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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ETOYS INC.
BABYCENTER, INC.,
AND, WITH RESPECT TO ARTICLE VII ONLY,
PAT KENEALY
AS STOCKHOLDER REPRESENTATIVE
DATED AS OF APRIL 18, 1999
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 18, 1999 by and among eToys Inc., a Delaware
corporation ("Buyer"), BabyCenter, Inc., a Delaware corporation (the "Company"),
and, with respect to Article VII only, Pat Kenealy as Stockholder
Representative.
RECITALS
WHEREAS, the Boards of Directors of each of the Company and Buyer
believe it is in the best interests of each company and their respective
Stockholders that Buyer acquire the Company through the statutory merger of a
to-be-formed, wholly owned subsidiary of Buyer with and into the Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
WHEREAS, pursuant to the Merger, among other things, all of the issued
and outstanding shares of capital stock of the Company shall be converted into
the right to receive shares of common stock of Buyer.
WHEREAS, a portion of the shares of common stock of Buyer otherwise
issuable by Buyer in connection with the Merger shall be placed in escrow by
Buyer for purposes of satisfying damages, losses, expenses and other similar
charges which result from breaches of the representations, warranties and
covenants of the Company contained herein.
WHEREAS, the parties intend that the Merger shall constitute a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
WHEREAS, the Company and Buyer desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1. FORMATION OF MERGER SUBSIDIARY.
1.1.1. As promptly as practicable following the execution
of this Agreement, Buyer shall cause BCI
Acquisition Company, a Delaware corporation
("Merger Sub"), to be organized for the sole
purpose of effectuating the Merger contemplated
hereby.
1.1.2. The Certificate of Incorporation and Bylaws of
Merger Sub shall be in such forms as shall be
determined by Buyer.
<PAGE>
1.1.3. The unauthorized capital stock of Merger Sub shall
initially consist of 1,000 shares of common stock,
$.0001 par value per share, which shall be issued
to Buyer at a price of $1.00 per share.
1.1.4. As promptly as practicable following the execution
of this Agreement and the organization of Merger
Sub, Buyer shall (i) elect the directors of Merger
Sub, (ii) cause the directors of Merger Sub to
elect the officers of Merger Sub, and (iii) cause
the directors of Merger Sub to ratify and approve
this Agreement and to approve the form of the
Merger Agreement (as defined below).
1.2. THE MERGER. At the Effective Time (as defined in Section 1.3)
and subject to and upon the terms and conditions of this Agreement
and the applicable provisions of the Delaware General Corporation
Law ("DGCL"), Merger Sub shall be merged with and into the
Company, the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation
and as a wholly-owned subsidiary of Buyer. The surviving
corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
1.3. EFFECTIVE TIME. Unless this Agreement is earlier terminated
pursuant to Section 8.1, the closing of the Merger (the "Closing")
will take place as promptly as practicable, but no later than
two (2) business days following the approval of the Merger by
either (i) written consent of the Company's Stockholders or
(ii) consent of the Company's Stockholders at the Company
Stockholders Meeting (as described in Section 5.1) and the
satisfaction or waiver of the conditions set forth in
Article VI, at the offices of Irell & Manella LLP, 333 South
Hope Street, Suite 3300, Los Angeles, California, 90071 unless
another place or time is agreed to in writing by Buyer and the
Company. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date." On the Closing Date,
the parties hereto shall cause the Merger to be consummated by
filing an Agreement of Merger (or like instrument) substantially
in the form attached hereto as Exhibit A (the "Merger Agreement")
with the Secretary of State of the State of Delaware, in
accordance with the applicable provisions of the DGCL (the time
of acceptance by such Secretary of State of such filing being
referred to herein as the "Effective Time").
1.4. EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of
Delaware law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and
Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
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1.5. CERTIFICATE OF INCORPORATION; BYLAWS.
1.5.1. Unless otherwise determined by Buyer prior to the
Effective Time, at the Effective Time, the
Certificate of Incorporation of Merger Sub shall be
the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by
law and such Certificate of Incorporation.
1.5.2. Unless otherwise determined by Buyer prior to the
Effective Time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation
until thereafter amended.
1.6. DIRECTORS AND OFFICERS. The directors of Merger Sub
immediately prior to the Effective Time shall be the
directors of the Surviving Corporation immediately after the
Effective Time, each to hold the office of director of the
Surviving Corporation in accordance with the provisions of
the applicable laws of the State of Delaware and the
Certificate of Incorporation and Bylaws of the Surviving
Corporation until their successors are duly qualified and
elected. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving
Corporation immediately after the Effective Time, each to
hold office in accordance with the provisions of the Bylaws
of the Surviving Corporation. In particular, Matthew
Glickman shall be the Chief Executive Officer of the
Surviving Corporation and Mark Selcow shall be President of
the Surviving Corporation.
1.7. CERTAIN DEFINITIONS. For all purposes of this Agreement,
the following terms shall have the following meanings:
"Buyer Common Stock" shall mean shares of the common stock,
$.0001 par value per share, of Buyer.
"Buyer IPO" shall mean the initial public offering of Buyer
Common Stock to be made pursuant to the Buyer Registration
Statement, which is anticipated to be consummated prior to
the consummation of the Merger.
"Buyer Registration Statement" means Amendment No. 1 to the
Registration Statement on Form S-1 of Buyer pertaining to
the Buyer IPO, which was filed with the SEC on April 5,
1999.
"Buyer Stock Split" shall mean the 3-for-1 stock split of
Buyer Common Stock that is expected to be effected
concurrently with the consummation of the Buyer IPO. All
references to numbers of shares of Buyer Common Stock herein
are to numbers of such shares before consummation of the
Buyer Stock Split.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Company Capital Stock" shall mean all shares of Company
Common Stock, Company Preferred Stock and any other capital
stock of the Company.
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"Company Common Stock" shall mean shares of the Common Stock
of the Company.
"Company Option Plan" shall mean the BabyCenter, Inc. 1997
Stock Plan.
"Company Options" shall mean all issued and outstanding
options, warrants and other rights to acquire or receive
Company Capital Stock (whether or not vested).
"Company Preferred Stock" shall mean shares of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock and any other Series of preferred stock of
the Company.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Exchange Ratio" shall equal the quotient obtained by
dividing (i) 6,240,000 by (ii) the sum of: (x) the aggregate
number of Total Outstanding Company Shares and (y) the
aggregate number of shares of Company Capital Stock subject
to Company Options (in the case of Company Options, if any,
exercisable for convertible securities, computed on a
Company Common Stock equivalent basis, giving effect to the
conversion ratio governing each such convertible security)
outstanding immediately prior to the Effective Time.
"GAAP" shall mean generally accepted accounting principles
in effect from time to time in the United States, applied on
a consistent basis for the relevant entity.
"Knowledge" of a person shall mean the actual knowledge of
the person, and knowledge of a corporation shall mean the
actual knowledge of an officer or director of the
corporation, in each case following reasonable
investigation.
"Material Adverse Effect" shall mean any change, event or
effect that is materially adverse to the business, assets
(including intangible assets), financial condition, results
of operations or prospects of the entity referred to.
"Related Agreements" shall mean all such ancillary
agreements required in this Agreement to be executed and
delivered in connection with the transactions contemplated
hereby.
"SEC" shall mean the Securities Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Stockholder" shall mean each holder of any Company Capital
Stock immediately prior to the Effective Time.
"Total Outstanding Company Shares" shall be the aggregate
number of shares of Company Capital Stock outstanding
immediately prior to the Effective Time (in the case of
convertible securities, computed on a Company Common Stock
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<PAGE>
equivalent basis, giving effect to the conversion ratio
governing each such convertible security).
