues for goods sold or services provided for the most recently-completed fiscal year. Section 2.24(b) of the Disclosure Schedule lists the five (5) largest suppliers of the Company and the Subsidiaries, on the basis of cost of goods or services purchased for the most recently-completed fiscal year. Except as disclosed in Section 2.24(c) of the Disclosure Schedule and for the Specified Vendors (defined below), no such customer or supplier has ceased or materially reduced its purchases from, use of the services of, or sales or provision of services to the Company and the Subsidiaries since December 31, 2003, or to the Knowledge of Sellers, has threatened to cease or materially reduce such purchases, use, sales or provision of services after the date hereof. Except as disclosed in Section 2.24(d) of the Disclosure Schedule, to the Knowledge of Seller, no such customer or supplier is threatened with bankruptcy or insolvency.

      2.25 Bank and Brokerage Accounts; Investment Assets. Section 2.25 of the Disclosure Schedule sets forth (a) a true and complete list of the names and locations of all banks, trust companies, securities brokers and other financial institutions at which the Company or any Subsidiary has an account or safe deposit box or maintains a banking, custodial, trading or other similar relationship; (b) a true and complete list and description of each such account, box and relationship, indicating in each case the account number and the names of the respective officers, employees, agents or other similar representatives of the Company or any Subsidiary having signatory power with respect thereto; and (c) a list of each Investment Asset, the name of the record and beneficial owner thereof, the location of the certificates, if any, therefor, the maturity date, if any, and any stock or bond powers or other authority for transfer granted with respect thereto.

      2.26 No Powers of Attorney. Except as set forth in Section 2.26 of the Disclosure Schedule, neither the Company nor any Subsidiary has any powers of attorney or comparable delegations of authority outstanding.

      2.27 [Intentionally Omitted]

      2.28 Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Sellers directly with Purchaser without the intervention of any Person on behalf of Sellers in such manner as to give rise to any valid claim by any Person against Purchaser, the Company or any Subsidiary for a finder's fee, brokerage commission or similar payment.

      2.29 Nature of Purchase; Accredited Investor. (a) Each Seller is acquiring the Purchaser Shares and True-Up Shares issued pursuant to this Agreement for its account for investment, not as a

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nominee or agent, and not with a view to the resale or distribution of such shares or any part thereof, and each Seller has no present intention of selling, granting any participation in, or otherwise distributing the same. Each Seller acknowledges that the issuance of the Purchaser Shares and True-Up Shares pursuant to this Agreement will not be registered under the Securities Act or any state securities or blue sky law, on the grounds that the offering and sale of the Purchaser Shares contemplated by this Agreement are exempt from registration pursuant to exceptions available under such laws, and that Purchaser's reliance upon such exemptions is predicated upon such Seller's representations set forth in this Agreement. Each Seller acknowledges and understands that such shares must be retained by each Seller until they are subsequently registered under the Securities Act and/or applicable state securities or blue sky laws or an exemption from such registration is available, and that the certificates representing such shares will contain a legend to the foregoing effect.

      (b) Each Seller is an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act.

ARTICLE III
REPRESENTATIONSAND WARRANTIESOF PURCHASER

      Purchaser hereby represents and warrants to Sellers as follows:

      3.01 Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Purchaser has full corporate power and authority to execute and deliver this Agreement and the Operative Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby.

      3.02 Authority. The execution and delivery by Purchaser of this Agreement and the Operative Agreements to which it is a party, and the performance by Purchaser of its obligations hereunder and thereunder, have been duly and validly authorized by the Board of Directors of Purchaser, no other corporate action on the part of Purchaser or its stockholders being necessary. This Agreement has been duly and validly executed and delivered by Purchaser and constitutes, and upon the execution and delivery by Purchaser of the Operative Agreements to which it is a party, such Operative Agreements will constitute, legal, valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their terms.

      3.03 No Conflicts. The execution and delivery by Purchaser of this Agreement do not, and the execution and delivery by Purchaser of the Operative Agreements to which it is a party, the performance by Purchaser of its obligations under this Agreement and such Operative Agreements and the consummation of the transactions contemplated hereby and thereby will not:

      (a) (x) conflict with or result in a violation or breach of any of the terms, conditions or provisions of the certificate of incorporation or by-laws (or other comparable corporate charter document) of Purchaser, (y) conflict with, result in a breach of, or trigger any rights under any agreement between Purchasers and any third party (including any conflicts, breaches, or triggering of rights that would allow any person to prevent the Company from filing the registration statement provided for in the Registration Rights Agreement (the “Registration Statement”); or (z) permit any person to include shares in the Registration Statement;

      (b) subject to obtaining the consents, approvals and actions, making the filings and giving the notices disclosed in Schedule 3.04 hereto, conflict with or result in a violation or breach of any term or provision of any Law or Order applicable to Purchaser or any of its Assets and Properties; or

      (c) except as disclosed in Schedule 3.03 hereto, (i) conflict with or result in a violation or breach of, (ii) constitute (with or without notice or lapse of time or both) a default under, (iii) require Purchaser to obtain any consent, approval or action of, make any filing with or give any notice to any Person as a result or under the terms of, or (iv) result in the creation or imposition of any Lien upon Purchaser or any of its Assets or Properties under, any

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Contract or License to which Purchaser is a party or by which any of its Assets and Properties is bound.

      3.04 Governmental Approvals and Filings. Except as disclosed in Schedule 3.04 hereto, no consent, approval or action of, filing with or notice to any Governmental or Regulatory Authority on the part of Purchaser is required in connection with the execution, delivery and performance by Purchaser of this Agreement or the Operative Agreements to which it is a party or the consummation of the transactions contemplated hereby or thereby.

      3.05 Legal Proceedings. There are no Actions or Proceedings pending or, to the knowledge of Purchaser, threatened against, relating to or affecting Purchaser or any of its Assets and Properties which could reasonably be expected to result in the issuance of an Order restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Operative Agreements.

      3.06 Purchase for Investment. The Shares will be acquired by Purchaser (or, if applicable, its assignee pursuant to Section 14.09(b)(i)) for its own account for the purpose of investment, it being understood that the right to dispose of such Shares shall be entirely within the discretion of Purchaser (or such assignee, as the case may be). Purchaser (or such assignee, as the case may be) will refrain from transferring or otherwise disposing of any of the Shares, or any interest therein, in such manner as to cause Seller to be in violation of the registration requirements of the Securities Act, or applicable state securities or blue sky laws.

      3.07 SEC Reports and Financial Statements; No Adverse Change. A copy of Purchaser's Annual Report on Form 10-K/A for the period ended December 31, 2003, Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2004, June 30, 2004, and September 30, 2004, 2004 definitive proxy statement (together with all amendments thereof and supplements thereto) filed by Purchaser or any of its subsidiaries with the Securities and Exchange Commission (the “SEC”) (as such documents have since the time of their filing been amended or supplemented, together with all other required reports, schedules, statements and forms filed by Purchaser since January 1, 2003, the “Purchaser SEC Reports”) are available for inspection on the SEC's EDGAR system. As of their respective dates, the Purchaser SEC Reports (i) complied as to form in all material respects with the requirements of the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the case may be, and, to the extent not included in such acts, the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations promulgated thereunder; and (ii) did not 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 therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim consolidated financial statements (including, in each case, the notes, if any, thereto) included in the Purchaser SEC Reports (the “Purchaser Financial Statements”) complied as to form in all material respects with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP (except as may be indicated therein or in the notes thereto and except with respect to unaudited statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end audit adjustments) the consolidated financial position of Purchaser and its consolidated subsidiaries as at the respective dates thereof and the consolidated results of their operations and cash flows for the respective periods then ended.

      3.08 Capital Stock. The Purchaser Shares and True-Up Shares issuable in connection with this Agreement constitute voting stock, have been duly authorized by all requisite corporate action on the part of Purchaser and have been duly reserved for issuance pursuant to this Agreement and, when issued in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and issued free of any Liens arising from any actions of, or incurred by, Purchaser.

      3.09 Brokers. Except for North Point Advisors LLC, whose fees, commissions and expenses are the sole responsibility of and will be paid in full by Purchaser, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Purchaser directly with Seller without the intervention of any Person on behalf of Purchaser in such manner as to

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give rise to any valid claim by any Person against any Seller, the Company or any Subsidiary for a finder's fee, brokerage commission or similar payment.

      3.10 Financial Condition. As of the Execution Date, Purchaser has available unrestricted, and uncommitted cash and marketable securities of not less than $3,500,000. As of January 3, 2005, Purchaser will have available, unrestricted, and uncommitted cash and marketable securities of not less than $3,000,000.

      3.11 Capitalization. The authorized capital stock of the Company consists of (i) 5,000,000 shares of preferred stock, par value .001 per share, of which no shares are issued and outstanding, and (ii) 75,000,000 shares of Common Stock, of which 54,590,138 shares are issued and outstanding. Except with respect to the Securities or as set forth on Schedule 3.11, there are no outstanding subscriptions, rights, options, warrants, conversion rights, agreements or other claims for the purchase or acquisition from the Company of any shares of its capital stock or obligating the Company to issue, repurchase, register or otherwise acquire, any shares of its capital stock or any securities convertible into, exercisable or exchangeable for, or otherwise entitling the holder to acquire, any shares of capital stock of the Company.

ARTICLE IV
COVENANTSOF SELLERS

      Sellers covenant and agree with Purchaser that (and Purchaser covenants and agrees for purposes of Section 4.06), at all times from and after the date hereof until the Closing and, with respect to any covenant or agreement by its terms to be performed in whole or in part after the Closing, for the period specified therein or, if no period is specified therein, indefinitely, Sellers will comply with all covenants and provisions of this Article IV, except to the extent Purchaser may otherwise consent in writing.

      4.01 Regulatory and Other Approvals. Sellers will, and will cause the Company and the Subsidiaries to, as promptly as practicable (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of Seller, the Company or any Subsidiary to consummate the transactions contemplated hereby and by the Operative Agreements, including without limitation those described in Sections 2.06 and 2.07 of the Disclosure Schedule, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as Purchaser or such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) cooperate with Purchaser in connection with the performance of its obligations under Sections 5.01 and 5.02. Sellers will provide prompt notification to Purchaser when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Purchaser of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement or any of the Operative Agreements.

      4.02 [Intentionally omitted]

      4.03 Investigation by Purchaser. Sellers will, and will cause the Company and the Subsidiaries to, (a) provide Purchaser and its officers, directors, employees, agents, counsel, accountants, financial advisors, consultants and other representatives (together “Representatives”) with full access, upon reasonable prior notice and during normal business hours, to all officers, employees, agents and accountants of the Company and the Subsidiaries and their Assets and Properties and Books and Records, and (b) furnish Purchaser and such other Persons with all such information and data (including without limitation copies of Contracts, Benefit Plans and other Books and Records) concerning the business and operations of the Company and the Subsidiaries as Purchaser or any of such other Persons reasonably may request in connection with such investigation.

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      4.04 No Solicitations. Sellers will not take, nor will it permit the Company, the Subsidiaries or any Affiliate of any Seller (or authorize or permit any investment banker, financial advisor, attorney, accountant or other Person retained by or acting for or on behalf of Sellers, the Company, the Subsidiaries or any such Affiliate) to take, directly or indirectly, any action to solicit, encourage, receive, negotiate, assist or otherwise facilitate (including by furnishing confidential information with respect to the Company or any Subsidiary or permitting access to the Assets and Properties and Books and Records of the Company or any Subsidiary) any offer or inquiry from any Person concerning an Acquisition Proposal. If Seller, the Company, any Subsidiary or any such Affiliate (or any such Person acting for or on their behalf) receives from any Person any offer, inquiry or informational request referred to above, Seller will promptly advise such Person, by written notice, of the terms of this Section 4.04 and will promptly, orally and in writing, advise Purchaser of such offer, inquiry or request and deliver a copy of such notice to Purchaser.

      4.05 Conduct of Business. Sellers will cause the Company and the Subsidiaries to conduct business only in the ordinary course consistent with past practice. Without limiting the generality of the foregoing, Sellers will:

      (a) cause the Company and the Subsidiaries to use commercially reasonable efforts, consistent with past practice, to (i) preserve intact the present business organization and reputation of the Company and the Subsidiaries, (ii) keep available (subject to dismissals and retirements in the ordinary course of business consistent with past practice) the services of the present officers, employees and consultants of the Company and the Subsidiaries, (iii) maintain the Assets and Properties of the Company and the Subsidiaries in good working order and condition, ordinary wear and tear excepted, (iv) maintain the good will of customers, suppliers, lenders and other Persons to whom the Company or any Subsidiary sells goods or provides services or with whom the Company or any Subsidiary otherwise has significant business relationships and (v) continue all current sales, marketing and promotional activities relating to the business and operations of the Company and the Subsidiaries;

      (b) except to the extent required by applicable Law, (i) cause the Books and Records to be maintained in the usual, regular and ordinary manner, (ii) not permit any material change in (A) any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy of the Company or any Subsidiary, or (B) any method of calculating any bad debt, contingency or other reserve of the Company or any Subsidiary for accounting, financial reporting or Tax purposes and (iii) not permit any change in the fiscal year of the Company or any Subsidiary;

      (c) (i) use, and will cause the Company and the Subsidiaries to use, commercially reasonable efforts to maintain in full force and effect until the Closing substantially the same levels of coverage as the insurance afforded under the Contracts listed in Section 2.21 of the Disclosure Schedule, (ii) to the extent requested by Purchaser prior to the Closing Date, use all commercially reasonable efforts to cause such insurance coverage held by any Person (other than the Company or any Subsidiary) for the benefit of the Company or any Subsidiary to continue to be provided at the expense of the Company and the Subsidiaries for at least thirty (30) days after the Closing on substantially the same terms and conditions as provided on the date of this Agreement and (iii) cause any and all benefits under such Contracts paid or payable (whether before or after the date of this Agreement) with respect to the business, operations, employees or Assets and Properties of the Company and the Subsidiaries to be paid to the Company and the Subsidiaries; and

      (d) cause the Company and the Subsidiaries to comply, in all material respects, with all Laws and Orders applicable to the business and operations of the Company and the Subsidiaries, and promptly following receipt thereof to give Purchaser copies of any notice received from any Governmental or Regulatory Authority or other Person alleging any violation of any such Law or Order.

      4.06 Financial Statements.

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      (a) As promptly as practicable and in any event not later than ten (10) days after execution of this Agreement, the Company will cause an audit of the financial statements of the Company as of and for the year ended December 31, 2004 to be initiated by Tarlow & Company.

      (b) As promptly as practicable, the Company will deliver to Purchaser true and complete copies of such other financial statements, reports and analyses as may be prepared or received by Sellers, the Company or any Subsidiary relating to the business or operations of the Company or any Subsidiary or as Purchaser may otherwise reasonably request.

      (c) As promptly as practicable, the Company will deliver copies of all License applications and other filings (if any) made by the Company or any Subsidiary after the date hereof and before the Closing Date with any Governmental or Regulatory Authority (other than routine, recurring filings made in the ordinary course of business consistent with past practice).

      4.07 Employee Matters. Except as set forth on Schedule A, and except as may be required by Law, Sellers will refrain, and will cause the Company and the Subsidiaries to refrain, from directly or indirectly:

      (a) making any representation or promise, oral or written, to any officer, employee or consultant of the Company or any Subsidiary concerning any Benefit Plan, except for statements as to the rights or accrued benefits of any officer, employee or consultant under the terms of any Benefit Plan;

      (b) making any increase in the salary, wages or other compensation of any officer, employee or consultant of the Company or any Subsidiary;

      (c) adopting, entering into or becoming bound by any Benefit Plan, employment-related Contract or collective bargaining agreement, or amending, modifying or terminating (partially or completely) any Benefit Plan, employment-related Contract or collective bargaining agreement, except to the extent required by applicable Law and, in the event compliance with legal requirements presents options, only to the extent that the option which the Company or Subsidiary reasonably believes to be the least costly is chosen; or

      (d) establishing or modifying any (i) targets, goals, pools or similar provisions in respect of any fiscal year under any Benefit Plan, employment-related Contract or other employee compensation arrangement or (ii) salary ranges, increase guidelines or similar provisions in respect of any Benefit Plan, employment-related Contract or other employee compensation arrangement.

      Sellers will cause the Company and the Subsidiaries to administer each Benefit Plan, or cause the same to be so administered, in all material respects in accordance with the applicable provisions of the Code, ERISA and all other applicable Laws. Sellers will promptly notify Purchaser in writing of each receipt by Sellers, the Company or any Subsidiary (and furnish Purchaser with copies) of any notice of investigation or administrative proceeding by the IRS, Department of Labor, PBGC or other Person involving any Benefit Plan.