1.8. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS.
1.8.1. EFFECT ON COMPANY CAPITAL STOCK. At the Effective
Time, by virtue of the Merger and without any
action on the part of Merger Sub, the Company or
the Stockholders, each share of Company Capital
Stock issued and outstanding immediately prior to
the Effective Time (other than any Dissenting
Shares (as defined in Section 1.8.6)) will be
canceled and extinguished and be converted
automatically into the right to receive, upon
surrender of the certificate representing such
share of Company Capital Stock in the manner
provided for in this Section 1.8.1, a fraction of a
share of Buyer Common Stock (subject to
Section 1.8.5) equal to the Exchange Ratio. In the
case of Company Capital Stock consisting of
convertible securities (including, without
limitation, shares of Company Preferred Stock that
remain outstanding immediately prior to the
Effective Time), the Exchange Ratio shall be
applied to such shares on a Company Common Stock
equivalent basis, giving effect to the conversion
ratio governing each such convertible security.
All shares of Buyer Common Stock issued in exchange
for shares of Company Capital Stock subject to
Company repurchase rights or vesting schedules
shall be subject to the same repurchase rights
and/or vesting schedules and other terms as
applicable to such shares of Company Capital Stock,
with Buyer succeeding to the rights of the Company
thereunder and with a proportionate adjustment to
any per share repurchase price applicable to such
shares to reflect the Exchange Ratio.
Notwithstanding anything contained in this Section
1.8.1 to the contrary, each share of Company
Capital Stock issued and held in the Company's
treasury immediately prior to the Effective Time
shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired
without payment of any consideration therefor.
1.8.2. EFFECT ON COMPANY OPTIONS; AGREEMENT CONCERNING
WARRANTS. At the Effective Time, each Company
Option will, in connection with the Merger, be
assumed by Buyer. Each Company Option so assumed by
Buyer under this Agreement shall continue to have,
and be subject to, the same terms and conditions,
including vesting, applicable thereto prior to the
Effective Time, except that (A) such assumed
Company Option will be exercisable for that number
of whole shares of Buyer Common Stock equal to the
product obtained by multiplying the number of
shares of Company Capital Stock that were issuable
upon exercise in full of such assumed Company
Option immediately prior to the Effective Time (in
the case of Company Options, if any, exercisable
for convertible securities, computed on a Company
Common Stock equivalent basis, giving effect to the
conversion ratio governing each such convertible
security) by the Exchange Ratio, rounded down to
the nearest whole number of shares of
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<PAGE>
Buyer Common Stock and (B) the per share exercise price
for the shares of Buyer Common Stock issuable upon
exercise of such assumed Company Option shall be equal
to the quotient obtained by dividing the exercise
price per share of Company Capital Stock at which
such Company Option was exercisable immediately
prior to the Effective Time (in the case of Company
Options, if any, exercisable for convertible
securities, computed on a Company Common Stock
equivalent basis, giving effect to the conversion
ratio governing each such convertible security) by
the Exchange Ratio, rounded up to the nearest whole
cent. It is the intention of the parties that
options issued by Buyer following the Closing will,
to the extent permitted by applicable law, qualify
as incentive stock options as defined in Section
422 of the Code, to the extent Company Options in
respect of which Buyer options were issued
qualified as incentive stock options immediately
prior to the Closing. The Company agrees to use its
commercially reasonable efforts to cause all other
warrants to acquire Company Capital Stock
(including without limitation that certain Warrant
Agreement dated as of October 28, 1998 issued to
Comdisco, Inc., a Delaware corporation) to be
exercised in full or otherwise cancelled (without
the payment of any consideration) prior to the
Effective Time, and to provide evidence thereof
reasonably satisfactory to the Buyer prior to or at
the Closing. Notwithstanding anything herein to
the contrary, prior to the Effective Time, the
Company shall cause all commitments to issue or
grant options or similar rights to purchase or
receive Company Capital Stock to be terminated or,
to the extent the Company elects not to or is
unable to terminate such commitments, to be treated
as outstanding Company Options for purposes of
computing the Exchange Ratio; PROVIDED, HOWEVER,
that the Company covenants to terminate prior to
the Effective Time the commitment previously made
to Mr. Steve Fram relating to the possible issuance
to him of up to .25% equity interest in the
Company.
1.8.3. EFFECT ON CAPITAL STOCK OF MERGER SUB. Each share
of common stock, $.0001 par value per share, of
Merger Sub issued and outstanding immediately prior
to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid and
nonassessable share of common stock, $.0001 par
value per share, of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing
ownership of any such shares shall continue to
evidence ownership of such shares of capital stock
of the Surviving Corporation.
1.8.4. ADJUSTMENT TO BUYER COMMON STOCK. The number of
shares of Buyer Common Stock issuable hereunder
shall be adjusted to reflect fully the effect of
any stock split (including, without limitation, the
anticipated Buyer Stock Split, if consummated prior
to the consummation of the Merger), reverse split,
stock dividend (including any dividend or
distribution of securities convertible into Buyer
Common Stock or Company Capital Stock),
reorganization, recapitalization or other like
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<PAGE>
change with respect to Buyer Common Stock or
Company Capital Stock occurring after the date
hereof and prior to the Effective Time.
1.8.5. FRACTIONAL SHARES. Notwithstanding anything to the
contrary in this Agreement, no fractional shares of
Buyer Common Stock shall be issued pursuant to the
Merger. In lieu of the issuance of any fractional
share of Buyer Common Stock pursuant to the Merger,
cash adjustments will be paid to holders in respect
of any fractional share of Company Capital Stock
that would otherwise be issuable, and the amount of
such cash adjustment shall be equal to the product
of (a) such fractional amount and (b) either (i) if
Buyer Common Stock is then publicly traded, the
average closing price of Buyer Common Stock on the
Nasdaq National Market for the five (5) trading
days ending on the trading day prior to the
Effective Time or (ii) if Buyer Common Stock is not
then publicly traded, the fair market value of a
share of Buyer Common Stock as determined by the
Buyer's Board of Directors in good faith.
1.8.6. DISSENTING SHARES. Notwithstanding any provision
of this Agreement to the contrary, any shares of
Company Capital Stock issued and outstanding
immediately prior to the Effective Time that are
held by a Stockholder who has exercised and
perfected appraisal rights for such shares in
accordance with the DGCL and who, as of the
Effective Time, has not effectively withdrawn or
lost such appraisal rights ("Dissenting Shares"),
shall not be converted into or represent a right to
receive Buyer Common Stock pursuant to Section
1.8.1, but the holder thereof shall only be
entitled to such rights as are granted by the DGCL.
Notwithstanding the provisions of this Section, if
any holder of Dissenting Shares shall effectively
withdraw or lose (through failure to perfect or
otherwise) his or her appraisal rights, then, as of
the later of the Effective Time and the occurrence
of such event, such holder's shares shall
automatically be converted into and represent only
the right to receive the shares of Buyer Common
Stock to which such Stockholder would otherwise be
entitled under Section 1.8.1 (less the number of
shares allocable to such Stockholder that have been
deposited into the Escrow Fund on such holder's
behalf pursuant to Article VII), upon surrender of
the certificate representing such shares. The
Company shall give Buyer (i) prompt notice of any
written demand for appraisal received by the
Company pursuant to the applicable provisions of
the DGCL and (ii) the opportunity to participate in
all negotiations and proceedings with respect to
such demands. The Company shall not, except with
the prior written consent of Buyer, voluntarily
make any payment with respect to any such demands
or offer to settle or settle any such demands. To
the extent that the Company makes any payments in
respect of any Dissenting Shares prior to the
Effective Time, Buyer shall be entitled to recover
under the terms of Article VII hereof the aggregate
amount by which such payment or payments exceed the
aggregate consideration that otherwise would have
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been payable in respect of such shares (for this
purpose, valued in the same manner specified in
Section 7.2.5(b) below).