      4.08 Certain Restrictions. Except as set forth on Schedule A, Sellers will cause the Company and the Subsidiaries to refrain from:

      (a) amending their certificates or articles of incorporation or by-laws (or other comparable corporate charter documents) or taking any action with respect to any such amendment or any recapitalization, reorganization, liquidation or dissolution of any such corporation;

      (b) authorizing, issuing, selling or otherwise disposing of any shares of capital stock of or any Option with respect to the Company or any Subsidiary, or modifying or amending any right of any holder of outstanding shares of capital stock of or Option with respect to the Company or any Subsidiary;

      (c) declaring, setting aside or paying any dividend or other distribution in respect of the capital stock of the Company or any Subsidiary not wholly owned by the Company, or directly or indirectly redeeming, purchasing or otherwise acquiring any capital stock of or any Option with respect to the Company or any Subsidiary not wholly owned by the Company;

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      (d) acquiring or disposing of, or incurring any Lien (other than a Permitted Lien) on, any Assets and Properties, other than in the ordinary course of business consistent with past practice;

      (e) (i) entering into, amending, modifying, terminating (partially or completely), granting any waiver under or giving any consent with respect to (A) any Contract that would, if in existence on the date of this Agreement, be required to be disclosed in the Disclosure Schedule pursuant to Section 2.19(a) or (B) any material License or (ii) granting any irrevocable powers of attorney;

      (f) violating, breaching or defaulting under in any material respect, or taking or failing to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or default under, any term or provision of any License held or used by the Company or any Subsidiary or any Contract to which the Company or any Subsidiary is a party or by which any of their respective Assets and Properties is bound [(other than the Company's delay in payments to certain vendors)];

      (g) (i) incurring Indebtedness or (ii) voluntarily purchasing, canceling, prepaying or otherwise providing for a complete or partial discharge in advance of a scheduled payment date with respect to, or waiving any right of the Company or any Subsidiary under, any Indebtedness of or owing to the Company or any Subsidiary;

      (h) engaging with any Person in any merger or other business combination;

      (i) making capital expenditures or commitments for additions to property, plant or equipment constituting capital assets;

      (j) making any change in the lines of business in which they participate or are engaged;

      (k) writing off or writing down any of their Assets and Properties outside the ordinary course of business consistent with past practice; or

      (l) entering into any Contract to do or engage in any of the foregoing.

      4.09 Affiliate Transactions. Except as set forth in Schedule A or in the Disclosure Schedule or as contemplated by this Agreement or the Operative Agreements, immediately prior to the Closing, all Indebtedness and other amounts owing under Contracts between any Seller, any officer, director or Affiliate (other than the Company or any Subsidiary) of any Seller, on the one hand, and the Company or any of the Subsidiaries, on the other, will be paid in full, and Sellers will terminate and will cause any such officer, director or Affiliate to terminate each Contract with the Company or any Subsidiary. Prior to the Closing, neither the Company nor any Subsidiary will enter into any Contract or amend or modify any existing Contract, and will not engage in any transaction outside the ordinary course of business consistent with past practice or not on an arm's-length basis (other than pursuant to Contracts disclosed pursuant to Section 2.19(a)(vii) of the Disclosure Schedule), with Sellers or any such officer, director or Affiliate.

      4.10 Books and Records. On the Closing Date, Sellers will deliver or make available to Purchaser at the offices of the Company and the Subsidiaries all of the Books and Records, and if at any time after the Closing Seller discovers in its possession or under its control any other Books and Records, it will forthwith deliver such Books and Records to Purchaser.

      4.11 Noncompetition. (a) Except as specified in Section 4.11(d) below, Sellers will, for a period of one (1) year from the Closing Date, refrain from, either alone or in conjunction with any other Person, or directly or indirectly through its present or future Affiliates:

      (i) employing, engaging or seeking to employ or engage any Person, other than Richard Hopple, who within the prior six (6) months, had been an officer or employee of the Company or a Subsidiary, unless such officer or employee (A) resigns voluntarily (without any solicitation from Seller or any of its Affiliates) or (B) is terminated by the Company or any Subsidiary after the Closing Date;

      (ii) causing or attempting to cause (A) any client, customer or supplier of the Company or any Subsidiary to terminate or materially reduce its business with the Company and the

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Subsidiaries or (B) any officer, employee or consultant of the Company or any Subsidiary to resign or sever a relationship with the Company or a Subsidiary;

      (iii) disclosing (unless compelled by judicial or administrative process) or using any confidential or secret information relating to the Company or any of the Subsidiaries or any of their respective clients, customers or suppliers; or

      (iv) participating or engaging in (other than through the ownership of five percent (5%) or less of any class of securities registered under the Securities Exchange Act of 1934, as amended), or otherwise lending assistance (financial or otherwise) to any Person participating or engaged in, any of the lines of business in which the Company or any of the Subsidiaries is participating or engaged on the Closing Date in any jurisdiction in which the Company or a Subsidiary participates or engages in such line of business on the Closing Date.

      (b) The parties hereto recognize that the Laws and public policies of the various states of the United States may differ as to the validity and enforceability of covenants similar to those set forth in this Section. It is the intention of the parties that the provisions of this Section be enforced to the fullest extent permissible under the Laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such Laws or policies) of any provisions of this Section shall not render unenforceable, or impair, the remainder of the provisions of this Section. Accordingly, if any provision of this Section shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction.

      (c) The parties hereto acknowledge and agree that any remedy at Law for any breach of the provisions of this Section would be inadequate, and Seller hereby consents to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained.

      (d) Notwithstanding anything herein or otherwise to the contrary, the prohibitions and restrictions set forth in Sections 4.11(a)(i), (ii), and (iv) shall not apply to or be binding upon MacManus.

      4.12 Notice and Cure. Sellers will notify Purchaser in writing (where appropriate, through updates to the Disclosure Schedule) of, and contemporaneously will provide Purchaser with true and complete copies of any and all information or documents relating to, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes Known to Sellers, occurring after the date of this Agreement that causes or will cause any covenant or agreement of Sellers under this Agreement to be breached or that renders or will render untrue any representation or warranty of Sellers contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance.

      4.13 Fulfillment of Conditions. Sellers will execute and deliver at the Closing each Operative Agreement that Sellers are required hereby to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each other condition to the obligations of Purchaser contained in this Agreement and will not, and will not permit the Company or any Subsidiary to, take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition.

ARTICLE V
COVENANTSOF PURCHASER

      Purchaser covenants and agrees with Sellers that, at all times from and after the date hereof until the Closing, Purchaser will comply with all covenants and provisions of this Article V, except to the extent Seller may otherwise consent in writing.

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      5.01 Regulatory and Other Approvals. Purchaser will as promptly as practicable (a) take all commercially reasonable steps necessary or desirable to obtain all consents, approvals or actions of, make all filings with and give all notices to Governmental or Regulatory Authorities or any other Person required of Purchaser to consummate the transactions contemplated hereby and by the Operative Agreements, including without limitation those described in Schedules 3.03 and 3.04 hereto, (b) provide such other information and communications to such Governmental or Regulatory Authorities or other Persons as Sellers or such Governmental or Regulatory Authorities or other Persons may reasonably request in connection therewith and (c) cooperate with Sellers, the Company and the Subsidiaries in connection with the performance of their obligations under Sections 4.01 and 4.02. Purchaser will provide prompt notification to Sellers when any such consent, approval, action, filing or notice referred to in clause (a) above is obtained, taken, made or given, as applicable, and will advise Sellers of any communications (and, unless precluded by Law, provide copies of any such communications that are in writing) with any Governmental or Regulatory Authority or other Person regarding any of the transactions contemplated by this Agreement or any of the Operative Agreements.

      5.02 Notice and Cure. Purchaser will notify Sellers in writing of, and contemporaneously will provide Sellers with true and complete copies of any and all information or documents relating to, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practicable after it becomes known to Purchaser, occurring after the date of this Agreement that causes or will cause any covenant or agreement of Purchaser under this Agreement to be breached or that renders or will render untrue any representation or warranty of Purchaser contained in this Agreement as if the same were made on or as of the date of such event, transaction or circumstance. No notice given pursuant to this Section shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein or shall in any way limit Seller's right to seek indemnity under Article XI.

      5.03 Fulfillment of Conditions. Purchaser will execute and deliver at the Closing each Operative Agreement that Purchaser is hereby required to execute and deliver as a condition to the Closing, will take all commercially reasonable steps necessary or desirable and proceed diligently and in good faith to satisfy each other condition to the obligations of Sellers contained in this Agreement and will not take or fail to take any action that could reasonably be expected to result in the nonfulfillment of any such condition.

      5.04 Vendor Commitments. Promptly upon the execution of this Agreement, Purchaser will contact those Vendors of the Company identified on Schedule C hereto (together, the “Specified Vendors”), and will use its commercially reasonable efforts to cause the Specified Vendors to permit the Company to commit in writing to defer collection of all presently due or past due payables of the Company to the Specified Vendors until at least January 6, 2005 and to continue providing services to the Company consistent with past practices and service levels (each, a “Deferred Payment and Service Commitment”). If (a) Purchaser is unsuccessful in obtaining Deferred Payment and Service Commitments from the Specified Vendors prior to December 2, 2004; or (b) at any time after the Execution Date (whether or not Purchaser has obtained a Deferred Payment and Service Commitment from such Specified Vendor) any Specified Vendor notifies the Company that with respect to any presently or past due payables of the Company to such Specified Vendor it is: (x) accelerating, escalating or otherwise increasing its collection efforts against the Company, (y) pursuing other claims or remedies against the Company, or (z) taking or initiating (or will be taking or initiating at any time prior to January 6, 2004) efforts to cease providing services to the Company, then promptly upon notice from the Company (and in any event no later than 2:00 p.m. Eastern Standard Time on the next Business Day following notice from the Company (so long as such notice is made by facsimile or courier or personal delivery to the headquarters of Purchaser), Purchaser and the Company will enter into an ad-serving agreement or insertion agreement with industry standard terms (the “Ad-Serving Agreement”) and under which (a) the Company will be obligated to provide to Purchaser or its designated customers ad-serving services having a value of $250,000 at standard rates over a seven-month period and (b) Purchaser will be required to immediately deliver by wire transfer of immediately

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available funds to such account(s) as the Company may designate, the sum of $250,000 (the “Ad-Serving Pre-Payment”).

ARTICLE VI
CONDITIONSTO OBLIGATIONSOF PURCHASER

      The obligations of Purchaser hereunder to purchase the Shares are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by Purchaser in its sole discretion):

      6.01 Representations and Warranties. Each of the representations and warranties made by Sellers in this Agreement (other than those made as of a specified date earlier than the Closing Date) shall be true and correct in all material respects on and as of the Closing Date as though such representation or warranty was made on and as of the Closing Date, and any representation or warranty made as of a specified date earlier than the Closing Date shall have been true and correct in all material respects on and as of such earlier date.

      6.02 Performance. Sellers shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Sellers at or before the Closing.

      6.03 Officers' Certificates. Sellers shall have delivered to Purchaser certificate, dated the Closing Date and executed by each Seller, substantially in the forms and to the effect of Exhibits B-1 through B-3 hereto, and certificate, dated the Closing Date and executed by the Secretary or any Assistant Secretary of MacManus and the Secretary or Assistant Secretary or other manager or member of Grace, substantially in the forms and to the effect of Exhibits C-1 and C-2 hereto.

      6.04 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Operative Agreements or which could reasonably be expected to otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement or any of the Operative Agreements to Purchaser, and there shall not be pending or threatened on the Closing Date any Action or Proceeding in, before or by any Governmental or Regulatory Authority which could reasonably be expected to result in the issuance of any such Order or the enactment, promulgation or deemed applicability to Purchaser, the Company, any Subsidiary or the transactions contemplated by this Agreement or any of the Operative Agreements of any such Law.

      6.06 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Purchaser and Seller to perform their obligations under this Agreement and the Operative Agreements and to consummate the transactions contemplated hereby and thereby (a) shall have been duly obtained, made or given, (b) shall be in form and substance reasonably satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (d) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement and the Operative Agreements, including under the HSR Act, shall have occurred.

      6.07 Third Party Consents. All consents (or in lieu thereof waivers) to the performance by Purchaser and Seller of their obligations under this Agreement and the Operative Agreements or to the consummation of the transactions contemplated hereby and thereby as are required under any Contract to which Purchaser, Seller, the Company or any Subsidiary is a party or by which any of their respective Assets and Properties are bound (a) shall have been obtained, (b) shall be in form and substance reasonably satisfactory to Purchaser, (c) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (d) shall be in full force and effect, except (other than in the case of the consents listed in Section 6.07 of the Disclosure Schedule) where the failure to obtain any such consent (or in lieu thereof waiver) could not reasonably be expected, individually or in the aggregate with other such failures, to materially

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adversely affect Purchaser or to have a Company Material Advance Effect or otherwise result in a material diminution of the benefits of the transactions contemplated by this Agreement and the Operative Agreements to Purchaser.

      6.08 [Intentionally omitted]

      6.09 Resignations of Directors and Officers. Those directors and officers of the Company identified on Schedule B to this Agreement shall have tendered, effective at the Closing, their resignations as such directors and officers.

      6.10 Registration Rights Agreement. Sellers and Purchaser shall have entered into the Registration Rights Agreement substantially in the form of Exhibit E hereto (the “Registration Rights Agreement”).

      6.11 Second Amended and Restated Security Agreement. MacManus, the Company and Purchaser shall have entered into a Second Amended and Restated Security Agreement, dated as of the Closing Date by and between the Company and MacManus, substantially in the form of Exhibit F hereto (the “Seconded Amended and Restated Security Agreement”), and concurrently with or immediately preceding the Closing, Purchaser shall have caused the amount outstanding under that certain Amended and Restated Promissory Note, dated as of February 24, 2004 in the principal amount of $2,000,000 to have been reduced by $250,000 pursuant to a letter agreement reasonably acceptable to MacManus and the Purchaser (the “Note Reduction Letter”).

      6.12 Amendment to SubLease of 170 Varick Street. Semaphore Partners and the Company shall have entered into an amendment of that certain sublease agreement between them with respect to space sublet by the Company in the building known as 160-170 Varick Street, New York, New York substantially in the form of Exhibit F-2 hereto (the “Sublease Amendment”).

      6.13 Agreement Regarding Chief Executive Officer of the Company. Purchaser and Sellers shall have entered into an agreement with respect to severance payments to the Chief Executive Officer substantially in the form of Exhibit G hereto (the “CEO Severance Agreement”).

      6.14 Proceedings. All proceedings to be taken on the part of Sellers in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to Purchaser, and Purchaser shall have received copies of all such documents and other evidences as Purchaser may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

ARTICLE VII
CONDITIONSTO OBLIGATIONSOF SELLERS

      The obligations of Sellers hereunder to sell the Shares are subject to the fulfillment, at or before the Closing, of each of the following conditions (all or any of which may be waived in whole or in part by a majority in interest of the Sellers (the “Requisite Sellers”) in their sole discretion, except for the condition set forth in Section 7.10, which may be waived only with the consent of MacManus):

      7.01 Representations and Warranties. Each of the representations and warranties made by Purchaser in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though such representation or warranty was made on and as of the Closing Date.

      7.02 Performance. Purchaser shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Purchaser at or before the Closing.

      7.03 Officers' Certificates. Purchaser shall have delivered to Sellers a certificate, dated the Closing Date and executed in the name and on behalf of Purchaser by the President or any Senior Vice President of Purchaser, substantially in the form and to the effect of Exhibit I hereto, and a certificate, dated the Closing Date and executed by the Secretary of Purchaser, substantially in the form and to the effect of Exhibit J hereto.

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      7.04 Orders and Laws. There shall not be in effect on the Closing Date any Order or Law that became effective after the date of this Agreement restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or any of the Operative Agreements.

      7.06 Regulatory Consents and Approvals. All consents, approvals and actions of, filings with and notices to any Governmental or Regulatory Authority necessary to permit Seller and Purchaser to perform their obligations under this Agreement and the Operative Agreements and to consummate the transactions contemplated hereby and thereby (a) shall have been duly obtained, made or given, (b) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (c) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental or Regulatory Authority necessary for the consummation of the transactions contemplated by this Agreement and the Operative Agreements, including under the HSR Act, shall have occurred.