1.8.7. SURRENDER OF CERTIFICATES.
(a) Buyer shall appoint a reputable
institution to serve as exchange agent
(the "Exchange Agent") in the Merger.
(b) Within three (3) business days after the
Effective Time, Buyer shall make available
to the Exchange Agent for exchange in
accordance with this Article I the shares
of Buyer Common Stock issuable pursuant to
Section 1.8.1 in exchange for all the
outstanding shares of Company Capital
Stock; provided, however, that on behalf
of the Stockholders, pursuant to Section
7.2 hereof, Buyer shall deposit into an
escrow account 100,000 of the shares of
Buyer Common Stock otherwise issuable to
the Stockholders pursuant to Section 1.8.1
(the "Escrow Amount"). The portion of the
Escrow Amount contributed on behalf of
each Stockholder shall be in proportion to
the aggregate number of shares which such
Stockholder would otherwise be entitled to
receive in the Merger by virtue of
ownership of outstanding shares of Company
Capital Stock unless so otherwise agreed
by certain Stockholders.
(c) On the Closing Date or promptly
thereafter, the Stockholders will
surrender the certificates representing
their Company Capital Stock (the
"Certificates") to the Exchange Agent for
cancellation together with a letter of
transmittal in such form and having such
provisions as Buyer may reasonably
request. Buyer shall provide such letter
of transmittal to the Stockholders on the
Closing Date or as promptly thereafter as
practicable. Upon surrender of a
Certificate for cancellation to the
Exchange Agent, together with such letter
of transmittal, duly completed and validly
executed in accordance with the
instructions thereto, the Exchange Agent
will promptly deliver to the holder of
such Certificate in exchange therefor a
certificate representing the number of
whole shares of Buyer Common Stock (less
the number of shares of Buyer Common Stock
to be deposited in the Escrow Fund on such
holder's behalf pursuant to
Section 1.8.7(b) and Article VII) to which
such Stockholder is entitled pursuant to
Section 1.8.1, and the Certificate so
surrendered shall forthwith be canceled.
Until so surrendered, each outstanding
Certificate that, prior to the Effective
Time, represented shares of Company
Capital Stock will be deemed from and
after the Effective Time, for all
corporate purposes, other than the payment
of dividends, to evidence only the right
to receive the number of full shares of
Buyer Common Stock into which such shares
of Company Capital Stock shall have been
converted pursuant to this Article I
(except as may otherwise
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<PAGE>
be provided under the DGCL with respect to
Dissenting Shares), together with any cash in
lieu of fractional shares. As soon as
practicable after the Effective Time, and subject
to and in accordance with the provisions of
Article VII hereof, Buyer shall cause to
be distributed to the Escrow Agent (as
defined in Article VII) a certificate or
certificates representing that number of
shares of Buyer Common Stock equal to the
Escrow Amount, which shall be registered
in the name of the Escrow Agent. Such
shares shall be beneficially owned by the
holder on whose behalf such shares were
deposited in the Escrow Fund and shall be
available to compensate Buyer as provided
in Article VII.
(d) No dividends or other distributions
declared or made after the Effective Time
with respect to Buyer Common Stock with a
record date after the Effective Time will
be paid to any holder of any unsurrendered
Certificate with respect to the shares of
Buyer Common Stock represented thereby
until the holder of record of such
Certificate shall surrender such
Certificate. Subject to applicable law,
following surrender of any such
Certificate, there shall be paid to the
record holder of the certificates
representing whole shares of Buyer Common
Stock issued in exchange therefor, without
interest, at the time of such surrender,
the amount of dividends or other
distributions with a record date after the
Effective Time theretofore paid with
respect to such whole shares of Buyer
Common Stock.
(e) If any certificate for shares of Buyer
Common Stock is to be issued in a name
other than that in which the certificate
surrendered in exchange therefor is
registered, it will be a condition to the
issuance thereof that the certificate so
surrendered will be properly endorsed and
otherwise in proper form for transfer and
that the person requesting such exchange
will have paid to Buyer or any agent
designated by it any transfer or other
taxes required by reason of the issuance
of a certificate for shares of Buyer
Common Stock in any name other than that
of the registered holder of the
certificate surrendered, or established to
the satisfaction of Buyer or any agent
designated by it that such tax has been
paid or is not payable.
(f) In the event any certificates evidencing
shares of Company Capital Stock shall have
been lost, stolen or destroyed, the
Exchange Agent shall issue in exchange for
such lost, stolen or destroyed
certificates, upon the making of an
affidavit of that fact by the holder
thereof, the number of shares of Buyer
Common Stock, if any, as may be required
pursuant to Section 1.8.1; provided,
however, that Buyer may, in its discretion
and as a condition precedent to the
issuance thereof, require the owner of
such lost,
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stolen or destroyed certificates to
deliver a bond in such sum as it may
reasonably direct against any claim that
may be made against Buyer or the Exchange
Agent with respect to the certificates
alleged to have been lost, stolen or
destroyed.
(g) Notwithstanding anything to the contrary
in this Section 1.8, none of the Exchange
Agent, the Surviving Corporation or any
party hereto shall be liable to a holder
of shares of Buyer Common Stock or Company
Capital Stock for any amount properly paid
to a public official pursuant to any
applicable abandoned property, escheat or
similar law.
(h) All shares of Buyer Common Stock issued
upon the surrender for exchange of shares
of Company Capital Stock in accordance
with the terms hereof shall be deemed to
be issued in full satisfaction of all
rights pertaining to such shares of
Company Capital Stock, and there shall be
no further registration of transfers on
the records of the Surviving Corporation
of shares of Company Capital Stock that
were outstanding immediately prior to the
Effective Time. If, after the Effective
Time, Certificates are presented to the
Surviving Corporation for any reason, they
shall be canceled and exchanged as
provided in this Article I.
(i) Dissenting Shares, if any, after payments
of fair value in respect thereto have been
made to dissenting Stockholders of the
Company pursuant to the DGCL and this
Article I, shall be canceled.
1.8.8. TAX CONSEQUENCES. It is intended by the parties
hereto that the Merger shall constitute a
reorganization within the meaning of Section 368 of
the Code. Each party has consulted with its own
tax advisors with respect to the tax consequences
of the Merger.
1.8.9. FURTHER ASSURANCES. If, at any time after the
Effective Time, any further action is necessary or
desirable to consummate the Merger, to carry out
the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and
possession to all assets, property, rights,
privileges, powers and franchises of the Company
and Merger Sub, the officers and directors of the
Company and Buyer are fully authorized in the name
of their respective corporations or otherwise to
take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer, subject to such
exceptions as are specifically disclosed in the disclosure schedule referencing
the appropriate section and paragraph numbers (provided that the failure to
refer to a particular section or paragraph will not
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affect the applicability of a disclosure to such section or paragraph if the
nature of such disclosure makes reasonably clear the applicability thereof to
the subject matter of such section or paragraph) supplied by the Company to
Buyer (the "Disclosure Schedule") and dated as of the date hereof, that on
the date hereof and as of the Effective Time as though made at the Effective
Time as follows:
2.1. 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. The Company has the
corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly
qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be
so qualified would be reasonably likely to have a Material
Adverse Effect. The Company has delivered a true and correct
copy of its Certificate of Incorporation and Bylaws, each as
amended to date, to Buyer. Section 2.1 of the Disclosure
Schedule lists the directors and officers of the Company.