      7.07 Third Party Consents. All consents (or in lieu thereof waivers) to the performance by Sellers of their obligations hereunder and to the consummation of the transactions contemplated hereby as are required under the Contracts listed in Section 7.07 of the Disclosure Schedule (a) shall have been obtained, (b) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (c) shall be in full force and effect.

      7.08 [Intentionally omitted]

      7.09 Registration Rights Agreement. Sellers and Purchaser shall have entered into the Registration Rights Agreement.

      7.10 Amended and Restated Security Agreement. MacManus, the Company, and Purchaser shall have entered into the Seconded Amended and Restated Security Agreement and MacManus and Purchaser shall have executed the Note Reduction Letter.

      7.11 Amendment to SubLease of 170 Varick Street. The Company shall have entered into Sublease Amendment with Semaphore Partners.

      7.12 Agreement Regarding Chief Executive Officer of the Company. Purchaser and Sellers shall have entered into the CEO Severance Agreement.

      7.13 Purchaser Liquidity. Purchaser shall have as of Closing, available, unrestricted, and uncommitted cash and marketable securities of not less than $3,000,000, and shall deliver a certificate of its CFO to that effect to Sellers and the Company.

      7.14 Proceedings. All proceedings to be taken on the part of Purchaser in connection with the transactions contemplated by this Agreement and all documents incident thereto shall be reasonably satisfactory in form and substance to Seller, and Seller shall have received copies of all such documents and other evidences as Seller may reasonably request in order to establish the consummation of such transactions and the taking of all proceedings in connection therewith.

ARTICLE VIII
TAX MATTERSAND POST-CLOSING TAXES

      8.01 Transfer Taxes. Purchaser shall cause the Company, at the Company's expense, to prepare and timely file, in accordance with all applicable laws and regulations, all necessary Tax Returns and other documentation with respect to all Transfer Taxes. Sellers shall reasonably cooperate with the Company and Purchaser in the preparation and filing of any such Tax Returns and other documentation. Notwithstanding the foregoing, Purchaser shall be responsible for and pay all applicable Transfer Taxes and stamp taxes relating to the issuance of any shares of Purchaser Common Stock hereunder to Sellers.

      8.02 Additional Tax Covenants.

      (a) (i) Any Tax Sharing Agreement to which the Company is a party shall be terminated as to the Company as of the Closing Date, and the Company shall have no further obligations thereunder.

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      (ii) All powers of attorney granted by the Company with respect to Taxes shall be revoked as of the Closing Date.

      (iii) Sellers agree that between the date of this Agreement and the Closing, Sellers will not cause or permit the Company to (x) make any change in the Company's Tax accounting methods, any new election with respect to Taxes or any modification or revocation of any existing election with respect to Taxes or (y) settle or otherwise dispose of any Tax audit, dispute, or other Tax proceeding, in each case without Purchaser's express written consent thereto.

      (b) At or prior to the Closing, each Seller shall deliver to Purchaser a certificate in the form required by Section 1445(b)(2) of the Code and the regulations promulgated thereunder to the effect that the Seller is not a “foreign person” within the meaning of Section 1445 of the Code.

      (c) (i) Subject to the provisions of this Section 8.02(c), Sellers shall have the right, at their own expense, to control, manage and be responsible for any audit, contest, claim, proceeding or inquiry with respect to Taxes for any taxable year or period ending on or before the Closing Date and shall have the right to settle or contest in its discretion any such audit, contest, claim or proceeding; provided, however, that (x) no settlement or disposition of any such proceeding shall be made without Purchaser's written consent if the same could reasonably be expected to affect Purchaser's liability for Taxes in any taxable period or portion of a taxable period ending after the Closing Date; (y) Purchaser and Sellers shall jointly control any proceeding relating to a taxable period that begins before, and ends after, the Closing Date; and (z) Purchaser shall have the right to attend and participate in (but not control) at is own expense, any proceeding (insofar as it relates to the Company) the control of which is allocated to Sellers pursuant to this Section 8.02(c).

      (ii) Except for the proceedings the control of which is determined pursuant to Section 8.02(c)(i), Purchaser shall, at its own expense, control, manage and solely be responsible for any audit, contest, claim, proceeding or inquiry with respect to Taxes for any taxable year or period ending after the Closing Date, and shall have the exclusive right to settle or contest any such audit, contest, claim, proceeding or inquiry without the consent of any other party.

      8.03 Tax Returns.

      (a) The Company shall timely prepare (or cause to be prepared) and shall timely file (or cause to be timely filed) all Tax Returns of the Company for any taxable year or period ending on or before the Closing Date which are not required to be filed on or before the Closing Date. At least 30 days prior to the due date for filing such Tax Return, the Company shall provide Purchaser and Sellers with a copy of such Tax Return for their review and consent, which shall not be unreasonably withheld.

      (b) Purchaser shall prepare (or cause to be prepared) and file (or cause to be filed) all Tax Returns of the Company for any taxable year or period commencing prior to the Closing Date and ending subsequent to the Closing Date. Purchaser shall provide Sellers with a copy of each Tax Return for its review and comment at least 30 days prior to the due date for filing such Tax Return and Purchaser shall make any changes to each such Tax Return reasonably requested by the Requisite Sellers.

      (c) The Tax Returns referred to in Sections 8.03(a) and (b), shall, to the extent not otherwise required by Law, be prepared in a manner consistent with the Company's past practice (including any Tax elections and methods of accounting).

ARTICLE IX
POST-CLOSING COVENANTS

      9.01 Continuing Indemnification. All rights to indemnification existing in favor of those persons who are directors and officers of the Company as of the Execution Date (the “Indemnified Persons”) for their acts and omissions occurring prior to the Closing Date, as provided in the Company's Certificate of Incorporation or Bylaws (as in effect as of the date of this Agreement)

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shall survive the Closing and the transactions provided for in this Agreement and will be observed by Purchaser and its successors and Affiliates to the fullest extent permitted by applicable law for a period of six years from the Closing Date.

      9.02 Employee Matters. Purchaser shall cause the Company to continue in employment, as employees at will: (i) all employees of the Company who are on the Company's active payroll on the Closing Date, and (ii) any employee of the Company on an approved leave of absence or disability leave as of the Closing Date, if such employee returns to active employment with the Company immediately upon the conclusion of any such leave of absence or within the period required by applicable law (all such employees being hereinafter referred to as “Continuing Employees”). The employment of the Continuing Employees shall be on substantially the same terms, including pay and benefits, or better terms, as those existing immediately prior to the Closing Date; provided, however, that the Company shall have no obligation to continue to employ any Continuing Employee for any specific period of time following the Closing Date. Prior service of the Continuing Employees of the Company shall be recognized for the purposes of seniority and for eligibility under Company Employee Plans and/or the employee benefit plans of Purchaser if any Continuing Employee is transferred to or hired by Purchaser or any Subsidiary of Purchaser. As soon as reasonably practicable following the Closing Date, Purchaser shall cause the Company to adopt and participate in the employee benefit plans of Purchaser, including any and all retirement plans, group life insurance, health and hospitalization and disability insurance programs, and other employee benefit plans maintained by Purchaser for its employees. On or prior to the date which is 90 days after the Closing, the Purchaser will cause the Company to satisfy the employee bonus obligations disclosed in Section 2.11 of the Disclosure Schedule.

      9.03 Continuing Obligations. From and after the Closing, Purchaser will cause the Company to perform its obligations and covenants under this Agreement and the Operative Agreements and will not, directly or indirectly, attempt to circumvent or avoid its or the Company's obligations and covenants hereunder.

ARTICLE X
SURVIVALOF REPRESENTATIONS, WARRANTIES, COVENANTSAND AGREEMENTS

      10.01 Survival of Representations, Warranties, Covenants and Agreements. Notwithstanding any right of Purchaser (whether or not exercised) to investigate the affairs of the Company and the Subsidiaries or any right of any party (whether or not exercised) to investigate the accuracy of the representations and warranties of the other party contained in this Agreement, Seller and Purchaser have the right to rely fully upon the representations, warranties, covenants and agreements of the other contained in this Agreement. The representations, warranties, covenants and agreements of Seller and Purchaser contained in this Agreement will survive the Closing (a) indefinitely with respect to (i) the representations and warranties contained in Sections 2.02, 2.04, 2.05 (but only insofar as it relates to the capital stock of the Subsidiaries), 2.28, 3.02 and 3.07, 3.08, and 3.09, 3.10, and (ii) the covenants and agreements contained in Sections 1.05, 14.03 and 14.05; (b) until sixty (60) days after the expiration of all applicable statutes of limitation (including all periods of extension, whether automatic or permissive) with respect to matters covered by Section 2.12 and Article VIII and, insofar as it relates to ERISA or the Code, Section 2.15; (c) until a date which is six (6) months following the Closing Date in the case of all other representations and warranties and any covenant or agreement to be performed in whole or in part on or prior to the Closing; and (d) with respect to each other covenant or agreement contained in this Agreement, until sixty (60) days following the last date on which such covenant or agreement is to be performed or, if no such date is specified, indefinitely; provided that any representation, warranty, covenant or agreement that would otherwise terminate in accordance with clause (b), (c) or (d) above will continue to survive if a Claim Notice or Indemnity Notice (as applicable) shall have been timely given under Article XI on or prior to such termination date, until the related claim for indemnification has been satisfied or otherwise resolved as provided in Article XI.

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ARTICLE XI
INDEMNIFICATION

      11.01 Indemnification.

      (a) Subject to paragraph (c) of this Section and the other Sections of this Article XI, Sellers shall severally and not jointly indemnify the Purchaser Indemnified Parties in respect of, and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to any breach of representation or warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Seller contained in this Agreement, as qualified in each case by the disclosures set forth in the Disclosure Schedule or any schedule to this Agreement and determined in all cases as if the terms “material” or “materially” were not included therein. Notwithstanding the foregoing, the Purchaser Indemnified Parties will not be entitled to obtain or seek indemnification for any item that constitutes a liability that is reflected in the Closing Balance Sheet or captured in any subsequent “true-up” adjustments or calculations. No Purchaser Indemnified Party (other than Purchaser) will be entitled to make or pursue any claim for indemnification hereunder without the express prior written approval of Purchaser.

      (b) Subject to the other Sections of this Article XI, Purchaser shall indemnify the Seller Indemnified Parties in respect of, and hold each of them harmless from and against, any and all Losses suffered, incurred or sustained by any of them or to which any of them becomes subject, resulting from, arising out of or relating to any breach of representation or warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Purchaser contained in this Agreement, as qualified in each case by the disclosures set forth in any schedule or disclosure exhibit of Purchaser to this Agreement and determined in all cases as if the terms “material” or “materially” were not included therein.

      (c) Notwithstanding the foregoing, Sellers will not be obligated to indemnify Purchaser or any other Purchaser Indemnified Parties under this Section 11.01(a) or any other applicable Sections of this Article XI unless and until the amount of all losses incurred by Purchaser or the other Purchaser Indemnified Parties, taken as a group, exceeds in the aggregate $50,000 (the “Basket”), in which event Sellers shall indemnify Purchaser and the other Purchaser Indemnified Parties only for Losses in excess of the Basket from the first dollar above the Basket.

      (d) Each Seller's maximum aggregate indemnity obligations under Section 11.01(a) and other applicable Sections of this Article XI shall be limited to an amount equal to: (i) the number of shares issued at the Closing pursuant to Section 1.04 of this Agreement to such Seller (the “Seller Closing Shares Number”) multiplied by (ii) the closing price of Purchaser Common Stock on the date Purchaser notifies Sellers of the first claim under this Article XI (the “Claim Date Per Share Price”), the product of which shall be referred to herein as a Seller's “Indemnity Cap”; provided that this limitation shall not apply to a breach of a representation or warranty contained in Section 2.02, 2.04, 2.06, 2.07 or 2.28 or to a breach of a covenant contained in Section 1.05, 14.03 or 14.05. Notwithstanding anything in this Agreement or otherwise to the contrary, in connection with any claim for indemnification under Section 11.01(a) or the other applicable Sections of this Article XI, a Seller may satisfy in full any claim for indemnification by tendering to Purchaser (in the sole discretion of such Seller): either cash in the amount of the applicable claim (or such lesser amount as is ultimately determined to be due in respect of such claim), or: (x) if the claim at issue is for an amount that exceeds such Sellers' Indemnity Cap, then shares of Purchaser Common Stock equal to such Seller's Seller Closing Shares Number, or (y) if the claim at issue is for an aggregate amount that is less than the Seller's Indemnity Cap (the “Lesser Claim Amount”), such number of shares of Purchaser Common Stock as equals the quotient of the Lesser Claim Amount, divided by the Claim Date Per Share Price. For purposes of clarity: (A) if multiple claims are or have been made against the Sellers hereunder, under no circumstances will any Seller be liable for an aggregate amount in excess of its Indemnity Cap, which may be satisfied by tendering shares of Purchaser Common Stock as provided above or cash or any combination thereof, in each case in the sole discretion of such Seller; and (B) in the event of any claim involving a Lesser Claim

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Amount, the shares of Purchaser Common Stock to be tendered shall be valued at the lesser of the Claim Date Per Share Price and the Per Share Price.

      11.02 Exclusivity of Indemnification Remedies and Limitations. Purchaser, Sellers, and the Company hereby agree that, from and after the Closing Date, Purchaser's (and any other Purchaser Indemnified Parties') sole and exclusive recourse against Sellers for any Losses or claim of Losses (other than Losses or claim of Losses arising out of Sellers' fraud or willful misconduct) arising out of or in connection with this Agreement or any of the agreements or transactions contemplated hereby or provided for herein or in any other agreement among, between or involving any of the parties hereto shall be in accordance with the indemnification provisions of this Article XI, and that each Seller's maximum aggregate liability shall expressly be limited in the case of each Seller to such Seller's Indemnity Cap. For purposes of Section 11.01(a) and the other applicable Sections of this Article XI, Sellers will not be deemed to have breached a representation or warranty if Purchaser had, on or prior to the Closing Date, received notice of the breach of or inaccuracy in, or of any facts or circumstances constituting or resulting in a breach or violation of or inaccuracy in, such representation or warranty pursuant to Section 4.12 hereof.

      11.03 Method of Asserting Claims. All claims for indemnification by any Indemnified Party under Section 11.01 will be asserted and resolved as follows:

      (a) In the event any claim or demand in respect of which an Indemnified Party might seek indemnity under Section 11.01 is asserted against or sought to be collected from such Indemnified Party by a Person other than Sellers or any Affiliate of Sellers or of Purchaser (a “Third Party Claim”), the Indemnified Party shall deliver a Claim Notice with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party will not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been irreparably prejudiced by such failure of the Indemnified Party. The Indemnifying Party will notify the Indemnified Party as soon as practicable within the Dispute Period whether the Indemnifying Party disputes its liability to the Indemnified Party under Section 11.01 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.

      (i) If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 11.03(a), then the Indemnifying Party will have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings will be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party, which consent will not be unreasonably withheld, in the case of any settlement that provides for any relief other than the payment of monetary damages as to which the Indemnified Party will be indemnified in full). The Indemnifying Party will be deemed to have waived its right to dispute its liability to the Indemnified Party under Section 11.01 with respect to any Third Party Claim as to which it elects to control the defense. The Indemnifying Party will have full control of such defense and proceedings, including (except as provided in the immediately preceding sentence) any settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this clause (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may retain separate

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counsel to represent it in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this clause (i), and the Indemnified Party will bear its own costs and expenses with respect to such separate counsel, except as provided in the preceding sentence and except that the Indemnifying Party will pay the costs and expenses of such separate counsel if (x) in the Indemnified Party's good faith judgment, it is advisable, based on advice of counsel, for the Indemnified Party to be represented by separate counsel because a conflict or potential conflict exists between the Indemnifying Party and the Indemnified Party which makes representation of both parties inappropriate under applicable standards of professional conduct or (y) the named parties to such Third Party Claim include both the Indemnifying Party and the Indemnified Party and the Indemnified Party determines in good faith, based on advice of counsel, that defenses are available to it that are unavailable to the Indemnifying Party. Notwithstanding the foregoing, the Indemnified Party may retain or take over the control of the defense or settlement of any Third Party Claim the defense of which the Indemnifying Party has elected to control if the Indemnified Party irrevocably waives its right to indemnity under Section 11.01 with respect to such Third Party Claim.

      (ii) If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 11.03(a), or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, then the Indemnified Party will have the right to defend, at the sole cost and expense of the Indemnifying Party (subject to any limitations or caps provided for in this Article XI), the Third Party Claim by all appropriate proceedings, which proceedings will be prosecuted by the Indemnified Party in good faith or will be settled at the discretion of the Indemnified Party (with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including (except as provided in the immediately preceding sentence) any settlement thereof (subject to any limitations or caps provided for in this Article XI); provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party (subject to any limitations or caps provided for in this Article XI), provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party will reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation.