The operations now being conducted by the Company have not
been conducted under any other name.
2.2. SUBSIDIARIES. The Company does not have, and has never
had, any subsidiaries or affiliated companies and does not
otherwise own, and has not otherwise owned, any shares in
the capital of or any interest in, or control, directly or
indirectly, any corporation, partnership, association, joint
venture or other business entity.
2.3. COMPANY CAPITAL STRUCTURE.
2.3.1. The authorized capital stock of the Company
consists of (i) 11,000,000 shares of Company Common
Stock, of which 2,297,096 shares were outstanding
as of March 31, 1999; (ii) 1,307,693 shares of
Series A Preferred Stock, of which 1,202,046 shares
are outstanding; (iii) 1,860,672 shares of Series B
Preferred Stock, of which 1,693,884 shares are
outstanding; and (iv) 2,500,000 shares of Series C
Preferred Stock, of which 2,000,000 shares are
outstanding. In addition, there are outstanding
warrants exercisable for 120,000 shares of Common
Stock and 22,000 shares of Series C Preferred
Stock. The Company Capital Stock is held by the
persons, with the domicile addresses and in the
amounts set forth in Section 2.3.1 of the
Disclosure Schedule. All outstanding shares of
Company Capital Stock are duly authorized, validly
issued, fully paid and nonassessable and not
subject to preemptive rights created by statute,
the Certificate of Incorporation or Bylaws of the
Company or any agreement to which the Company is a
party or by which it is bound and have been issued
in compliance with federal and state securities
laws. There are no declared or accrued unpaid
dividends with respect to any shares of the Company
Capital Stock. The Company has no other capital
stock authorized, issued or outstanding.
2.3.2. Except for the Company Option Plan, the Company has
never adopted or maintained any stock option plan
or other plan providing for equity
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compensation of any person. The Company has
reserved 2,261,500 shares of Company Capital Stock
for issuance to employees and consultants pursuant
to the Company Option Plan. Of such shares, as of
March 31, 1999, 537,958 have been issued upon
exercise of Company Options and 893,608 shares are
subject to outstanding unexercised options. Section
2.3.2.1 of the Disclosure Schedule sets forth for
each outstanding Company Option, the name of the
holder of such option, the domicile address of such
holder, the number and class or series of shares of
Company Capital Stock subject to such option, the
exercise price of such option, the vesting schedule
for such option, including the extent vested to
date and whether the exercisability of such option
will be accelerated by the transactions
contemplated by this Agreement, and whether such
option is intended to qualify as an incentive stock
option as defined in Section 422 of the Code.
Except for the Company Options as set forth in
Section 2.3.2.2 of the Disclosure Schedule, there
are no options, warrants, calls, convertible
securities (other than the Company Preferred
Stock), exchangeable securities, rights,
commitments or agreements of any character, written
or oral, to which the Company is a party or by
which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed,
any shares of Company Capital Stock or obligating
the Company to grant, extend, accelerate the
vesting of, change the price of, otherwise amend or
enter into any such option, warrant, call,
convertible security, exchangeable security, right,
commitment or agreement. Except as set forth on
Section 2.3.2.3 of the Disclosure Schedule, there
is no outstanding Company Capital Stock which is
subject to vesting. Section 2.3.2.3 of the
Disclosure Schedule sets forth the name of the
holder of any Company Capital Stock subject to
vesting, the number of shares of Company Capital
Stock subject to vesting and the vesting schedule
for such Company Capital Stock, including the
extent vested to date and whether the vesting of
such shares of Company Capital Stock will be
accelerated by the transactions contemplated by
this Agreement.
2.3.3. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation,
or other similar rights with respect to the
Company. The Company is not a party to and, to the
Company's knowledge, there are no voting trusts,
proxies, or other agreements or understandings with
respect to the voting stock of the Company.
2.3.4. As a result of the Merger, Buyer will be the record
and sole beneficial owner of all outstanding
Company Capital Stock and all rights to acquire or
receive any Company Capital Stock, whether or not
such Company Capital Stock is outstanding.
2.4. AUTHORITY. The Company has all requisite power and
authority to enter into this Agreement and the Related
Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution
and delivery of
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this Agreement and any Related Agreements to which it is a
party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, and
no further action is required on the part of the Company to
authorize this Agreement, any Related Agreements to which
it is a party and the transactions contemplated hereby and
thereby, subject only to the approval of this Agreement by
the Stockholders and the receipt of required third party
consents (which material third party consents are identified
in Section 2.6 of the Disclosure Schedule). This Agreement,
the Merger and any Related Agreements to which the Company
is a party have been unanimously approved by the Board of
Directors of the Company. This Agreement has been, and any
Related Agreements to which the Company is a party have been
or will have been prior to the Effective Time, duly executed
and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding
obligation of the Company, enforceable in accordance with
their respective terms, except as such enforceability may be
limited by principles of public policy and subject to the
laws of general application relating to bankruptcy,
insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other
equitable remedies.
2.5. NO CONFLICT. Except as set forth in Section 2.5 of the
Disclosure Schedule, the execution and delivery of this
Agreement and any Related Agreements to which it is party by
the Company do not, and, the consummation of the
transactions contemplated hereby and thereby will not,
conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation,
modification or acceleration of any obligation or loss of
any benefit (any such event, a "Conflict") under (i) any
provision of the Certificate of Incorporation and Bylaws of
the Company, (ii) any mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession,
franchise or license to which the Company or any of its
properties or assets are subject, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets;
except for a Conflict under subsection (ii) or (iii) above
that would not have a Material Adverse Effect on the Company
or on the ability of the parties to consummate the Merger or
the other transactions contemplated by this Agreement and
the Related Agreements.
2.6. CONSENTS. Except as set forth in Section 2.6 of the
Disclosure Schedule, no consent, waiver, approval, order or
authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or
other federal, state, county, local or other foreign
governmental authority, instrumentality, agency or
commission ("Governmental Entity") or any third party,
including a party to any agreement with the Company (so as
not to trigger any Conflict), is required by or with respect
to the Company in connection with the execution and delivery
of this Agreement and any Related Agreements to which the
Company is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i)
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<PAGE>
such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required
under applicable securities laws, (ii) any applicable
filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iii)
the filing of the Merger Agreement with the Secretary of
State of the State of Delaware, (iv) the approval of the
Merger by the Company's Stockholders, (v) any other filings
or approvals as may be required under Delaware state law,
and (vi) consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings
which, if not obtained or made, would not have a Material
Adverse Effect on the Company or on the ability of the
parties to consummate the Merger or the other transactions
contemplated by this Agreement.
2.7. COMPANY FINANCIAL STATEMENTS. Section 2.7 of the
Disclosure Schedule sets forth the Company's unaudited
balance sheets as of January 31, 1999, December 31, 1998 and
September 30, 1998 and the Company's unaudited statements of
income and cash flow for the one-month period ended
January 31, 1999, three-month period ended December 31, 1998
and the year ended September 30, 1998 (collectively, the
"Financials"). The Financials are correct in all material
respects and have been prepared in accordance with GAAP,
applied on a basis consistent throughout the periods
indicated and consistent with each other (except that the
interim period Financials may not contain all the notes that
may be required by GAAP). The Financials present fairly the
financial condition and operating results of the Company as
of the dates and during the periods indicated therein,
subject to normal year-end adjustments, which will not be
material in amount or significance. The Company's Balance
Sheet as of January 31, 1999 shall be hereinafter referred
to as the "Current Balance Sheet."