      (iii) If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability to the Indemnified Party with respect to the Third Party Claim under Section 11.01 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability to the Indemnified Party with respect to such Third Party Claim, the Loss arising from such Third Party Claim (subject to any limitations or caps provided for in this Article XI) will be conclusively deemed a liability of the Indemnifying Party under Section 11.01 and the Indemnifying Party shall pay the amount of such Loss (subject to any limitations or caps provided for in this Article XI) to the Indemnified Party on demand following the final determination thereof (and any remaining portion of such Loss beyond any applicable cap provided for in this Article XI shall be the responsibility of the Indemnified Party). If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the

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Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by litigation in a court of competent jurisdiction.

      (b) In the event any Indemnified Party should have a claim under Section 11.01 against any Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that an Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim described in such Indemnity Notice, the Loss arising from the claim specified in such Indemnity Notice (subject to any limitations or caps provided for in this Article XI) will be conclusively deemed a liability of the Indemnifying Party under Section 11.01 and the Indemnifying Party shall pay the amount of such Loss (subject to any limitations or caps provided for in this Article XI) to the Indemnified Party on demand following the final determination thereof. If the Indemnifying Party has timely disputed its liability with respect to such claim, the Indemnifying Party and the Indemnified Party will proceed in good faith to negotiate a resolution of such dispute, and if not resolved through negotiations within the Resolution Period, such dispute shall be resolved by litigation in a court of competent jurisdiction.

ARTICLE XII
TERMINATION

      12.01 Termination. This Agreement may be terminated, and the transactions contemplated hereby may be abandoned:

      (a) at any time before the Closing, by mutual written agreement of the Requisite Sellers and Purchaser;

      (b) at any time before the Closing, by the Requisite Sellers or Purchaser, in the event (i) of a material breach of any covenant in this Agreement by the non-terminating party if such non-terminating party fails to cure such breach within five (5) Business Days following notification thereof by the terminating party or (ii) upon notification of the non-terminating party by the terminating party that the satisfaction of any condition to the terminating party's obligations under this Agreement becomes impossible or impracticable with the use of commercially reasonable efforts if the failure of such condition to be satisfied is not caused by a breach hereof (whether by act or omission) by the terminating party;

      (c) at any time after January 15, 2005 by the Requisite Sellers or Purchaser upon notification of the non-terminating party by the terminating party if the Closing shall not have occurred on or before such date and such failure to close is not caused by a breach of this Agreement by the terminating party; or

      (d) at any time after January 3, 2005 by the Requisite Sellers if the Closing has not occurred on or before such date and such failure is not caused by a material breach of any representation, warranty, covenant, or agreement in this Agreement by Sellers.

      12.02 Effect of Termination.

      (a) If this Agreement is validly terminated pursuant to Section 12.01(a), (b) or (c), this Agreement will forthwith become null and void, and there will be no liability or obligation on the part of the Company, Sellers or Purchaser (or any of their respective stockholders, officers, directors, employees, agents or other representatives or Affiliates), except that the provisions with respect to expenses in Section 14.03 and confidentiality in Section 14.05 will continue to apply following any such termination.

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      (b) If this Agreement is validly terminated pursuant to Section 12.01(d), then (x) this Agreement will forthwith become null and void, and there will be no liability or obligation on the part of Sellers or Purchaser (or any of their respective officers, directors, employees, agents or other representatives or Affiliates), except that the provisions with respect to expenses in Section 14.03 and confidentiality in Section 14.05 will continue to apply following any such termination; and (y) if: (i) the Purchaser and the Company have not entered into Ad-Serving Agreement or Purchaser has not paid the Ad-Serving Pre-Payment in accordance with Section 5.04, then Purchaser will deliver by wire transfer of immediately available funds to such account(s) as the Company may designate, the sum of $250,000 by not later than 2:00 p.m. New York time on January 5, 2005, or (ii) the Ad-Serving Pre-Payment has been made by Purchaser to the Company in accordance with Section 5.04, then automatically and without further action by any person or party, the Company shall be relieved in all respects (and without cost or penalty) of its ad-serving obligations under the Ad-Serving Agreement.

ARTICLE XIII
DEFINITIONS

      13.01 Definitions.

      (a) Defined Terms. As used in this Agreement, the following defined terms have the meanings indicated below:

      “Acquisition Proposal” means any proposal for a merger or other business combination to which the Company or any Subsidiary is a party or the direct or indirect acquisition of any equity interest in, or a substantial portion of the assets of, the Company or any Subsidiary, other than the transactions contemplated by this Agreement.

      “Actions or Proceedings” means any action, suit, proceeding, arbitration or Governmental or Regulatory Authority investigation or audit.

      “Affiliate” means any Person that directly, or indirectly through one of more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, control of a Person means the power, direct or indirect, to direct or cause the direction of the management and policies of such Person whether by Contract or otherwise and, in any event and without limitation of the previous sentence, any Person owning ten percent (10%) or more of the voting securities of another Person shall be deemed to control that Person.

      “Agreement” means this Stock Purchase Agreement and the Exhibits, the Disclosure Schedule and the Schedules hereto and the certificates delivered in accordance with Sections 6.03 and 7.03, as the same shall be amended from time to time.

      “Assets and Properties” of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, Investment Assets, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property.

      “Benefit Plan” means any Plan established by the Company or any Subsidiary, or any predecessor or Affiliate of any of the foregoing, existing at the Closing Date or prior thereto, to which the Company or any Subsidiary contributes or has contributed, or under which any employee, former employee or director of the Company or any Subsidiary or any beneficiary thereof is covered, is eligible for coverage or has benefit rights.

      “Books and Records” means all files, documents, instruments, papers, books and records relating to the Business or Condition of the Company, including without limitation financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans.

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      “Business Day” means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close.

      “Business or Condition of the Company” means the business, condition (financial or otherwise), results of operations, Assets and Properties of the Company and the Subsidiaries taken as a whole.

      “Claim Notice” means written notification pursuant to Section 11.03(a) of a Third Party Claim as to which indemnity under Section 11.02 is sought by an Indemnified Party, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim against the Indemnifying Party under Section 11.02, together with the amount or, if not then reasonably determinable, the estimated amount, determined in good faith, of the Loss arising from such Third Party Claim.

      “Closing” means the closing of the transactions contemplated by Section 1.03.

      “Closing Date” means (a) January 3, 2005, or (b) such other date as Purchaser and Sellers mutually agree upon in writing.

      “Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

      “Common Stock” means the common stock, par value $0.01 per share, of the Company.

      “Company” has the meaning ascribed to it in the forepart of this Agreement.

      “Company Material Adverse Effect” means any change, effect, event, or occurrence that is, or would reasonably be expected to be, materially adverse to the business, financial condition or results of operations of the Company, other than any change, effect, event or occurrence arising from, relating to or connected with: (i) the economy of the United States generally, (ii) this Agreement or the transactions contemplated hereby or the announcement thereof, (iii) the online marketing and advertising market in general, and not specifically relating to the Company, (iv) any change in the Company's relationships or status with the Specified Vendors, or (v) any resignation or removal of any senior management employees or officers of the Company and the terms “material” and “materially” have correlative meanings when used in connection with the Company or its business or operations.

      “Contract” means any agreement, lease, license, evidence of Indebtedness, mortgage, indenture, security agreement or other contract (whether written or oral).

      “Defined Benefit Plan” means each Benefit Plan which is subject to Part 3 of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.

      “Disclosure Schedule” means the record delivered to Purchaser by Seller herewith and dated as of the date hereof, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by Seller pursuant to this Agreement.

      “Dispute Period” means the period ending thirty (30) days following receipt by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.

      “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

      “ERISA Affiliate” means any Person who is in the same controlled group of corporations or who is under common control with Seller or, before the Closing, the Company or any Subsidiary (within the meaning of Section 414 of the Code).

      “GAAP” means generally accepted accounting principles, consistently applied throughout the specified period and in the immediately prior comparable period.

      “Governmental or Regulatory Authority” means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

      “Indebtedness” of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase

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price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.

      “Indemnified Party” means any Person claiming indemnification under any provision of Article XI.

      “Indemnifying Party” means any Person against whom a claim for indemnification is being asserted under any provision of Article XI.

      “Indemnity Notice” means written notification pursuant to Section 11.03(b) of a claim for indemnity under Article XI by an Indemnified Party, specifying the nature of and basis for such claim, together with the amount or, if not then reasonably determinable, the estimated amount, determined in good faith, of the Loss arising from such claim.

      “Intellectual Property” means all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, brand names, inventions, processes, formulae, copyrights and copyright rights, trade dress, business and product names, logos, slogans, trade secrets, industrial models, processes, designs, methodologies, computer programs (including all source codes) and related documentation, technical information, manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights.

      “Investment Assets” means all debentures, notes and other evidences of Indebtedness, stocks, securities (including rights to purchase and securities convertible into or exchangeable for other securities), interests in joint ventures and general and limited partnerships, mortgage loans and other investment or portfolio assets owned of record or beneficially by the Company or any Subsidiary and issued by any Person other than the Company or any Subsidiary (other than trade receivables generated in the ordinary course of business of the Company and the Subsidiaries).

      “IRS” means the United States Internal Revenue Service.

      “Knowledge of Seller” or “Known to Seller” means the actual knowledge of any Seller, of Richard V. Hopple, and of Stephen Lagnado, and, in the case of MacManus, the actual knowledge of Scott van der Helder.

      “Laws” means all laws, statutes, rules, regulations, ordinances and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

      “Liabilities” means all Indebtedness, monetary obligations and other liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due).

      “Licenses” means all licenses, permits, certificates of authority, authorizations, approvals, registrations, franchises and similar consents granted or issued by any Governmental or Regulatory Authority.

      “Liens” means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing.

      “Loss” or “Losses” means any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including without limitation interest, court costs, fees of attorneys, accountants and other experts or other expenses of litigation or other proceedings or of any claim, default or assessment), net of insurance proceeds covering all or a portion of any of the foregoing and net of any tax benefit resulting from therefrom.

      “Operative Agreements” means the Registration Rights Agreement and any other agreements to be entered into in connection with the transactions provided for in this Agreement.

      “Option” with respect to any Person means any security, right, subscription, warrant, option, “phantom” stock right or other Contract that gives the right to (i) purchase or otherwise receive or be issued any shares of capital stock of such Person or any security of any kind convertible into or exchangeable or exercisable for any shares of capital stock of such Person or (ii) receive or

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exercise any benefits or rights similar to any rights enjoyed by or accruing to the holder of shares of capital stock of such Person, including any rights to participate in the equity or income of such Person or to participate in or direct the election of any directors or officers of such Person or the manner in which any shares of capital stock of such Person are voted.

      “Order” means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

      “PBGC” means the Pension Benefit Guaranty Corporation established under ERISA.

      “Pension Benefit Plan” means each Benefit Plan which is a pension benefit plan within the meaning of Section 3(2) of ERISA.

      “Permitted Lien” means (i) any Lien for Taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of Law with respect to a Liability that is not yet due or delinquent and (iii) any minor imperfection of title or similar Lien which individually or in the aggregate with other such Liens does not materially impair the value of the property subject to such Lien or the use of such property in the conduct of the business of the Company or any Subsidiary.

      “Person” means any natural person, corporation, limited liability company, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

      “Plan” means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any “employee benefit plan” within the meaning of Section 3(3) of ERISA.

      “Purchase Price” has the meaning ascribed to it in Section 1.02.

      “Purchaser” has the meaning ascribed to it in the forepart of this Agreement.

      “Purchaser Indemnified Parties” means Purchaser and its officers, directors, employees, agents and Affiliates.

      “Qualified Plan” means each Benefit Plan which is intended to qualify under Section 401 of the Code.

      “Release” means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including, without limitation, the movement of Hazardous Materials through ambient air, soil, surface water, ground water, wetlands, land or subsurface strata.

      “Representatives” has the meaning ascribed to it in Section 4.03.

      “Resolution Period” means the period ending thirty (30) days following receipt by an Indemnified Party of a written notice from an Indemnifying Party stating that it disputes all or any portion of a claim set forth in a Claim Notice or an Indemnity Notice.

      “Seller” has the meaning ascribed to it in the forepart of this Agreement.

      “Seller Indemnified Parties” means Seller and its officers, directors, employees, agents and Affiliates.

      “Shares” has the meaning ascribed to it in the forepart of this Agreement.

      “Subject Defined Benefit Plan” means each Defined Benefit Plan listed and described in Section 2.15(a) of the Disclosure Schedule.

      “Subsidiary” means any Person in which the Company, directly or indirectly through Subsidiaries or otherwise, beneficially owns more than fifty percent (50%) of either the equity interests in, or the voting control of, such Person.

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      “Tax Returns” means a report, return or other information (including any amendments) required to be supplied to a Governmental or Regulatory Authority with respect to Taxes.

      “Taxes” shall include any and all federal, state, county, local, foreign or other taxes, charges, imposts, rates, fees, levies or other assessments imposed by any Governmental or Regulatory Authority, including, without limitation, all net income, alternative minimum, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, license, estimated, stamp, custom duties, severance, withholding or other taxes, fees, assessments or other similar charges of any kind whatsoever, together with any interest and penalties (civil or criminal) on or additions to any such taxes.

      “Third Party Claim” has the meaning ascribed to it in Section 11.03(a).

      “Transfer Taxes” means all sales, use, transfer, real property transfer, recording, gains, stock transfer and other similar taxes and fees arising out of or in connection with the transactions effected pursuant to this Agreement.

      (b) Construction of Certain Terms and Phrases. Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms “hereof,” “herein,” “hereby” and derivative or similar words refer to this entire Agreement; (iv) the terms “Article” or “Section” refer to the specified Article or Section of this Agreement; and (v) the phrases “ordinary course of business” and “ordinary course of business consistent with past practice” refer to the business and practice of the Company or a Subsidiary. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.

ARTICLE XIV
MISCELLANEOUS

      14.01 Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers:

If to Purchaser, to:

Viewpoint Corporation
498 Seventh Avenue
New York, N.Y. 10018
Facsimile No.: (212) 201-0801
Attn: Chief Financial Officer

with a copy to:

Viewpoint Corporation
498 Seventh Avenue
New York, N.Y. 10018
Facsimile No.: (212) 201-0846

Attn: General Counsel

If to MacManus, to:

The MacManus Group, Inc.
c/o Publicis Groupe S.A.
133 Avenue des Champs-Elysees
75008 Paris, France
Facsimile No.:

Attn: Chief Financial Officer

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with a copy to:

Davis & Gilbert
1740 Broadway
New York, NY 10019
Facsimile No.: (212) 468-4888
Attn: Lewis A. Rubin, Esq.

If to Mr. Fadner, to:

Kenneth Fadner, at such address/facsimile number as he may hereafter provide to the Company or failing such delivery, at its last address on the books of the Company.

If to Mr. Lash, to:

James Lash
Manchester Principal LLC
Two Soundview Suite 302
Greenwich CT 06830
Facsimile No.: (as hereafter provided)

If to Grace to Grace Internet Capital at such address/facsimile number as it may hereafter provide to the Company or failing such delivery, at its last address on the books of the Company.

With copies of all notices hereunder to any party:

Cooley Godward LLP
11951 Freedom Drive
Reston, VA 20190
Facsimile: (703) 456-8100
Attn: M. Spoto/G. Willard

      All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice, request or other communication is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

      14.02 Entire Agreement. This Agreement and the Operative Agreements supersede all prior discussions and agreements between the parties with respect to the subject matter hereof and thereof, and contain the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof.

      14.03 Expenses. Except as otherwise expressly provided in this Agreement (including without limitation as provided in Section 12.02), whether or not the transactions contemplated hereby are consummated, each party will pay its own costs and expenses, and Sellers shall pay the costs and expenses of the Company and the Subsidiaries incurred in connection with the negotiation, execution and closing of this Agreement and the Operative Agreements and the transactions contemplated hereby and thereby. The Company will pay and satisfy all costs and expenses incurred by Cooley Godward LLP, counsel to the Company in connection with this Agreement and the transactions provided for herein, at or prior to the Closing.

      14.04 Public Announcements. Other than in connection with the initial press release approved by the Company and Purchaser and the related statements to the public to be made by Viewpoint at the conference call referenced in such press release, at all other times at or before the Closing, Sellers and Purchaser will not issue or make any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated hereby without the consent of the other, which consent shall not be unreasonably withheld. If either party is unable to obtain the

39

approval of its public report, statement or release from the other party and such report, statement or release is, in the opinion of legal counsel to such party, required by Law in order to discharge such party's disclosure obligations, then such party may make or issue the legally required report, statement or release and promptly furnish the other party with a copy thereof. Sellers and Purchaser will also obtain the other party's prior approval of any press release to be issued immediately following the Closing announcing the consummation of the transactions contemplated by this Agreement.

      14.05 Confidentiality. Each party hereto will hold, and will use its best efforts to cause its Affiliates, and their respective Representatives to hold, in strict confidence from any Person (other than any such Affiliate or Representative), unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of Governmental or Regulatory Authorities) or by other requirements of Law or (ii) disclosed in an Action or Proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's Representatives in connection with this Agreement or the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential; provided that following the Closing the foregoing restrictions will not apply to Purchaser's use of documents and information concerning the Company and the Subsidiaries furnished by Sellers hereunder. In the event the transactions contemplated hereby are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates and their respective Representatives to, promptly (and in no event later than five (5) Business Days after such request) redeliver or cause to be redelivered all copies of documents and information furnished by the other party in connection with this Agreement or the transactions contemplated hereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the party furnished such documents and information or its Representatives.

      14.06 Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

      14.07 Amendment. This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto.

      14.08 No Third Party Beneficiary. The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than (x) any Person entitled to indemnity under Article XI, (y) the directors and officers of the Company for purposes of Section 9.01, and (z) the Company for purposes of the provisions set forth in Section 5.04 and Section 12.02(d).

      14.09 No Assignment; Binding Effect. Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that Purchaser may assign any or all of its rights, interests and obligations hereunder (including without limitation its rights under Article XI) to [(i)] a wholly-owned subsidiary, provided that any such subsidiary agrees in writing to be bound by all of the

40

terms, conditions and provisions contained herein, [(ii) any post-Closing purchaser of all of the issued and outstanding stock of the Company or a substantial part of its assets or (iii) any financial institution providing purchase money or other financing to Purchaser or the Company from time to time as collateral security for such financing,] but no such assignment [referred to in clause (i) or (ii)] shall relieve Purchaser of its obligations hereunder. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective successors and assigns.

      14.10 Headings. The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

      14.11 Consent to Jurisdiction and Venue. Each party hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York or any court of the State of New York located in the Borough of Manhattan in the City of New York in any action, suit or proceeding arising out of or relating to this Agreement or any of the Operative Agreements or any of the transactions contemplated hereby or thereby, and agrees that any such action, suit or proceeding shall be brought only in such court, provided, however, that such consent to jurisdiction is solely for the purpose referred to in this Section 14.11 and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of New York other than for such purpose. Each party hereby irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such action, suit or proceeding brought in such a court and any claim that any such action, suit or proceeding brought in such a court has been brought in an inconvenient forum.

      14.12 Invalid Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom.

      14.13 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of New York applicable to a Contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof.

      14.14 Counterparts. This Agreement may be executed in any number of counterparts, including facsimile counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

      14.15 Representation. Each party to this Agreement acknowledges that Cooley Godward LLP has acted solely as counsel to the Company in connection with the negotiation and preparation of this Agreement and the transactions provided for herein and has not represented any other party (including, without limitation, any Seller) with respect thereto. Each other party to this Agreement other than the Company hereby acknowledges that it or he has had an opportunity to ask for and have obtained information relevant to such representation and to consult with counsel of its or his choosing with respect to such matters, and has either engaged counsel of its or his choosing to represent it or him in connection with the negotiation and preparation of this Agreement and the transactions provided for herein, or has elected not to be represented by counsel.

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

VIEWPOINT CORPORATION

By: 
      Name:
      Title:

THE MACMANUS GROUP, INC.

By: 
      Name:
      Title:

KENNETH FADNER

JAMES LASH

GRACE INTERNET CAPITAL, LLC

By: 
      Name:
      Title:

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SCHEDULE OF SELLING STOCKHOLDERS

Stockholder	Number of Shares
THE MACMANUS GROUP, INC.		185,635
KENNETH FADNER		289,743
JAMES LASH		259,365
GRACE INTERNET CAPITAL		7,196

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SCHEDULE A

Pre-Closing Covenant Exclusions

Set forth below are items that are to be excluded from certain pre-closing restrictive covenants contained in Article IV of the Agreement. Capitalized terms used but not defined herein have the meanings given thereto in the Agreement.

      4.07 Employee Matters.

      (a), (c), and (d) as disclosed in the Disclosure Schedule and previously discussed with Purchaser, the Company intends to implement a bonus program for and related bonus agreements with certain of its employees. The Company also intends and expects to implement severance arrangements with Richard V. Hopple substantially on the terms set forth in his existing employment agreement, which will result in the payment to Richard V. Hopple of certain amounts as contemplated by his employment agreement and the CEO Severance Agreement.

      4.08 Certain Restrictions.

      (e) The Sellers and the Company may require the ability to enter into certain compromises and arrangements with the Specified Vendors and other critical vendors or creditors of the Company. If such actions are required, the Company will consult with Purchaser regarding the proposed terms and conditions of any such compromises or arrangements, but will retain the discretion to agree to such terms and conditions as management of the Company deems appropriate.

      (f) The Sellers and the Company require the flexibility to continue to deal with creditors and vendors in a manner consistent with past practices with respect to payment terms and timing, which in certain cases may fall outside the contractual payment terms permitted and therefore could result in a breach of applicable Contracts by the Company.

      (g) The Sellers and the Company require the flexibility to permit the Company to obtain additional debt financing from the Company's existing investors or other sources in the amount of up $250,000, if necessary to address other payables prior to January 3, 2005. If the transactions provided for in the Agreement do not close by January 3, 2005, then the Company requires the flexibility to obtain additional debt financing of up to $1,000,000 prior to January 15, 2005. If such actions are required, the Company will consult with Purchaser regarding the proposed terms and conditions of any such debt financing.

      (h) The Sellers and Company require the flexibility in the pre-Closing period to wind-down certain operations relating to Ad4ever and Enliven, as generally referenced in the Disclosure Schedule.

      4.09 Affiliate Transactions. The Agreement, the Disclosure Schedules and this Schedule A address and contemplate several Affiliate transactions (including certain matters relating to the repayment of existing Indebtedness and the potential incurrence of additional Indebtedness), which the Company expects to complete at or prior to Closing.

44

SCHEDULE B

Required D&O Resignations

Richard V. Hopple (Director & Officer)

James Lash (Director)

Scott van der Helder (Director)

Kenneth Fadner (Director)

45

SCHEDULE C

Specified Vendors

Akamai

IBM

46

SCHEDULE 3.11

Purchaser Securities Disclosure

1. Viewpoint Corporation Outstanding Options as of December 1, 2004

      10,983,960 stock options issued to employees, officers, and directors having exercise prices between $0.46 and $25.12.

2. Viewpoint Corporation Outstanding Warrants as of December 1, 2004

Price ($/Share)	Issued (# of Shares)
2.2600		269,780
2.2600		249,027
2.2600		207,523
15.6500		57,500
Totals		783,830
Average Issued Price		3.2423

47

EX-3

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION
OF
VIEWPOINT CORPORATION
a Delaware corporation

      Viewpoint Corporation, a corporation organized and existing under the laws of the State of Delaware, does hereby certify:

      1. The name of the corporation is Viewpoint Corporation (the “Corporation”). The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on October 10, 1995. “MetaTools, Inc.” is the name under which this Corporation was originally incorporated.

      2. The restatement herein set forth has been approved by the Board of Directors of the Corporation and by the stockholders of the Corporation pursuant to Section 242 of the General Corporation Law of the State of Delaware (“Delaware Law”).

      3. The restatement herein set forth has been duly adopted pursuant to Section 245 of the Delaware Law. This Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Corporation's Certificate of Incorporation.

      4. The text of the Certificate of Incorporation is hereby restated and amended to read in its entirety as follows:

ARTICLE ONE

      The name of this corporation is Viewpoint Corporation (the “Corporation”).

ARTICLE TWO

      The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE THREE

      The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

ARTICLE FOUR

      This Corporation is authorized to issue two classes of shares to be designated respectively Common Stock and Preferred Stock. The total number of shares of Common Stock this Corporation shall have authority to issue is 100,000,000 shares, and shall have a par value of $0.001 per share, and the total number of shares of Preferred Stock this Corporation shall have authority to issue is 5,000,000 shares, and shall have a par value of $0.001 per share.

      The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board), and such resolution or resolutions shall also set forth the voting powers, full or limited or none, of each such series of Preferred Stock and shall fix the designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of each such series of Preferred Stock. The Board of Directors is authorized to alter the designation, rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, to increase or

1

decrease (but not below the number of shares of any such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series.

      The Series A Participating Preferred Stock shall have the designation, powers, preferences and relative and other special rights and the qualifications, limitations and restrictions as follows:

      SECTION 1. Designation and Amount. The shares of such series shall be designated as “Series A Participating Preferred Stock.” The Series A Participating Preferred Stock shall have a par value of $0.001 per share, and the number of shares constituting such series shall be 75,000.

      SECTION 2. Proportional Adjustment. In the event the Corporation shall at any time after the issuance of any share or shares of Series A Participating Preferred Stock (i) declare any dividend on Common Stock of the Corporation, par value $0.001 per share (“Common Stock”), payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Corporation shall simultaneously effect a proportional adjustment to the number of outstanding shares of Series A Participating Preferred Stock.

      SECTION 3. Dividends and Distributions.

      (a) Subject to the prior and superior right of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series A Participating Preferred Stock with respect to dividends, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of January, April, July and October in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock in an amount per share (rounded to the nearest cent) equal to 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Participating Preferred Stock.

      (b) The Corporation shall declare a dividend or distribution on the Series A Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

      (c) Dividends shall begin to accrue on outstanding shares of Series A Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof.

2

      SECTION 4. Voting Rights. The holders of shares of Series A Participating Preferred Stock shall have the following voting rights:

      (a) Each share of Series A Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation.

      (b) Except as otherwise provided herein or by law, the holders of shares of Series A Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.

      (c) Except as required by law, holders of Series A Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

      SECTION 5. Certain Restrictions.

      (a) The Corporation shall not declare any dividend on, make any distribution on, or redeem or purchase or otherwise acquire for consideration any shares of Common Stock after the first issuance of a share or fraction of a share of Series A Participating Preferred Stock unless concurrently therewith it shall declare a dividend on the Series A Participating Preferred Stock as required by Section 3 hereof.

      (b) Whenever quarterly dividends or other dividends or distributions payable on the Series A Participating Preferred Stock as provided in Section 3 are in arrears, thereafter, and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not

      (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Participating Preferred Stock;

      (ii) declare or pay dividends on, make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with Series A Participating Preferred Stock, except dividends paid ratably on the Series A Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

      (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Participating Preferred Stock;

      (iv) purchase or otherwise acquire for consideration any shares of Series A Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment amount the respective series or classes.

      (c) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 5, purchase or otherwise acquire such shares at such time and in such manner.

3

      SECTION 6. Reacquired Shares. Any shares of Series A Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein and, in the Restated Certificate of Incorporation, as then amended.

      SECTION 7. Liquidation, Dissolution or Winding up. Upon any liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Participating Preferred Stock shall be entitled to receive an aggregate amount per share equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock plus an amount equal to any accrued and unpaid dividends on such shares of Series A Participating Preferred Stock.

      SECTION 8. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

      SECTION 9. No Redemption. The shares of Series A Participating Preferred Stock shall not be redeemable.

      SECTION 10. Ranking. The Series A Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series hall provide otherwise.

      SECTION 11. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preference or special rights of the Series A Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority of the outstanding shares of Series A Participating Preferred Stock, voting separately as a class.

      SECTION 12. Fractional Shares. Series A Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Participating Preferred Stock.

ARTICLE FIVE

      The Corporation is to have perpetual existence.

ARTICLE SIX

      Elections of directors need not be by written ballot unless a stockholder demands election by written ballot at the meeting and before voting begins or unless the Bylaws of the Corporation shall so provide.

ARTICLE SEVEN

      The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation.

ARTICLE EIGHT

      In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the Corporation.

4

ARTICLE NINE

      (a) To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

      (b) The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.

      (c) Neither any amendment nor any repeal of this Article Nine, nor the adoption of any provision of this Corporation's Certificate of Incorporation inconsistent with this Article Nine, shall eliminate or reduce the effect of this Article Nine, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article Nine, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

ARTICLE TEN

      Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

ARTICLE ELEVEN

      Vacancies created by the resignation or one or more members of the Board of Directors and newly created directorships, created in accordance with the Bylaws of this Corporation, may be filled by the vote of a majority, although less than a quorum, of the directors then in office, or by a sole remaining director.

ARTICLE TWELVE

      Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation.

ARTICLE THIRTEEN

      The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

      WITNESSmy signature this        day of December, 2004.

VIEWPOINT CORPORATIONa Delaware corporation

/s/ BRIAN J. O'DONOGHUE
Brian J. O'Donoghue, Secretary

5

EX-10

Exhibit 10.21

Execution Copy

OVERTURE MASTER AGREEMENT

Publisher's Name: Viewpoint Corporation	Type of Entity/State: Delaware corporation
Street Address: 498 Seventh Avenue	City/State/Zip: New York, N.Y. 10018
Publisher Contact: Bob Rice	Email: brice@viewpoint.com
Telephone/Fax: (212) 201-0810/(212) 201-0846	Tax Identification Number: 954102687
Payment Address: Same as Street Address

      1. Agreement. This “Agreement” shall mean collectively this Overture Master Agreement, the attached Terms and Conditions to Overture Master Agreement (the “Terms and Conditions”), and the Riders and Exhibits attached hereto and thereto. This Agreement is entered into as of January 14, 2004 (the “Effective Date”) by and between Overture Services, Inc. (“Overture”) and the entity named above (“Publisher”) with respect to the provision by Overture to Publisher of the results and other content checked below (collectively, the “Overture Content”). Terms not defined in this Master Overture Agreement or in the Terms and Conditions are defined in the applicable Riders or in any Exhibits attached thereto.

S	Paid Placement Overture Results—Rider A
S	Web Search Results—Rider B
£	Content Match Results and Other Banner Advertisement Content—Rider C

      Any conflicts between the terms of this Master Overture Agreement (including the Terms and Conditions) and an applicable Rider will be resolved in favor of such Rider.

      2. Toolbar. This Agreement applies only to Publisher's toolbar as depicted in the Mock-Ups attached as Exhibit 1-A to this Overture Master Agreement, as such toolbar may be modified, upgraded or enhanced from time to time in accordance with this Agreement, including Exhibit 1-B to this Overture Master Agreement (the “Toolbar”).

      3. Territory. “Territory” as used herein means the United States, including Puerto Rico and U.S. Territories, and Canada.

      4. Term. This Agreement shall commence as of the Effective Date and continue in force for two (2) years following the Toolbar Launch Date, as defined below (the “Initial Term”), unless earlier terminated in accordance with this Agreement. Thereafter, this Agreement will renew automatically for successive one-year periods (each, a “Renewal Term”) until and unless one party gives written notice to the other party of its intent not to renew no less than 60 days prior to the end of the Initial Term or, if during a Renewal Term, then 60 days prior to the end of the applicable Renewal Term. As used in this Agreement, “Term” means the Initial Term and any Renewal Terms.

      5. Overture Responsibilities.

      5.1 Delivery of Overture Content. Overture will employ commercially reasonable efforts to deliver Overture Content to Publisher in accordance with the requirements set forth in the Terms and Conditions and the Riders attached hereto.

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

      5.2 Payments to Publisher. Provided that Publisher is not in [***] of this Agreement, Overture shall pay to Publisher the compensation specified in each applicable Rider within [***] after the end of the [***] in which the applicable revenue was recognized by Overture. All payments will be made in U.S. dollars. With each payment, Overture will include a report that reasonably describes the basis upon which the compensation paid was determined. Overture will have no obligation to make payments in instances when Publisher has failed to utilize the source feed indicators designated by Overture set forth in Section 6.2 of this Overture Master Agreement. Except as specifically set forth in this Section 5.2, Overture will retain all revenues derived from or in connection with this Agreement.

      5.3 [***] The date on which Publisher commences commercial distribution of the Toolbar is referred to in this Agreement as the “Toolbar Launch Date”.

      6. Publisher Responsibilities.

      6.1 Unique Source Feed Indicators. For each unique implementation of the Toolbar, Publisher shall utilize such search URLs or other source feed indicators as may be designated by Overture from time to time.