2.8. NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 2.8 of the Disclosure Schedule, the Company has no
liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether
accrued, absolute, contingent, matured, unmatured or
otherwise (collectively, "Contingent Liabilities") (whether
or not required to be reflected in financial statements in
accordance with GAAP), other than (i) Contingent Liabilities
that are reserved or otherwise reflected expressly in the
Current Balance Sheet and (ii) Contingent Liabilities that
have arisen in the ordinary course of business consistent
with past practices since January 31, 1999 (which, in the
aggregate, are not material in amount or significance).
2.9. NO CHANGES. Except as set forth in Section 2.9 of the
Disclosure Schedule or as contemplated by this Agreement or
the Related Agreements, from January 31, 1999 through the
date of this Agreement, there has not been, occurred or
arisen any:
(a) amendments or changes to the Certificate
of Incorporation or Bylaws of the Company;
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<PAGE>
(b) capital expenditure or commitment by the
Company, either individually exceeding
$50,000 or in the aggregate exceeding
$100,000;
(c) destruction of, damage to or loss of any
material assets, business or customer of
the Company (whether or not covered by
insurance);
(d) labor trouble or claim of wrongful
discharge or other unlawful labor practice
or action;
(e) change in accounting methods or practices
(including any change in depreciation,
revenue recognition or amortization
policies or rates) by the Company;
(f) revaluation by the Company of any of its
assets;
(g) declaration, setting aside or payment of a
dividend or other distribution with
respect to the Company Capital Stock or
any direct or indirect redemption,
purchase or other acquisition by the
Company of Company Capital Stock;
(h) increase in the salary or other
compensation payable or to become payable
by the Company to any of its officers,
directors, employees or advisors, or the
declaration, payment or commitment or
obligation of any kind for the payment, by
the Company, of a bonus or other
additional salary or compensation to any
such person;
(i) any agreement, contract, covenant,
instrument, lease, license or commitment
to which the Company is a party or by
which it or any of its assets are bound or
any termination, extension, amendment or
modification of the terms of any
agreement, contract, covenant, instrument,
lease, license or commitment to which the
Company is a party or by which it or any
of its assets are bound other than in the
ordinary course of the Company's business,
consistent with past practice;
(j) sale, lease, license or other disposition
of any of the assets or properties of the
Company or any creation of any security
interest in such assets or properties
other than in the ordinary course of the
Company's business, consistent with past
practice;
(k) loan by the Company to any person or
entity, incurring by the Company of any
indebtedness, guaranteeing by the Company
of any indebtedness, issuance or sale of
any debt securities of the Company or
guaranteeing of any debt securities of
others, except for advances to employees
for travel and business expenses in the
ordinary course of business, consistent
with past practice;
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<PAGE>
(l) incurrence by the Company of any liability
in excess of $50,000 individually or
$100,000 in the aggregate;
(m) waiver or release of any right or claim of
the Company including any write-off or
other compromise of any account receivable
of the Company (other than compromises of
invoices with customers in the ordinary
course of business consistent with past
practice, which compromises are not in the
aggregate material in amount or
significance);
(n) the commencement or notice or threat of
any lawsuit or proceeding or investigation
against the Company or its affairs;
(o) notice of any claim or potential claim of
ownership by any person other than the
Company of the Company Intellectual
Property (as defined in Section 2.13) or
of infringement by the Company of any
other person's Intellectual Property (as
defined in Section 2.13);
(p) issuance or sale, or contract to issue or
sell, by the Company of any shares of
Company Capital Stock or securities
exchangeable, convertible or exercisable
therefor, or any securities, warrants,
options or rights to purchase any of the
foregoing, except for options to purchase
capital stock of the Company granted to
employees of and consultants to the
Company in the ordinary course of business
consistent with past practice;
(q) (i) selling or entering into any material
license agreement with respect to the
Company Intellectual Property with any
third party or (ii) buying or entering
into any material license agreement with
respect to the Intellectual Property of
any third party;
(r) any event or condition of any character
that has had a Material Adverse Effect on
the Company;
(s) any transaction by the Company except in
the ordinary course of business as
conducted on that date and consistent with
past practices; or
(t) negotiation or agreement by the Company or
any officer thereof to do any of the
things described in the preceding clauses
(a) through (s) (other than negotiations
with Buyer and its representatives
regarding the transactions contemplated by
this Agreement).
2.10. TAX MATTERS.
2.10.1. DEFINITION OF TAXES. For the purposes of this
Agreement, "Tax" or, collectively, "Taxes", means
(i) any and all federal, state, local and foreign
taxes, assessments and other governmental charges,
duties, impositions
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and liabilities, including taxes based upon or
measured by gross receipts, income, profits, sales,
use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes,
together with all interest, penalties and additions
imposed with respect to such amounts; (ii) any
liability for the payment of any amounts of the type
described in clause (i) as a result of being a
member of an affiliated, consolidated, combined or
unitary group for any period; and (iii) any
liability for the payment of any amounts of the
type described in clause (i) or (ii) as a result of
any express or implied obligation to indemnify any
other person or as a result of any obligations
under any agreements or arrangements with any other
person with respect to such amounts and including
any liability for taxes of a predecessor entity.
2.10.2. TAX RETURNS AND AUDITS.
(a) As of the Effective Time, the Company will
have prepared and timely filed all
required federal, state, local and foreign
returns, estimates, information statements
and reports ("Returns") relating to any
and all Taxes concerning or attributable
to the Company or its operations and such
Returns are true and correct and have been
completed in accordance with applicable
law (other than Taxes not yet due for
which adequate reserves may have been
established on the Current Balance Sheet).
(b) As of the Effective Time, the Company (A)
will have paid all Taxes it is required to
pay and will have withheld with respect to
its employees all federal and state income
taxes, Federal Insurance Contribution Act
("FICA"), Federal Unemployment Tax Act
("FUTA") and other Taxes required to be
withheld, (other than Taxes not yet due
for which adequate reserves may have been
established on the Current Balance Sheet)
and (B) will have accrued on the Current
Balance Sheet all unpaid Taxes (whether or
not due) attributable to all periods
through the date of the Current Balance
Sheet and will not have incurred any
liability for Taxes for the period from
the date of the Current Balance Sheet to
the Effective Time other than in the
ordinary course of business, consistent
with past practice.
(c) The Company has not been delinquent in the
payment of any Tax (other than items for
which adequate reserves may have been
established on the Current Balance Sheet)
nor is there any Tax deficiency
outstanding, assessed or proposed against
the Company, nor has the Company executed
any waiver of any statute of limitations
on or extending the period for the
assessment or collection of any Tax.
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<PAGE>
(d) No audit or other examination of any
Return of the Company is presently in
progress, nor has the Company been
notified of any request for such an audit
or other examination.
(e) No adjustment relating to any Returns
filed by the Company has been proposed
formally or informally by any Tax
authority to the Company or any
representative thereof.
(f) The Company has no liabilities for unpaid
federal, state, local and foreign Taxes
which have not been accrued or reserved
against in accordance with GAAP on the
Current Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and
the Company has not incurred any liability
for Taxes since the date of the Current
Balance Sheet other than in the ordinary
course of business, consistent with past
practice.
(g) The Company has made available to Buyer or
its legal counsel, copies of all foreign,
federal and state income and all state
sales and use Returns for the Company
filed for all periods since its inception.