      6.2 Implementation. Publisher shall display the Overture Content as required in this Overture Master Agreement, the Terms and Conditions and each applicable Rider (including Exhibits) attached hereto and all specifications and requirements that Overture may provide to Publisher from time to time, provided that such specifications and requirements do not substantially modify the look and feel of the mock-ups attached as exhibits to this Agreement. Other than as permitted by this Agreement, Publisher shall not modify any aspect of the Overture Content (including, without limitation, any data contained therein), and shall ensure that the Overture Content appears in the order provided by Overture.

      6.3 Installation of Toolbar; Reporting. An “Install” occurs when (a) the Toolbar is installed on a User's computer pursuant to a User-initiated action, and (b) the User does not uninstall the Toolbar [***]. Publisher shall distribute the Toolbar at its sole expense and shall provide hosting in connection with the downloading, installation and updating of the Toolbar. Installation of the Toolbar shall occur via an opt-in installation process depicted in the mock-ups attached as Exhibit 1-C to this Overture Master Agreement. Publisher agrees that it shall not solicit any individual prospective User more often than [***]. During each month following the Toolbar Launch Date, Publisher shall provide the number of Installs listed in Exhibit 5 to the Overture Master Agreement (each such monthly installation number, a “Monthly Install”) until such time as Overture fully recovers the Prepayment Amount. During each month thereafter, Publisher shall use commercially reasonable efforts to continue to deliver the applicable Monthly Install. During the Term, Partner shall provide weekly reports to Overture, in a mutually agreeable form, containing information regarding the downloading of the Toolbar. Each such report shall contain, at a minimum, the total number of new Installs during the reporting period, the total number of opt-outs during the reporting period and the cumulative number of installations as of the date of such report.

      6.4 [***]A “Paid Result” means any response to a search query, keyword or other request for which the review, cataloging, collection, maintenance, display, indexing, ranking, or other activity is paid for by an advertiser, regardless of the method by which payment is determined (i.e., whether cost-per-click, cost-per-action, cost-per impression, pay-for-placement, paid-inclusion, or otherwise), and regardless of whether Publisher receives payment directly. [***]Publisher acknowledges and agrees that any violation of this Section 6.5 may cause Overture irreparable harm for which there is no adequate remedy at law, thus entitling Overture to seek injunctive relief in addition to all other available legal or equitable remedies. In the event that a court grants such injunctive relief, Publisher waives any applicable bond. [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

      6.5 Communication to Users. Publisher may use the Yahoo Brand Features (as defined in Exhibit 4 hereto) in connection with the install process, on the Toolbar, and on the Results Pages solely as illustrated in Exhibit 1 to Rider A. In the event that Publisher intends to mention, or use in any materials, in any medium the Yahoo name or the Yahoo Brand Features other than as illustrated in Exhibit 1 to Rider A, then Publisher shall obtain Overture's prior written approval in each instance prior to any such use. Publisher shall submit to Yahoo (directly or through Overture) a detailed description of any proposed use. Publisher shall follow at all times the Trademark Usage Guidelines set forth in Exhibit 4 to this Overture Master Agreement in connection with the Yahoo Brand Features.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

“PUBLISHER”	“OVERTURE”
Viewpoint Corporation, a Delaware corporation	Overture Services, Inc., a Delaware corporation
By:	By:
Name:	Name:
Title:	Title:

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

TERMS AND CONDITIONS TO OVERTURE MASTER AGREEMENT

1. Definitions.

      1.1 “Above the Fold” means visible on the top of a computer screen without scrolling down or to the right or to the left, at a screen resolution of 1024 by 768.

      1.2 “Advertisers” means the Paid Placement Advertisers as defined in Rider A.

      1.3 “Licensed Materials” means the Overture Marks and the Overture Content.

      1.4 “Overture Marks” means (a) any or all of the following, as provided by Overture: (i) the marks, words or phrases in which Overture has intellectual property rights (including but not limited to those listed in Exhibit 3 attached hereto); and (b) all of the following: (i) the format or general image or appearance of the Web pages provided by Overture or produced by any of its technology or services; (ii) any word, symbol or device, or any combination thereof, used or intended to be used by Overture to identify and distinguish Overture's products or services from the products or services of others, and to indicate the source of such goods or services; and (ii) any updates to the foregoing.

      1.5 “Search Box” means a not pre-populated graphical area on the Toolbar that a User may use to manually enter a Paid Placement Search Query and/or a Web Search Query.

      1.6 “User” means a human end-user of the Toolbar in the Territory (i.e., not 'bots, metaspiders, macro programs, Internet agents or any other automated means) whom Overture is able to verify as being a human end-user using the Tracking Information required in Section 5 of these Terms and Conditions.

2. Mutual Audit. Each party (the “Auditing Party”), at its own expense, will be entitled to retain a reputable, independent certified public accounting firm (the “Auditor”) reasonably acceptable to the other party (the “Audited Party”) solely for the purpose of auditing, at a mutually agreed upon time during normal business hours, only those records of the Audited Party that are reasonably necessary to determine the Audited Party's compliance with its obligations under this Agreement. Prior to an audit, the Auditing Party will require the Auditor to sign a confidentiality agreement reasonably acceptable to the Audited Party, and the results of the audit will be deemed the Audited Party's Confidential Information. Such audit shall be conducted in accordance with generally accepted auditing standards. Auditor will be entitled to disclose to the Auditing Party only whether or not the Audited Party is in compliance with its respective obligations under the Agreement and if the Audited Party is not in compliance, the amount of any non-compliance, but Auditor will be precluded from disclosing any other Confidential Information of the Audited Party to the Auditing Party without the prior written consent of the Audited Party. [***]

3. Grant of License.

      3.1 License. Subject to, and in accordance with, the terms and conditions of this Agreement, Overture grants to Publisher, solely for purposes contemplated in this Agreement, a limited, non-exclusive, non-assignable, non-transferable, non-sublicensable (unless explicitly provided for under this Agreement) license during the Term to (i) use and display the Overture Content in the Territory, and (ii) subject to Overture's approval on a case-by-case basis, use and display one or more of the Overture Marks in the Toolbar. Any rights not expressly granted in this Agreement are reserved by Overture, and all implied licenses are disclaimed.

      3.2 Conditions of License. The Overture Content and if applicable, any licensed Overture Marks, must be reproduced and displayed in the size, place, and manner indicated in this Agreement, and only in compliance with Section 3.7 below, as such Section 3.7 may be modified from time to time by Overture in its sole discretion, and as specifically set forth in any applicable

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

Rider (including any Exhibits attached thereto). If Publisher engages in any action that Overture determines, in its sole discretion, that the action disparages or devalues the Overture Marks, or Overture's reputation or goodwill, Overture may immediately terminate this Agreement or any license granted herein to the Toolbar, any Overture Content or to any Overture Marks.

      3.3 Ownership of Licensed Materials. Publisher acknowledges that, as between Overture and Publisher, all right, title and interest in the Licensed Materials are exclusively owned by Overture and/or its licensors and that no right other than the limited license granted in this Section 3 is provided to Publisher. Publisher shall not assert any copyright, trademark or other intellectual property ownership or any other proprietary rights in the Licensed Materials, or in any element, derivation, adaptation, variation or name thereof. Publisher shall not contest the validity of, or Overture's ownership of, any of the Licensed Materials. Publisher shall not, in any jurisdiction, adopt, use, or register, or apply for registration of, whether as a corporate name, trademark, service mark or other indication of origin, or as a domain name, any Overture Marks, or any word, symbol or device, or any combination confusingly similar to, or which include, any of the Overture Marks. Except for the limited license expressly granted herein, nothing in this Agreement shall be construed as Overture's granting to Publisher any right, title or interest in or to the Licensed Materials or any of Overture's technology related thereto.

      3.4 Ownership of Overture Content. Publisher acknowledges and agrees that, as between Overture and Publisher, Overture owns all right, title and interest in and to the Overture Content.

      3.5 Ownership of Goodwill. Publisher agrees that, as between Overture and Publisher, any goodwill resulting from Publisher's use of any Licensed Materials as contemplated in this Agreement shall inure to the benefit of Overture. All goodwill or reputation in any of the Licensed Materials shall automatically vest in Overture when any of the Licensed Materials are used by Publisher pursuant to this Agreement.

      3.6 Caching Licensed Material. Publisher shall not cache any Overture Content or any other Licensed Materials.

      3.7 Overture Usage Guidelines. Publisher may use the Overture Content and any Overture Marks licensed pursuant to this Agreement, solely for the purposes authorized in this Agreement and only in compliance with the specifications, directions, information and standards supplied by Overture, as such may be modified by Overture from time to time [***]. Publisher agrees to comply with any requirements established by Overture concerning the style, design, display and use of any such Overture Content [***] and, if applicable, Publisher agrees to comply with any requirements established by Overture concerning the style, design, display, and use of the Overture Marks; to correctly use the trademark symbol (TM) or registration symbol (R) with any use of the Overture Marks, if any, as instructed by Overture; and to use the registration symbol (R) upon receiving notice from Overture of the registration of any licensed Overture Marks. Except as otherwise described in Exhibit 1 to Rider A and Exhibit 1 to Rider B, Publisher may not alter any of the Licensed Materials in any manner, or use any such Licensed Materials in any manner that may dilute, diminish, or otherwise damage Overture's rights and goodwill in any of its Overture Marks. Except as permitted in this Agreement, Publisher may not use any of the licensed Overture Content or Overture Marks in any manner that implies sponsorship or endorsement by Overture of services and products other than those provided by Overture.

4. Publisher Responsibilities.

      4.1 Results Pages. Publisher agrees that it is solely responsible for the development, maintenance and operation of the Results Pages and for all materials and content that appear on the Results Pages (other than any of the Licensed Materials appearing on the Results Pages). Publisher shall not offer to Users incentives of any kind to use any of the Overture Content. [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

      4.2 [***]

5. 'Bot Traffic Identification and Collaboration. The parties will employ commercially reasonable efforts to collaborate throughout the Term to minimize any automated or otherwise invalid use of the Toolbar or Overture Content by or through the use of 'bots, metaspiders, macro programs, or any other automated or inappropriate means. Publisher acknowledges and agrees that in order to make it possible for Overture to identify automated (e.g., 'bot traffic) or otherwise invalid search queries and the corresponding clicks on Overture-provided results, Publisher will include and not interfere with the operation of software code provided by Overture to collect the following tracking information (collectively, the “Tracking Information”): [***] For clarity, the parties intend for this Tracking Information to be uniquely identifiable, but not personally identifiable. [***]

6. DISCLAIMER OF WARRANTIES. OVERTURE IS NOT RESPONSIBLE FOR ANY CONTENT PROVIDED OR APPROVED BY THIRD PARTIES (INCLUDING ADVERTISERS), OR FOR ANY THIRD PARTY SITES THAT CAN BE LINKED TO OR FROM THE OVERTURE CONTENT OR BY MEANS OF THE TOOLBAR. THE OVERTURE CONTENT IS PROVIDED SOLELY “AS IS.” OVERTURE MAKES, AND PUBLISHER AND USERS RECEIVE, NO WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE. OVERTURE, ITS AFFILIATES AND LICENSORS EXPRESSLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY, ACCURACY, FITNESS FOR A PARTICULAR PURPOSE, AND OR NON-INFRINGEMENT. OVERTURE DOES NOT WARRANT THAT THE TOOLBAR SHALL BE OPERABLE OR THAT ITS OPERATION SHALL BE UNINTERRUPTED OR ERROR FREE OR THAT IT WILL FUNCTION OR OPERATE IN CONJUNCTION WITH ANY OTHER PRODUCT, SOFTWARE OR HARDWARE, OR THAT IT WILL NOT DAMAGE ANY OTHER PRODUCT OR CAUSE ANY LOSS OR CORRUPTION OF DATA.

7. Confidentiality.

      7.1 Definition. “Confidential Information” means any information disclosed by either party to the other party during the Term, either directly or indirectly, in writing, orally or by inspection of tangible objects, which is designated as “Confidential,” “Proprietary” or some similar designation. All of the terms of this Agreement shall be deemed Confidential Information. Information communicated orally will be considered Confidential Information if such information is designated as being Confidential Information at the time of disclosure. Confidential Information will not, however, include any information which (a) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (b) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party; (c) was already in the possession of the receiving party at the time of disclosure by the disclosing party, but only if the receiving party received it from a third party who had the right to provide such information to the receiving party; or (d) is independently developed by the receiving party without use of or reference to the disclosing party's Confidential Information. For the avoidance of doubt, Overture shall have the right to share Confidential Information with Yahoo! Inc (“Yahoo”) so long as Yahoo complies with the restrictions set forth in Section 7.2 below of these Terms and Conditions.

      7.2 Restrictions. The receiving party agrees (a) not to disclose any Confidential Information of the disclosing party to any third parties (except to its employees or agents on a “need-to-know” basis and only if such employees and agents are bound by confidentiality obligations no less strict than those set forth in this Section 7, and except as otherwise permitted below); (b) not to use any such Confidential Information for any purposes except to exercise its rights and carry out its responsibilities under this Agreement, and (c) to keep the Confidential Information of the disclosing party confidential using the same degree of care the receiving party uses to protect its

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

own Confidential Information, as long as the receiving party uses at least reasonable care. If either party receives a subpoena or other validly issued judicial process requesting, or is otherwise required by a government agency (such as the SEC) to disclose, Confidential Information of the other party, then the receiving party shall promptly notify the disclosing party of such requirement, may disclose such Confidential Information without the prior written approval of the disclosing party and shall reasonably cooperate to seek confidential treatment or to obtain an appropriate protective order to preserve the confidentiality of the Confidential Information. Each party will use commercially reasonable efforts to give the other party [***] prior notice of its intent to file this Agreement with the SEC or other similar regulatory agency and will use commercially reasonable efforts to consult with the other party for the purpose of incorporating reasonably proposed redactions (i.e., such proposed redactions to comply with laws, rules and regulations interpreting securities and other applicable laws). All obligations under this Section 7.2 shall survive for [***]after expiration or earlier termination of this Agreement.

8. LIMITATION OF LIABILITY. NEITHER PARTY WILL BE LIABLE FOR ANY LOST PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY OTHER INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, HOWEVER CAUSED, AND UNDER WHATEVER CAUSE OF ACTION OR THEORY OF LIABILITY BROUGHT (INCLUDING, WITHOUT LIMITATION, UNDER ANY CONTRACT, NEGLIGENCE OR OTHER TORT THEORY OF LIABILITY) EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. NEITHER PARTY WILL BE LIABLE FOR DIRECT DAMAGES IN EXCESS OF THE AMOUNTS PAID BY OVERTURE TO PUBLISHER DURING [***] PRIOR TO THE TIME THAT THE CAUSE OF ACTION AROSE. NOTWITHSTANDING THE FOREGOING, THE LIMITATIONS OF LIABILITY PROVIDED IN THIS SECTION 8 SHALL NOT APPLY TO ANY OF THE FOLLOWING: (A) A PARTY'S CONFIDENTIALITY OBLIGATIONS, (B) A PARTY'S BREACH OF SECTION 10.2 OF THE TERMS AND CONDITIONS, OR (C) PUBLISHER'S BREACH OF ITS EXCLUSIVITY OBLIGATIONS SET FORTH IN THIS AGREEMENT.

9. Termination.

      9.1 Termination for Breach. If either party breaches any material covenant, representation and/or warranty of this Agreement and such breaching party does not cure such breach within [***] of written notice by the non-breaching party of such breach, then the non-breaching party may terminate the Agreement upon written notice to the breaching party. Notwithstanding the prior sentence, if either party breaches any covenant, representation or warranty of this Agreement that is not capable of being cured, then the non-breaching party may terminate this Agreement immediately upon written notice to the breaching party.

      9.2 Termination for Publisher Change in Control. Overture may terminate this Agreement without liability to Publisher immediately upon the existence of a Change in Control by Publisher. For purposes of this Section 9.2, the term “Change in Control” means (a) a merger, consolidation or other reorganization to which Publisher is a party, if the individuals and entities who were stockholders (or partners or members or others that hold an ownership interest) of Publisher immediately prior to the effective date of the transaction have “beneficial ownership” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of less than [***] of the total combined voting power for election of directors (or their equivalent) of the surviving entity following the effective date of the transaction, (b) acquisition by any entity or group of direct or indirect beneficial ownership in the aggregate of then issued and outstanding securities (or other ownership interests) of Publisher in a single transaction or a series of transactions representing in the aggregate [***] or more of the total combined voting power of Publisher, or (c) a sale of all or substantially all of Publisher's assets.