(h) There are (and immediately following the
Effective Time there will be) no liens,
pledges, charges, claims, restrictions on
transfer, mortgages, security interests or
other encumbrances of any sort
(collectively, "Liens") on the assets of
the Company relating to or attributable to
Taxes other than Liens for Taxes not yet
due and payable.
(i) None of the Company's assets are treated
as "tax-exempt use property," within the
meaning of Section 168(h) of the Code.
(j) The Company is not subject to any
contract, agreement, plan or arrangement,
including but not limited to the
provisions of this Agreement, covering any
employee or former employee of the
Company that, individually or
collectively, could give rise to the
payment of any amount that would not be
deductible by the Company as an expense
under applicable law (including, without
limitation, Sections 280G, 404 and 162(m)
of the Code).
(k) The Company has not filed any consent
agreement under Section 341(f) of the Code
or agreed to have Section 341(f)(4) of the
Code apply to any disposition of a
subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by
the Company.
(l) The Company is not a party to any tax
sharing, indemnification or allocation
agreement nor does the Company owe any
amount under any such agreement.
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<PAGE>
(m) The Company is not, and has not been at
any time, a "United States Real Property
Holding Corporation" within the meaning of
Section 897(c)(2) of the Code.
2.11. RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
Section 2.11 of the Disclosure Schedule, to the Company's
Knowledge, there is no agreement (noncompete or otherwise),
commitment, judgment, injunction, order or decree to which
the Company is a party or otherwise binding upon the Company
which has or may have the effect of prohibiting or impairing
any business practice of the Company, any acquisition of
property (tangible or intangible) by the Company or the
conduct of business as currently run by the Company. Without
limiting the foregoing, the Company has not entered into any
agreement under which the Company is restricted from
selling, licensing or otherwise distributing any of its
technology or products to or providing services to,
customers or potential customers or any class of customers,
in any geographic area, during any period of time or in any
segment of the market.
2.12. TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES;
CONDITION OF EQUIPMENT.
2.12.1. The Company does not own any real property, and has
never owned any real property. Section 2.12.1 of
the Disclosure Schedule sets forth a list of all
real property currently leased by the Company, the
name of the lessor and the date of the lease and
each amendment thereto. All such current leases are
in full force and effect, are valid and effective
in accordance with their respective terms, and
there is not, under any of such leases, any
existing default or event of default (or event
which with notice or lapse of time, or both, would
constitute a default).
2.12.2. The Company has good and valid title to, or, in the
case of leased properties and assets, valid
leasehold interests in, all of its tangible
properties and assets, real, personal and mixed,
used or held for use in its business, free and
clear of any Liens, except as reflected in the
Current Balance Sheet and except for Liens for
Taxes not yet due and payable and such
imperfections of title and encumbrances, if any,
which are not material in character, amount or
extent, and which do not detract from the value, or
interfere with the present use, of the property
subject thereto or affected thereby.
2.12.3. All material items of equipment (the "Equipment")
owned or leased by the Company are (i) adequate for
the conduct of the business of the Company as
currently conducted and (ii) in acceptable
operating condition, regularly and properly
maintained, subject to normal wear and tear.
2.12.4. The Company has not transferred rights to customer
or end-user files or other customer or end-user
information it compiles relating to customers or
end-users of the Company's current and former
customers or end-users
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(the "Customer Information"). To the Company's
Knowledge, no person other than the Company
possesses any claims or rights with respect to use
of the Customer Information.
2.13. INTELLECTUAL PROPERTY.
2.13.1. For the purposes of this Agreement, the following
terms have the following definitions:
(a) "Intellectual Property" shall mean any or
all of the following and all rights in,
arising out of, or associated therewith:
(i) all United States and foreign patents
and applications therefor and all
reissues, divisions, renewals, extensions,
provisionals, continuations and
continuations-in-part thereof; (ii) all
inventions (whether patentable or not),
invention disclosures, improvements, trade
secrets, proprietary information, know
how, technology, technical data and
customer lists, and all documentation
relating to any of the foregoing; (iii)
all copyrights, copyrights registrations
and applications therefor and all other
rights corresponding thereto throughout
the world; (iv) all mask works, mask work
registrations and applications therefor;
(v) all industrial designs and any
registrations and applications therefor
throughout the world; (vi) all trade
names, logos, common law trademarks and
service marks; trademark and service mark
registrations and applications therefor
and all goodwill associated therewith
throughout the world; (vii) all databases
and data collections and all rights
therein throughout the world; (viii) all
computer software including all source
code, object code, firmware, development
tools, files, records and data, all media
on which any of the foregoing is recorded,
all Internet and Worldwide Web addresses,
URLs, sites and domain names; (ix) any
similar, corresponding or equivalent
rights to any of the foregoing; and (x)
all documentation related to any of the
foregoing.
(b) "Company Intellectual Property" shall mean
any Intellectual Property that is owned by
or exclusively licensed to the Company.
(c) "Registered Intellectual Property" shall
mean all United States, international and
foreign: (i) patents, patent applications
(including provisional applications); (ii)
registered trademarks, applications to
register trademarks, intent-to-use
applications, or other registrations or
applications related to trademarks; (iii)
registered copyrights and applications for
copyright registration; (iv) any mask work
registrations and applications to register
mask works; and (v) any other Company
Intellectual Property that is the subject
of an application, certificate, filing,
registration or other document
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issued by, filed with, or recorded by, any
state, government or other public legal
authority.
2.13.2. Section 2.13.2 of the Disclosure Schedule lists all
Registered Intellectual Property owned by, or filed
in the name of, the Company (the "Company
Registered Intellectual Property") and lists any
proceedings or actions before any court, tribunal
(including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere
in the world) related to any of the Company
Registered Intellectual Property Rights.
2.13.3. Except as set forth in Section 2.13.3 of the
Disclosure Schedule, each item of Company
Intellectual Property, including all Company
Registered Intellectual Property listed in Section
2.13.3 of the Disclosure Schedule and all
Intellectual Property licensed to the Company, is
free and clear of any Liens other than subject to
existing UCC's, which UCC's are listed on Section
2.13.3 of the Disclosure Schedule. The Company has
rights to the trademarks, trade names and
copyrights used in connection with the operation or
conduct of the business of the Company that are
sufficient to enable the Company to conduct its
business as the business is currently conducted,
including the sale of any products or technology or
the provision of any services by the Company (other
than with respect to products acquired from third
parties). The Company, to its knowledge, owns
exclusively, and has good title to, all copyrighted
works that are Company products or other works of
authorship that the Company otherwise purports to
own.
2.13.4. To the extent that any Intellectual Property has
been developed or created by any person other than
the Company for which the Company has, directly or
indirectly, paid, the Company has a written
agreement with such person with respect thereto and
the Company thereby has obtained ownership of, and
is the exclusive owner of, by operation of law or
by valid assignment, all such Intellectual
Property.
2.13.5. Except as set forth in Section 2.13.5 of the
Disclosure Schedule, the Company has not
transferred ownership of or granted any license of
or right to use or authorized the retention of any
rights to use any Intellectual Property that is or
was Company Intellectual Property, to any other
person.
2.13.6. The Company Intellectual Property constitutes all
the Intellectual Property used in and/or necessary
to the conduct of its business as it currently is
conducted, including, without limitation, the
design, development, manufacture, use, import and
sale of the products, technology and services of
the Company (including products, technology or
services currently under development).