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

      9.3 Termination for Bankruptcy, Etc. Either party may suspend performance and/or terminate this Agreement if the other party makes any assignment for the benefit of creditors or has any petition under bankruptcy law filed against it, which petition is not dismissed within sixty (60) days of such filing, or has a trustee or receiver appointed for its business or assets or any party thereof.

      9.4 Termination [***]

      9.5 Effect of Termination or Expiration. Upon the termination of this Agreement for any reason (a) all license rights granted herein shall terminate immediately, (b) Publisher shall immediately cease distribution and use of the Overture Content and any licensed Overture Marks, and (c) Sections 1.3, 2, 3.3, 3.4, 3.5, 3.6, 6, 7, 8, 10.1, 10.5, 10.9, 10.11, 10.12 and 10.13 of these Terms and Conditions, Sections A, B and C of Exhibit 2 to Overture Master Agreement, if applicable, and any other provisions of this Agreement that by their terms should survive the expiration or earlier termination of this Agreement, shall survive such expiration or earlier termination.

10. Miscellaneous.

      10.1 Notice. Any notice required for or permitted by this Agreement shall be in writing and shall be deemed delivered if delivered as indicated: (a) by personal delivery when delivered personally, (b) by overnight courier upon written verification of receipt, (c) by certified or registered mail, return receipt requested, upon verification of receipt, or (d) by telecopy or facsimile transmission when confirmed by telecopier or facsimile transmission report and followed by a copy of such transmission sent in accordance with either (a), (b) or (c) above. All notices must be sent, if to Publisher, at the address provided on page 1 of the Overture Master Agreement or if to Overture, at 74 North Pasadena Avenue, Third Floor, Pasadena, California 91103, Attn: Vice President Business Affairs, Fax: (626) 685-5601, or to such other address as the addressee party may have provided for the purpose of notice in accordance with this Section 10.1.

      10.2 Press Release. Publisher may not issue any press release or other public statements regarding this Agreement, excluding any disclosures that may be required by law subject to the provisions of Section 7.2 of these Terms and Conditions. Notwithstanding the prior sentence, Overture may in its discretion permit such a press release or public statement, but such consent must be by an authorized person of Overture and must be in writing. Publisher's failure to obtain the prior written approval of Overture shall be deemed a material non-curable breach of this Agreement, whereby Overture may terminate this Agreement immediately following written notice to Publisher, and the cure provisions set forth in Section 10 above shall not apply.

      10.3 Assignment. Subject to the restrictions set forth below, this Agreement may be assigned in whole or in part and shall inure to the benefit of, and shall be binding upon, the parties' successors and assigns. Overture may assign this Agreement, without Publisher's consent, to Yahoo or entities under common control with Yahoo. Upon assignment of this Agreement, the assignor shall cease to be liable under this Agreement except for events occurring prior to the date of assignment. Notwithstanding anything contained herein to the contrary, Publisher shall not assign any of its rights under this Agreement nor delegate any of its duties under this Agreement without Overture's prior written consent.

      10.4 No Third Party Beneficiaries. Except as otherwise provided in this Agreement, all rights and obligations of the parties hereunder are personal to them and this Agreement is not intended to benefit, nor shall it be deemed to give rise to, any rights in any third party.

      10.5 Governing Law. This Agreement will be governed and construed in accordance with California law, without regard to its conflict of law principles. [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

      10.6 Independent Contractors. The parties to this Agreement are independent contractors. This Agreement shall not be construed to create a joint venture or partnership between the parties. Neither party shall be deemed to be an employee, agent, partner or legal representative of the other for any purpose and neither shall have any right, power or authority to create any obligation or responsibility on behalf of the other.

      10.7 Force Majeure. Neither party shall be liable hereunder by reason of any failure or delay in the performance of its obligations (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, earthquakes, Internet outages, acts of God, acts of war, acts of terrorism, governmental action, or any other cause that is beyond the reasonable control of such party.

      10.8 Compliance with Law. Each party shall be responsible for compliance with all applicable laws, rules and regulations, if any, related to the performance of its obligations under this Agreement.

      10.9 Entire Agreement. This Agreement (including the Overture Master Agreement, the Terms and Conditions attached thereto, and the Riders and Exhibits attached hereto and thereto) together constitute the entire agreement between the parties with respect to the subject matter hereof. This Agreement supersedes, and the terms of this Agreement govern, any other prior or collateral agreements (including without limitation, any warranties) with respect to the subject matter hereof. Any amendments to this Agreement must be in writing and executed by an officer of the parties. Nothing in this Agreement shall be deemed to impair, restrict, limit or affect in any way the manner in which Overture operates its business.

      10.10 Counterparts; Facsimile Signatures. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document upon execution by both Publisher and Overture. The parties shall be entitled to rely upon a facsimile of a signed copy of this Agreement as if it were an original signed counterpart.

      10.11 Severability. If any provision of this Agreement is held or made invalid or unenforceable for any reason, such invalidity shall not affect the remainder of this Agreement, and the invalid or unenforceable provisions shall be replaced by a mutually acceptable provision, which being valid, legal and enforceable comes closest to the original intentions of the parties hereto and has like economic effect.

      10.12 Waiver. The terms or covenants of this Agreement may be waived only by a written instrument executed by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach or a waiver of the breach of any other term or covenant contained in this Agreement.

      10.13 Section Headings. The section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 1-A TO OVERTURE MASTER AGREEMENT

Overture reserves the right to make modifications to this mock-up prior to the Toolbar Launch Date.

EXHIBIT 1-B TO OVERTURE MASTER AGREEMENT

MODIFICATIONS TO TOOLBAR AND RESULTS PAGES

      A. Publisher may add new functionality and enhancements to the Toolbar that are substantially similar to the following items:

      [***]

      B. Any modifications other than those described in paragraph A above to the Toolbar must be approved by Overture prior to launch [***].

EXHIBIT 1-B-1

[***]

EXHIBIT 1-B-2

[***]

EXHIBIT 1-B-3

[***]

EXHIBIT1-B-4

[***]

EXHIBIT 1-B-5

[***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 1-C TO OVERTURE MASTER AGREEMENT

INSTALLATION MOCK-UPS

Overture reserves the right to make modifications to this mock-up prior to the Toolbar Launch Date.

[***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 2 TO OVERTURE MASTER AGREEMENT

      A. Publisher Warranties. Publisher represents and warrants that (I) the content residing on the Results Pages where Overture Content is displayed (except to the extent provided by Overture), and/or the technology used by Publisher in connection therewith and/or the means by which users have access to or obtain the Toolbar (collectively, “Publisher Items”): (1) are owned, validly licensed for use by Publisher or in the public domain; (2) do not constitute defamation, libel, obscenity; (3) do not violate applicable law or regulations; (4) do not infringe, dilute or otherwise violate any copyright, patent, trademark or other similar intellectual property right, or otherwise violate or breach any duty toward, or rights of any person or entity, including without limitation, rights of privacy and publicity; and (5) do not result in any consumer fraud, product liability, breach of contract to which Publisher is a party, or cause injury to any third party and (II) Publisher has the right, power and authority, with respect to each User, to distribute to Users, and install on a User's computer, the Toolbar without additional consent by the User.

      B. Immediate Termination Right. [***]

      C. Publisher Indemnification. Publisher shall indemnify, defend and/or settle, and pay damages awarded pursuant to any third party claim brought against Overture that [***]; provided that Overture promptly notifies Publisher in writing of any such claim, promptly tenders the control of the defense and settlement of any such claim to Publisher (at Publisher's expense and with Publisher's choice of counsel), and cooperates fully with Publisher (at Publisher's request and expense) in defending or settling such claim, including but not limited to providing any information or materials necessary for Publisher to perform the foregoing. Publisher will not enter into any settlement or compromise of any claim without Overture's prior consent, which shall not be unreasonably withheld.

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 3
OVERTURE MARKS

[***]

EXHIBIT 4 TO OVERTURE MASTER AGREEMENT
Trademark Usage Guidelines

GUIDELINES FOR USE OF YAHOO! BRAND FEATURES

[***]

EXHIBIT 5 TO OVERTURE MASTER AGREEMENT

INSTALL DELIVERY SCHEDULE

[***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

RIDER A

PAID PLACEMENT OVERTURE RESULTS

      1. Definitions. As used in the Agreement, the following capitalized terms have the meanings set forth below. Unless otherwise defined in this Rider A, capitalized terms shall have the meanings set forth in other parts of this Agreement.

      a. “Paid Placement Advertiser” means any third party advertiser that has signed up to be included in Paid Placement Overture Results.

      b. “Paid Placement Bidded Click” means a valid click by a User on a Paid Placement Overture Result displayed on a Results Page in response to a Paid Placement Search Query. Paid Placement Bidded Clicks are determined by Overture's servers and the validity of a click is determined by Overture in its reasonable discretion [***].

      c. “Paid Placement Gross Revenue” means amounts collected by Overture from Paid Placement Advertisers solely for Paid Placement Bidded Clicks on the Results Pages (after deducting any taxes that Overture may be required to collect, if any, excluding deductions for taxes on Overture's net income). For purposes of this definition only, “amounts collected by Overture” take into account adjustments for such matters as credit card processing fees, charge-backs, discounts allowed to advertising agencies and refunds to Paid Placement Advertisers.

      d. “Paid Placement Overture Results” means the search results provided to Publisher by Overture pursuant to this Rider A, which search results contain information and other content of Paid Placement Advertisers.

      e. “Paid Placement Search Query” means any search conducted on or through the Toolbar by a User.

      f. “Results Pages” means the Web pages on which Paid Placement Overture Results appear.

      2. Delivery of Paid Placement Search Queries and Paid Placement Overture Results. Publisher will immediately send all Paid Placement Search Queries to Overture each and every time a User initiates a Paid Placement Search Query. Upon receiving a Paid Placement Search Query, Overture shall use commercially reasonable efforts to deliver either Paid Placement Overture Results or a response that no Paid Placement Overture Results are being delivered for that Paid Placement Search Query.

      3. Implementation of Paid Placement Overture Results; Marketing Link. If Overture delivers Paid Placement Overture Results to Publisher pursuant to Section 2 of this Rider A, Publisher shall then display all such Paid Placement Overture Results on Results Pages in accordance with the mock-ups attached as part of Exhibit 1 to this Rider A. [***] The number of Paid Placement Overture Results provided by Overture to Publisher for each Paid Placement Search Query will in each instance be determined by Overture [***] Publisher shall also display on the Results Pages, if requested and provided by Overture, a link to a Web page operated by Overture for the purpose of explaining Paid Placement Overture Results and informing potential advertisers how they may sign up to become Paid Placement Advertisers.

      4. Compensation. Overture shall pay Publisher for Paid Placement Bidded Clicks in accordance with the alternative checked below.

      [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

	Revenue Share Structure when Monthly Install is Satisfied	Revenue Share Structure when Monthly Install is Not Satisfied
[***]

[***]

      5. Publisher's [***] Right. [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 1 TO RIDER A

ADDITIONAL REQUIREMENTS—PAID PLACEMENT OVERTURE RESULTS—MOCK-UP

Overture reserves to right to make modifications to this mock-up prior to the Toolbar Launch Date.

[***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

RIDER B

WEB SEARCH RESULTS

      1. Definitions. As used in the Agreement, the following capitalized terms have the meanings set forth below. Unless otherwise defined in this Rider B, capitalized terms shall have the meanings set forth in other parts of the Agreement.

      a. “Web Search Query” means any search conducted on or through the Toolbar by a User.

      b. “Web Search Results” means the algorithmically generated search results provided to Publisher by Overture pursuant to this Rider B.

      2. Delivery of Web Search Queries and Web Search Results. Publisher will immediately send all Web Search Queries to Overture each time that a User initiates a Web Search Query. Upon receiving a Web Search Query, Overture shall use commercially reasonable efforts to deliver Web Search Results or a response that no Web Search Results are being delivered for that Web Search Query.

      3. Implementation of Web Search Results. If Overture delivers Web Search Results to Publisher as required pursuant to Section 2 of this Rider B, Publisher shall then display all such Web Search Results on Results Pages in accordance with the mock-ups attached as part of Exhibit 1 to this Rider B. The number of Web Search Results provided by Overture to Publisher for each Web Search Query will in each instance be determined by Overture. Publisher shall display all Web Search Results together in their entirety, without any other content of any kind interspersed between such Web Search Results (i.e., contiguously). If this Agreement includes a Rider A, the Web Search Results shall be displayed below the Paid Placement Overture Results provided by Overture to Publisher pursuant to such Rider A. Any additional requirements regarding the implementation of the Web Search Results are set forth in Exhibit 1 attached hereto.

      4. Compensation. Compensation payable in connection with the provision of Web Search Results shall be in accordance with the alternative checked below:

      [***]

      5. Publisher's [***] Right. [***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EXHIBIT 1 TO RIDER B

ADDITIONAL REQUIREMENTS—WEB SEARCH RESULTS

Overture reserves to right to make modifications to this mock-up prior to the Toolbar Launch Date.

[***]

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*** Confidential treatment has been requested for portions of this exhibit. The copy filed herewith omits the information subject to the confidentiality request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

EX-10

Exhibit 10.22

REGISTRATION RIGHTS AGREEMENT

      REGISTRATION RIGHTS AGREEMENT, dated as of January    , 2005 (the “Agreement”) by and between Viewpoint Corporation, a Delaware corporation (the “Company”), and on the one hand, and The MacManus Group, Inc., Kenneth Fadner, James Lash and Grace Internet Capital LLC (each a “Holder”, and collectively, the “Holders”) on the other.

WITNESSETH

      WHEREAS, in connection with the Stock Purchase Agreement by and between the parties hereto of even date herewith (the “Stock Purchase Agreement”), the Company has agreed, upon the terms and conditions set forth therein, to issue shares of its common stock, par value $.001 per share (the “Common Stock”), to the Holders.

      NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

Certain Definitions

      As used in this Agreement, the following terms shall have the meanings ascribed to them below:

      “Commission”: the Securities and Exchange Commission or any successor agency.

      “Common Stock”: Common Stock, par value $.001 per share, of the Company.

      “Person”: any natural person, corporation, partnership, limited liability company, firm, association, trust, government, governmental agency or other entity, whether acting in an individual, fiduciary, or other capacity.

      “Holder” or “Holders”: the Holder identified in the Preamble hereto and any other Person who shall hereafter acquire Registrable Securities from a Holder and to whom the Holder assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 3.4(a).

      “Registrable Securities”: shares of Common Stock acquired pursuant to the Stock Purchase Agreement or issued or issuable in respect of any such shares of Common Stock as a dividend or as a result of any stock split or combination; provided, that any shares of Common Stock constituting Registrable Securities shall cease to be such at such time as (A)  they are distributed to the public pursuant to a registration statement under the Securities Act or Rule 144 thereunder, (B) they become subject to resale pursuant to Rule 144(k) under the Securities Act (or any successor provision) (“Rule 144”), (C) the Holder thereof may sell all such shares held by such Holder in a single 90-day period under Rule 144 because such shares constitute not more than 1.0% of the outstanding shares of Common Stock (provided, in the case of clause (B) and this clause (C), that any shares which cease to be Registrable Securities by operation of such clauses shall again become Registrable Securities if such shares can no longer be sold in a single 90-day period pursuant to Rule 144), or (D) they shall have otherwise been transferred and the new certificate evidencing ownership thereof does not bear a restrictive legend pursuant to the Securities Act and is not subject to a stop transfer order delivered by or on behalf of the Company.

      For all purposes of this Agreement, a “majority in interest” of the Holders or a group thereof shall be determined on the basis of the Registrable Securities held by them.

      “Registration Statement” means the registration statement or registration statements filed under the Securities Act covering the Registrable Securities.

      “Securities Act”: the Securities Act of 1933, as amended.

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Registration Rights

      Mandatory Registration

      The Company shall prepare, and, as soon as practicable but in no event later than 60 days after the Closing (as defined in the Stock Purchase Agreement), file with the Commission a Registration Statement covering the resale of all of the Registrable Securities. The Registration Statement prepared pursuant hereto shall register for resale all of the Registrable Securities. The Company shall use its commercially reasonable efforts to have the Registration Statement declared effective by the SEC as soon as practicable thereafter.

      The registration pursuant to this Section 2.1 shall be on Form S-3 (or any equivalent successor form), if permitted.