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<PAGE>
2.13.7. Except as listed in Section 2.13.7 of the
Disclosure Schedule, to the Company's Knowledge, no
person who has licensed Intellectual Property from
the Company has ownership in such Intellectual
Property.
2.13.8. To the Company's Knowledge, Section 2.13.8 of the
Disclosure Schedule lists all contracts, licenses
and agreements between the Company and any other
person wherein or whereby the Company has agreed
to, or assumed, any obligation or duty to assume or
incur any obligation or liability or provide a
right of rescission with respect to the
infringement or misappropriation by the Company or
such other person of the Intellectual Property of
any person other than the Company.
2.13.9. To the Company's Knowledge, the operation of the
business of the Company as it currently is
conducted, including but not limited to the
Company's design, development, use, import,
manufacture and sale of the Company's website and
the Company's products, technology or services
(including portions of the Company's website or the
Company's products, technology or services
currently under development) does not infringe or
misappropriate any Intellectual Property of any
person, violate the rights of any person (including
rights to privacy or publicity), or constitute
unfair competition or trade practices under the
laws of any jurisdiction. The Company has not
received any notice from any person that the
operation of the business of the Company as it
currently is conducted, including but not limited
to the Company's design, development, use, import,
manufacture and sale of the products, technology or
services (including products, technology or
services currently under development) of the
Company infringes or misappropriates the
Intellectual Property (other than trademarks, trade
names and service marks) of any person or
constitutes unfair competition or trade practices
under the laws of any jurisdiction.
2.13.10. All necessary registration, maintenance
and renewal fees in connection with such Registered
Intellectual Property have been paid and all
necessary documents and certificates in connection
with such Company Registered Intellectual Property
have been filed with the relevant patent,
copyright, trademark or other authorities in the
United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such
Registered Intellectual Property.
2.13.11. To the Company's knowledge, there are no
contracts, licenses or agreements between the
Company and any other person with respect to
Company Intellectual Property under which there is
any dispute known to the Company regarding the
scope of such agreement, or performance under such
agreement including with respect to any payments to
be made or received by the Company thereunder.
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2.13.12. To the Company's Knowledge, as of the date
of this Agreement, no person is infringing or
misappropriating any Company Intellectual Property.
2.13.13. The Company has, and enforces, a policy
requiring each employee, consultant and contractor
to execute proprietary information, confidentiality
and assignment agreements substantially in the
Company's standard forms, and all current
employees, consultants and contractors of the
Company have executed such an agreement.
2.13.14. To the Company's Knowledge, as of the date
of this Agreement, no Company Intellectual Property
or product, technology or service of the Company,
including its website, is subject, or may
reasonably be expected to become subject to, any
proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any
manner the use, transfer or licensing thereof by
the Company or may affect the validity, use or
enforceability of such Company Intellectual
Property.
2.13.15. To the Company's Knowledge, no: (i)
product, technology, service or publication of the
Company, including its website, (ii) material
published or distributed by the Company, including
its website, or (iii) conduct or statement of
Company constitutes obscene material, a defamatory
statement or material false advertising.
2.13.16. Except as set forth in Section 2.13.16 of
the Disclosure Schedule, all of the Company's
products (including its website and products
currently under development) will record, store,
process, calculate and present calendar dates
falling on and after (and if applicable, spans of
time including) January 1, 2000, and will calculate
any information dependent on or relating to such
dates in the same manner, and with the same
functionality, data integrity and performance, as
the products record, store, process, calculate and
present calendar dates on or before December 31,
1999, or calculate any information dependent on or
relating to such dates.
2.14. AGREEMENTS, CONTRACTS AND COMMITMENTS.
2.14.1. Except as set forth in Section 2.14.1 of the
Disclosure Schedule, as of the date of this
Agreement, the Company is not a party to nor is it
bound by:
(a) any employment or consulting agreements,
contracts or commitments with employees or
individual consultants or salespersons or
consulting or sales agreements, contracts
or commitments with a firm or other
organization, which agreements, contracts
or commitments are not terminable by the
Company without further liability upon
payment in the aggregate of more than
$50,000 with respect to all such
agreements, contracts and
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commitments; and the Company has no
employment agreements providing for
employment other than on an at-will basis;
(b) any agreement or plan, including, without
limitation, any stock option plan, stock
appreciation rights plan or stock purchase
plan, any of the benefits of which will be
increased, or the vesting of benefits of
which will be accelerated, by the
occurrence of any of the transactions
contemplated by this Agreement or the
value of any of the benefits of which will
be calculated on the basis of any of the
transactions contemplated by this
Agreement;
(c) any fidelity or surety bond or completion
bond;
(d) any lease of personal property with fixed
annual rental payments in excess of
$100,000;
(e) any agreement, contract or commitment
containing any covenant limiting the
freedom of the Company to engage in any
line of business or to compete with any
person;
(f) any agreement, contract or commitment
relating to capital expenditures and
involving future payments in excess of
$50,000 either individually or $100,000 in
the aggregate;
(g) any agreement, contract or commitment
relating to the disposition or acquisition
of assets or any interest in any business
enterprise outside the ordinary course of
the Company's business;
(h) any mortgages, indentures, loans or credit
agreements, security agreements or other
agreements or instruments relating to the
borrowing of money or extension of credit;
(i) any purchase order or contract for the
purchase of materials involving in excess
of $50,000 individually or $100,000 in the
aggregate;
(j) any construction contracts;
(k) any agreement for the provision of
advertising content or space or for the
licensing of content from third parties
for inclusion in the Company's website, or
any other dealer, distribution, joint
marketing or development agreement;
(l) any sales representative, original
equipment manufacturer, value added
reseller, remarketer or other agreement
for distribution of the Company's products
or services; or
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(m) any other agreement, contract or
commitment that involves $100,000 or more
or is not cancelable without penalty
within forty-five (45) days.
2.14.2. To its knowledge, the Company is in compliance with
and has not breached, violated or defaulted under,
or received notice that it has breached, violated
or defaulted under, any of the terms or conditions
of any agreement, contract, covenant, instrument,
lease, license or commitment to which the Company
is a party or by which it is bound (collectively a
"Contract"), nor is the Company aware of any event
that would constitute such a breach, violation or
default with the lapse of time, giving of notice or
both. Each Contract is in full force and effect and
is not subject to any default thereunder by any
party obligated to the Company pursuant thereto.
2.15. INTERESTED PARTY TRANSACTIONS. No officer, director or
Stockholder of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust,
partnership or corporation in which any of such persons has
or has had an interest), has or has had, directly or
indirectly, (i) an interest in any entity which furnished or
sold, or furnishes or sells, services, products or
technology that the Company furnishes or sells, or proposes
to furnish or sell, or (ii) any interest in any entity that
purchases from or sells or furnishes to the Company any
goods or services, or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly
traded corporation shall not be deemed an "interest in any
entity" for purposes of this Section 2.15.
2.16. GOVERNMENTAL AUTHORIZATION. The Company has obtained all
necessary consents, licenses, permits, grants or other
authorizations necessary to operate or conduct its business
as currently conducted or hold any interest in its
properties or assets (collectively "Company
Authorizations").
2.17. LITIGATION. There is no action, suit or proceeding of any
nature pending nor has the Company received notice (oral or
written) of any actions, suits or proceedings threatened
against the Company, its properties or any of its officers
or directors, nor to the Company's Knowledge as of the date
of this Agreement is there any reasonable basis therefor. To
the Company's Knowledge, there is no investigation pending
or threatened against the Company, its properties or any of
its officers or directors by or before any Governmental
Entity, nor to the Company's Knowledge as of the date of
this Agreement is there any reasonable basis therefor. No
Governmental Entity has at any time challenged or questioned
the legal right of the Company to conduct its operations as
presently or previously conducted.
2.18. ACCOUNTS RECEIVABLE. All accounts receivable, including,
without limitation, all accounts receivable derived from
advertising, charter sponsorships and merchandise sales of
the Company arose in the ordinary course of business, are
carried at values determined in accordance with GAAP
consistently applied and
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are collectible except to the extent of reserves therefor
set forth in the Current Balance Sheet. No person has any
lien, encumbrance or other similar right with respect to any
of such accounts receivable and no request or agreement for
deduction or discount has been made with respect to any of
such Accounts Receivable.
2.19. MINUTE BOOKS. The minutes of the Company made available to
counsel for Buyer are the only minutes of the Company and
contain a reasonably accurate summary of all meetings of the
Board of Directors (or committees thereof) of the Company
and its Stockholders or actions by written consent since the
incorporation of the Company.
2.20. ENVIRONMENTAL MATTERS.
2.20.1. To the Company's knowledge, the Company has not
transported, stored, used, manufactured, disposed
of, released or exposed its employees or others to
Hazardous Materials in violation of any law in
effect on or before the Effective Time, nor has the
Company disposed of, transported, sold, or
manufactured any product containing a Hazardous
Material (any or all of the foregoing being
collectively referred to as "Hazardous Materials
Activities") in violation of any rule, regulation,
treaty or statute promulgated by any Governmental
Entity in effect prior to or as of the date hereof
to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
2.20.2. To the Company's knowledge, the Company currently
holds all environmental approvals, permits,
licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct
of the Company's Hazardous Material Activities,
respectively, and other businesses of the Company
as such activities and businesses are currently
being conducted.
2.20.3. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is
pending nor has the Company received notice (oral
or written) of any action, proceeding, revocation
proceeding, amendment procedure, writ, injunction
or claim threatened concerning any Environmental
Permit, Hazardous Material or any Hazardous
Materials Activity of the Company.
2.21. BROKERS' AND FINDERS' FEES; THIRD PARTY EXPENSES. Except as
set forth in Section 2.21 of the Disclosure Schedule, the
Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
Section 2.21 of the Disclosure Schedule sets forth the
principal terms and conditions of any agreement, written or
oral, with respect to such fees. Section 2.21 of the
Disclosure Schedule also sets forth the Company's current
estimate of Third Party Expenses (as defined in Section
5.4.1) expected to be incurred by the Company in connection
with the negotiation and
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effectuation of the terms and conditions of this Agreement
and the transactions contemplated hereby.
2.22. EMPLOYEE MATTERS AND BENEFIT PLANS.
2.22.1. DEFINITIONS. With the exception of the definition
of "Affiliate" set forth in Section 2.22.1(a) below
(which definition shall apply only to this Section
2.22), for purposes of this Agreement, the
following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean any other person or
entity under common control with the
Company within the meaning of Section
414(b), (c), (m) or (o) of the Code and
the regulations issued thereunder;
(b) "Company Employee Plan" shall mean any
plan, program, policy, practice, contract,
agreement or other arrangement providing
for compensation, severance, termination
pay, deferred compensation, performance
awards, stock or stock-related awards,
fringe benefits or other employee benefits
or remuneration of any kind, whether
written or unwritten or otherwise, funded
or unfunded, including without
limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of
ERISA which is or has been maintained,
contributed to, or required to be
contributed to, by the Company or any
Affiliate for the benefit of any Employee,
or with respect to which the Company or
any Affiliate has or may have any
liability or obligation;
(c) "COBRA" shall mean the Consolidated
Omnibus Budget Reconciliation Act of 1985,
as amended;
(d) "DOL" shall mean the Department of Labor;
(e) "Employee" shall mean any current or
former employee, consultant or director of
the Company or any Affiliate;
(f) "Employee Agreement" shall mean each
management, employment, severance,
consulting, relocation, repatriation,
expatriation, visas, work permit or other
agreement, contract or understanding
between the Company or any Affiliate and
any Employee;
(g) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended;
(h) "FMLA" shall mean the Family Medical Leave
Act of 1993, as amended;
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(i) "International Employee Plan" shall mean
each Company Employee Plan that has been
adopted or maintained by the Company or
any Affiliate, whether informally or
formally, or with respect to which the
Company or any Affiliate will or may have
any liability, for the benefit of
Employees who perform services outside the
United States;
(j) "IRS" shall mean the Internal Revenue
Service;
(k) "Multiemployer Plan" shall mean any
"Pension Plan" (as defined below) which is
a "multiemployer plan," as defined in
Section 3(37) of ERISA;
(l) "PBGC" shall mean the Pension Benefit
Guaranty Corporation; and
(m) "Pension Plan" shall mean each Company
Employee Plan which is an "employee
pension benefit plan," within the meaning
of Section 3(2) of ERISA.
2.22.2. SCHEDULE. Schedule 2.22.2 contains an accurate and
complete list of each Company Employee Plan. The
Company has no agreements with employees other than
the offer letters substantially similar in form to
that previously provided to the Buyer. The Company
does not have any plan or commitment to establish
any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or
Employee Agreement (except to the extent required
by law or to conform any such Company Employee Plan
or Employee Agreement to the requirements of any
applicable law, in each case as previously
disclosed to Buyer in writing, or as required by
this Agreement), or to enter into any Company
Employee Plan or Employee Agreement.
2.22.3. DOCUMENTS. The Company has provided to Buyer: (i)
correct and complete copies of all documents
embodying each Company Employee Plan and each
Employee Agreement including (without limitation)
all amendments thereto and all related trust
documents; (ii) the most recent annual actuarial
valuations, if any, prepared for each Company
Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules
and financial statements attached thereto), if any,
required under ERISA or the Code in connection with
each Company Employee Plan; (iv) if the Company
Employee Plan is funded, the most recent annual and
periodic accounting of Company Employee Plan
assets; (v) the most recent summary plan
description together with the summary(ies) of
material modifications thereto, if any, required
under ERISA with respect to each Company Employee
Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and all
applications and correspondence to or from the IRS
or the DOL with respect to any such application or
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letter; (vii) all material written agreements and
contracts relating to each Company Employee Plan,
including, but not limited to, administrative
service agreements, group annuity contracts and
group insurance contracts; (viii) all
communications material to any Employee or
Employees relating to any Company Employee Plan and
any proposed Company Employee Plans, in each case,
relating to any amendments, terminations,
establishments, increases or decreases in benefits,
acceleration of payments or vesting schedules or
other events which would result in any liability to
the Company; (ix) all correspondence to or from any
governmental agency relating to any Company
Employee Plan; (x) all COBRA forms and related
notices; (xi) all policies pertaining to fiduciary
liability insurance covering the fiduciaries for
each Company Employee Plan; (xii) all
discrimination tests for each Company Employee Plan
for the most recent plan year, if required; and
(xiii) all registration statements, annual reports
Form 11-K and all attachments thereto) and
prospectuses prepared in connection with each
Company Employee Plan.
2.22.4. EMPLOYEE PLAN COMPLIANCE. (i) The Company has
performed all material obligations required to be
performed by it under, is not in default or
violation of, and has no knowledge of any material
default or violation by any other party to each
Company Employee Plan, and each Company Employee
Plan has been established and maintained in
accordance with its terms and in material
compliance with all applicable laws, statutes,
orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) each Company
Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either
received a favorable determination, opinion,
notification or advisory letter from the IRS with
respect to each such Plan as to its qualified
status under the Code, including al