      Registration Procedures. When the Company, pursuant to the provisions of this Agreement, uses its reasonable best efforts to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement, the Company shall, as expeditiously as possible:

      prepare and file with the Commission a Registration Statement on Form S-3, to the extent permitted, or other available form for the disposition of Registrable Securities in accordance with the intended method of disposition thereof (provided such intended method of distribution shall not include an underwritten public offering), which form shall be available for the sale of the Registrable Securities by the selling Holders thereof and such Registration Statement shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and the Company shall use its reasonable best efforts to cause such Registration Statement to become and remain effective (provided, however, that before filing a Registration Statement or prospectus or any amendments or supplements thereto, or comparable statements under securities or blue sky laws of any jurisdiction, the Company will furnish to one counsel designated by Holders of a majority of the Registrable Securities (the “Designated Counsel”) participating in the planned offering, copies of all such documents proposed to be filed (including all exhibits thereto but excluding Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any similar or successor reports), which documents will be subject to the reasonable review and reasonable comment of such counsel;

      prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective until the distribution of the Registrable Securities has been completed thereunder and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such Registration Statement in accordance with the intended methods of disposition (provided such intended method of distribution shall not include an underwritten public offering) by the seller or sellers thereof as set forth in such Registration Statement;

      furnish, without charge and upon request, to each seller of such Registrable Securities covered by such Registration Statement such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits), and the prospectus included in such registration statement (including each preliminary prospectus) in conformity with the requirements of the Securities Act, and other documents, as such seller may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller (the Company hereby consenting to the use in accordance with all applicable law of each such Registration Statement (or amendment or post-effective amendment thereto) and each such prospectus (or preliminary prospectus or supplement thereto) by each such seller of Registrable Securities in connection with the offering and sale of the Registrable Securities covered by such Registration Statement or prospectus;

      use its reasonable best efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other applicable securities or “blue sky” laws of such jurisdictions as any sellers of Registrable Securities shall reasonably request, and do any and all

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other acts and things which may be reasonably necessary or advisable to enable such sellers or underwriter, if any, to consummate the disposition of the Registrable Securities in such jurisdictions, except that in no event shall the Company be required to qualify to do business as a foreign corporation in any jurisdiction where it would not, but for the requirements of this paragraph (d), be required to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction;

      promptly notify each Holder selling Registrable Securities covered by such Registration Statement: (i) when the Registration Statement, any pre-effective amendment, the prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or state securities authority for amendments or supplements to the Registration Statement or the prospectus related thereto or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose; and (v) of the existence of any fact of which the Company becomes aware which results in the Registration Statement, the prospectus related thereto or any document incorporated therein by reference containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein not misleading (provided that in no event shall such notification contain any material, non-public information); and, subject to Section 2.2(m), if the notification relates to an event described in clause (v), the Company shall promptly prepare and furnish to each such seller a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the Holders of such Registrable Securities, such prospectus shall not include an 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 the light of the circumstances under which they were made not misleading;

      comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable after the effective date of the Registration Statement (and in any event within 16 months thereafter), an earnings statement (which need not be audited) covering the period of at least twelve consecutive months beginning with the first day of the Company's first calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;

      (i) use its reasonable best efforts to cause all such Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) if no similar securities are then so listed, use reasonable best efforts to cause all such Registrable Securities to be, at the Company's option, listed on a national securities exchange or, as a NASDAQ security within the meaning of Rule 11Aa2-1 promulgated by the Commission pursuant to the Exchange Act or, failing that, secure NASDAQ authorization for such shares and without limiting the generality of the foregoing, take all actions that may be required by the Company as the issuer of such Registrable Securities in order to facilitate the managing underwriter's arranging for the registration of at least two market makers as such with respect to such shares with the National Association of Securities Dealers, Inc. (the “NASD”);

      at the reasonable request of any Holder, the Company shall furnish to such Holder, not later than the next business day following the date of the effectiveness of the Registration Statement, an opinion from the Company's General Counsel in customary form covering such matters as are customarily covered by such opinions, addressed to such Holder;

      deliver to the Designated Counsel copies of all correspondence between the Commission and the Company, its counsel or auditors or with the Commission or its staff with respect to the

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Registration Statement, other than those portions of any such correspondence and memoranda which contain information subject to attorney-client privilege with respect to the Company, and, upon receipt of such confidentiality agreements as the Company may reasonably request, make reasonably available for inspection by (i) any seller of such Registrable Securities covered by such registration statement, (ii) the Designated Counsel and (iii) one firm of accountants or other agents designated by the majority of the Holders whose Registrable Securities are included in the registration statement, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Company's officers, directors and employees to supply all information reasonably requested by any such persons or entities, in connection with such Registration Statement;

      use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement;

      cooperate with the selling Holders of Registrable Securities to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the instructions of the selling Holders of Registrable Securities, at least three business days prior to any sale of Registrable Securities;

      take all such other commercially reasonable actions as the Company deems necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities in accordance with this Agreement; and

      notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the Commission, the Company may delay the disclosure of material non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, based upon the advice of counsel to the Company, otherwise required (a “Grace Period”); provided, that the Company shall promptly (i) notify the Holders in writing of the existence of material non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material non-public information to the Holders) and the date on which the Grace Period will begin, and (ii) notify the Holders in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed twenty (20) consecutive days and during any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of ninety (90) days and the first day of any Grace Period must be at least five (5) trading days after the last day of any prior Grace Period (each, an “Allowable Grace Period”). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Holders receive the notice referred to in clause (i) and shall end on and include the later of the date the Holders receive the notice referred to in clause (ii), the last day on which such Grace Period will be on Allowable Grace Period and (iii) the date referred to in such notice. The provisions of the last clause of Section 2.2 (e) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the last clause of Section 2.2 (e) with respect to the information giving rise thereto unless such material non-public information is no longer applicable.

      It shall be a condition precedent to the Company's obligations under this Section 2 that each seller of Registrable Securities as to which any registration is being effected furnish the Company such information regarding such seller, the Registrable Securities held by it and the intended method of distribution of such securities as the Company may from time to time reasonably request provided that such information shall be used only in connection with such registration; provided, however, that any such information shall be given or made by a seller of Registrable Securities without representation or warranty of any kind whatsoever, except representations with respect to the identity of the seller, such seller's Registrable Securities and such seller's intended method of distribution or any other representations required by applicable law.

      Each Holder, by such Holder's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation

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and filing of any Registration Statement hereunder unless such Holder has notified the Company in writing of such Holder's election to exclude all of such Holder's Registrable Securities from such Registration Statement.

      Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in clause (v) of paragraph (e) of this Section 2.2, such Holder will immediately discontinue such Holder's disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (e) of this Section 2.2 and if so directed by the Company will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice.

      Registration Expenses. The Company shall, whether or not any registration pursuant to this Agreement becomes effective, pay all reasonable and customary expenses incident to the Company's performance of or compliance with this Article 2, including (i) Commission, stock exchange or NASD registration and filing fees and all listing fees and fees with respect to the inclusion of securities in NASDAQ, (ii) fees and expenses of compliance with state securities or “blue sky” laws and in connection with the preparation of a “blue sky” survey, including without limitation, reasonable fees and expenses of blue sky counsel, (iii) printing expenses, (iv) messenger and delivery expenses, (v) internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal and accounting duties), (vi) fees and disbursements of counsel for the Company and (vii) the reasonable and documented fees and disbursements of the Designated Counsel, which amount shall not exceed $5,000. Notwithstanding the foregoing, (A) the provisions of this Section 2.3 shall be deemed amended to the extent necessary to cause these expense provisions to comply with “blue sky” laws of each state in which the offering is made and (B) in connection with any registration hereunder, each Holder of Registrable Securities being registered shall pay all underwriting discounts and commissions and transfer taxes, if any, attributable to such Registrable Securities.

Indemnification and Contribution

      In the event of any registration of any of the Registrable Securities under the Securities Act pursuant to this Agreement, to the extent permitted by law, the Company will indemnify and hold harmless the seller of such Registrable Securities, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act (each, a “Seller Indemnified Party”) against any losses, claims, damages or liabilities, joint or several, to which such Seller Indemnified Party may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such Seller Indemnified Party for any legal or other expenses (in each case, to the extent such expenses are documented and reasonable) incurred by such Seller Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the foregoing indemnification and reimbursement (i) shall not apply to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus, final prospectus or in any filing made in connection with the securities or blue sky laws of any jurisdiction, or any such amendment or supplement thereto, in each case, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of such Seller Indemnified Party specifically for use in the preparation thereof; (ii) with

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respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such loss, claim, damage or liability purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, and the Seller Indemnified Party was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Seller Indemnified Party, notwithstanding such advice, used it or failed to deliver the correct prospectus as required by the Securities Act; (iii) shall not be available to the extent such loss, claim, damage or liability is based on a failure of the Holder to deliver or to cause to be delivered the prospectus made available by the Company, including a corrected prospectus; and (iv) shall not apply to amounts paid in settlement of any loss, claim, damage or liability if such settlement is effected without the prior written consent of the Company.

      In the event of any registration of any of the Registrable Securities under the Securities Act pursuant to this Agreement, each seller of Registrable Securities, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (each, a “Company Indemnified Party”), against any losses, claims, damages or liabilities, joint or several, to which such Company Indemnified Party may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information relating to such seller furnished in writing to the Company by or on behalf of such seller specifically for use in connection with the preparation of such Registration Statement, preliminary prospectus, final prospectus, or in any filing made in connection with the securities or blue sky laws of any jurisdiction or any amendment or supplement thereto and each seller of Registrable Securities shall reimburse the Company for any legal or other expenses (in each case, to the extent such expenses are documented and reasonable) incurred by such Company Indemnified Party in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the obligations of such Holders hereunder shall be limited to an amount equal to the net proceeds to each Holder of Registrable Securities sold in connection with such registration.

      Each party entitled to indemnification under this Section 2.4 (the “Indemnified Party”) shall give notice to the party required to provide indemnification (the “Indemnifying Party”) promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 2.4 except to the extent, if any, that the Indemnifying Party shall have been actually prejudiced as a result of such failure (except that the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnified Party failed to give such notice). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the

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giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party.

      In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any holder of Registrable Securities exercising rights under this Agreement, or any controlling person of any such holder, makes a claim for indemnification pursuant to this Section 2.4 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.4 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any such selling Investor or any such controlling person in circumstances for which indemnification is provided under this Section 2.4; then, in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportions so that such holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by the Registration Statement bears to the public offering price of all securities offered by such Registration Statement, and the Company is responsible for the remaining portion; provided, however, that, in any such case, (A) no such holder will be required to contribute any amount in excess of the net proceeds to it of all Registrable Securities sold by it pursuant to such Registration Statement, and (B) no person or entity guilty of fraudulent misrepresentation, within the meaning of Section 11(f) of the Securities Act, shall be entitled to contribution from any person or entity who is not guilty of such fraudulent misrepresentation.

General

      Rule 144. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of the Common Stock, the Company covenants that it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including, but not limited to, the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 under the Securities Act), and will take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder of Registrable Securities (so long as such Holder owns such Registrable Securities), the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.

      Notices and Other Communications. All notices, requests, demands and other communications made in connection with this Agreement shall be in writing and shall be deemed to have been duly given (a) on the date of delivery, if delivered to the persons identified below, (b) five calendar days after mailing if mailed, with proper postage, by certified or registered mail, return receipt requested, (c) on the date of receipt if sent by telecopy, and confirmed in writing in the manner set forth in (b) on or before the next day after the sending of the telecopy, or (d) one business day after delivered to a nationally recognized overnight courier service marked for overnight delivery, in each case addressed to the Holders at their respective addresses set forth on the stock records of the Company, and to the Company at:

Viewpoint Corporation
498 Seventh Avenue, Suite 1810
New York, New York 10018
Attention: General Counsel
Telephone: (212) 201-0800
Telecopy No. (212) 201-0846

7

or to such other address as any party may, from time to time, designate in a written notice given in a like manner.

      Amendments. This Agreement may be amended only by written instruments signed by the Company and a majority in interest of the Holders. No waiver of any right or remedy provided for in this Agreement shall be effective unless it is set forth in writing signed by a majority in interest of the Holders. No waiver of any right or remedy granted in one instance shall be deemed to be a continuing waiver under the same or similar circumstances thereafter arising.

Miscellaneous

      This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors and assigns of the parties hereto, whether so expressed or not. This Agreement and the rights of the parties hereunder may be assigned by any of the parties hereto to any transferee of Registrable Securities if: (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Stock Purchase Agreement.

      If any term, provision, covenant or restriction of this Agreement or any exhibit hereto is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement and such exhibits shall remain in full force and effect and shall in no way be affected, impaired or invalidated. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and recitations without including any of such which may be hereafter declared invalid, void or unenforceable.

      This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more of the counterparts have been signed by each party and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

      This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws principles that would require the application of the laws of another jurisdiction.

      Except as set forth in Sections 2.4(a) and (b), this Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

[The remainder of this page intentionally left blank]

8

      IN WITNESS WHEREOF, the Company and Holders have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized.

THE COMPANY:
VIEWPOINT CORPORATION
By:
	Name: Title:
THE HOLDERS:
THE MACMANUS GROUP, INC.
By:
	Name: Title:
KENNETH FADNER
JAMES LASH
GRACE INTERNET CAPITAL LLC
By:
	Name: Title:

9

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 16th day of March, 2005.

VIEWPOINT CORPORATION
Dated: March 16, 2005	By:	/s/ JAY S. AMATO Jay S. Amato President and Chief Executive Officer

POWER OF ATTORNEY

      KNOW ALL PERSONBY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William H. Mitchell and Brian J. O'Donoghue, his attorneys-in-fact, with the power of substitution, for him and any and all capacities, to sign any amendments to this Report on Form 10-K, and to file same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated.

Dated: March 16, 2005	By:	/s/ JAY S. AMATOJay S. Amato Director, President and Chief Executive Officer (Principal Executive Officer)
Dated: March 16, 2005	By:	/s/ WILLIAM H. MITCHELL William H. Mitchell Chief Financial Officer (Principal Financial Officer)
Dated: March 16, 2005	By:	/s/ CHRISTOPHER C. DUIGNAN Christopher C. Duignan Vice President and Controller (Principal Accounting Officer)
Dated: March 16, 2005	By:	/s/ THOMAS BENNETT Thomas Bennett Director
Dated: March 16, 2005	By:	/s/ STEPHEN DUFF Stephen Duff Director
Dated: March 16, 2005	By:	/s/ SAMUEL H. JONES, JR. Samuel H. Jones, Jr. Director
Dated: March 16, 2005	By:	/s/ JAMES CRABBE James Crabbe Director
Dated: March 16, 2005	By:	/s/ DENNIS R. RANEY Dennis R. Raney Director
Dated: March 16, 2005	By:	/s/ ROBERT E. RICE Robert E. Rice Director

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EX-23

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

      We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-121955, No. 333-114315, No. 333-111595, No. 333-105127, No. 333-102829, No. 333-64176, No. 333-67213, and No. 333-25987) and Form S-8 (No. 333-97719, No. 333-86817, No. 333-67223, No. 333-28403, No. 333-26557, No. 333-20939, and No. 333-17209) of Viewpoint Corporation of our report dated March 16, 2005 relating to the consolidated financial statements and financial statement schedule which appears in this Form 10-K.

New York, New York
March 16, 2005

EX-99

Exhibit 99.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Viewpoint Corporation (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay S. Amato, President and Chief Executive Officer of the Company, certify, in accordance with 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1)	The Report to which this certification is attached as an exhibit, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 16, 2005           By: /s/ JAY S. AMATO
Jay S. Amato
President and Chief Executive Officer

EX-99

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection with the Annual Report of Viewpoint Corporation (the “Company”) on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William H. Mitchell, Senior Vice President and Chief Financial Officer of the Company, certify, in accordance with 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1)	The Report to which this certification is attached as an exhibit, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 16, 2005           By: /s/ WILLIAM H. MITCHELL
William H. Mitchell
Chief Financial Officer

EX-99

Exhibit 99.3

CERTIFICATIONS

I, Jay S. Amato, certify that:

1.	I have reviewed this report on Form 10-K of Viewpoint Corporation, a Delaware corporation, for the period ended December 31, 2004, as filed with the Securities and Exchange Commission;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: March 16, 2005           By: /s/ JAY S. AMATO
Jay S. Amato
President and Chief Executive Officer

EX-99

Exhibit 99.4

CERTIFICATIONS

I, William H. Mitchell, certify that:

1.	I have reviewed this report on Form 10-K of Viewpoint Corporation, a Delaware corporation, for the period ended December 31, 2004, as filed with the Securities and Exchange Commission;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: March 16, 2005           By: /S/ WILLIAM H. MITCHELL
William H. Mitchell
Chief Financial Officer