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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the period ended September 30, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number: 0-25041
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TICKETMASTER ONLINE - CITYSEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4546874
(State or other (I.R.S. Employer
jurisdiction of Identification
Incorporation or Number)
organization)
790 E. COLORADO BOULEVARD, SUITE 200, PASADENA, CA 91101
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(Address of principal executive offices)
TELEPHONE NUMBER (626) 405-0050
(Registrant's telephone number, including area code)
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 such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
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As of October 29, 1999, there were 27,942,287 shares of the Registrant's Class B
Common Stock outstanding.
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TICKETMASTER ONLINE - CITYSEARCH, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
No.
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PART I-FINANCIAL INFORMATION............................................. 3
Item 1. Financial Statements (unaudited)....................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk...................................... 13
PART II-OTHER INFORMATION................................................ 14
Item 2. Changes in Securities and Use of Proceeds.............. 14
Item 6. Exhibits and Reports on Form 8-K....................... 14
SIGNATURES............................................................... 15
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
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(unaudited) (see note 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 67,962 $ 106,910
Accounts receivable (net of allowance for doubtful accounts of $485
and $58,respectively)................................................... 3,123 1,249
Related party receivable.................................................... 1,793 813
Due from licensees.......................................................... 1,274 1,440
Prepaid expenses............................................................ 1,632 777
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Total current assets.................................................... 75,784 111,189
Computers, software, equipment and leasehold improvements, net................... 13,467 5,893
Investments...................................................................... 5,285 --
Goodwill and other intangibles, net.............................................. 700,966 299,643
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Total assets............................................................ $ 795,502 $ 416,725
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 3,011 $ 2,734
Accrued expenses............................................................ 6,713 4,551
Deferred revenue............................................................ 4,122 1,882
Current portion of capital lease obligations................................ 1,057 1,331
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Total current liabilities............................................... 14,903 10,498
Other long-term liabilities...................................................... 1,312 1,557
Capital lease obligations, net of current portion................................ 533 1,082
Stockholders' equity:
Class A Common Stock, $0.01 par value: Authorized shares --100,000,000 at
September 30, 1999 Issued and outstanding--55,321,556 and 63,291,653
at September 30, 1999 and December 31, 1998, respectively............... 553 633
Class B Common Stock--$0.01 par value: Authorized shares--250,000,000 at
September 30, 1999 Issued and outstanding--27,755,851 and 8,167,000 at
September 30, 1999 and December 31, 1998, respectively.................. 278 82
Class C Common Stock--$0.01 par value:
Authorized shares--2,883,506 at September 30, 1999
Issued and outstanding--none............................................ -- --
Additional paid-in capital.................................................. 866,385 418,918
Accumulated deficit......................................................... (88,482) (16,038)
Foreign Currency Translation................................................ 20 (7)
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Total stockholders' equity.............................................. 778,754 403,588
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Total liabilities and stockholders' equity.......................... $ 795,502 $ 416,725
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</TABLE>
See accompanying notes.
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
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1999 1998 1999 1998
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(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Ticketing operations.................................. $ 16,634 $ 4,624 $ 43,812 $10,571
Sponsorship and advertising........................... 1,800 2,111 4,009 4,555
City guide and related................................ 8,977 112 21,089 112
--------- -------- --------- -------
Total revenues...................................... 27,411 6,847 68,910 15,238
Operating costs and expenses:
Ticketing operations.................................. 12,305 2,496 32,612 5,947
City guide and related................................ 8,582 97 19,052 97
Sales and marketing................................... 13,990 362 29,569 832
Research and development.............................. 2,051 38 5,589 38
General and administrative............................ 4,087 460 9,994 1,467
Amortization of goodwill and other intangibles........ 18,606 4,027 44,294 4,027
Merger and other transactions costs................... 514 -- 3,285 --
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Total costs and expenses............................ 60,135 7,480 144,395 12,408
--------- -------- --------- -------
Income (loss) from operations........................... (32,724) (633) (75,485) 2,830
Interest income (expense) net........................... 986 (1) 3,223 (1)
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Income (loss) before income taxes....................... (31,738) (634) (72,262) 2,829
Income tax provision.................................... 49 1,482 182 2,993
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Net (loss)............................................. $ (31,787) $ (2,116) $ (72,444) $ (164)
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Basic and diluted net (loss) per share................. $ (0.41) $ (0.06) $ (0.99) $ --
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Shares used to compute basic and diluted net
(loss) per share........................................ 76,908 37,238 73,537 37,238
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</TABLE>
See accompanying notes.
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1999 1998
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(unaudited)
<S> <C> <C>
Operating activities
Net (loss)................................................................ $ (72,444) $ (164)
Adjustments to reconcile net (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization........................................... 47,075 4,175
Changes in operating assets and liabilities:
Accounts receivable................................................ (1,693) (262)
Related party receivable........................................... (980) --
Due from licensees................................................. 167 --
Prepaid expenses................................................... (286) 58
Accounts payable................................................... (763) 441
Accrued expenses................................................... 1,683 312
Deferred revenue................................................... 404 1,278
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Net cash provided by (used in) operating activities............ (26,837) 5,838
Investing activities
Capital expenditures............................................................. (7,123) (405)
Investment in Fairmarket, Inc. .................................................. (5,285) --
Acquisition transaction costs.................................................... (285) --
Deferred purchase price of subsidiary............................................ (223) --
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Net cash used in investing activities.......................... (12,916) (405)
Financing activities
Net distributions to Ticketmaster Corp...................................... -- (5,433)
Net proceeds from exercise of options and warrants.......................... 2,471 --
Payment of costs of initial public offering................................. (861) --
Payments on capital leases.................................................. (1,027) --
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Net cash provided by (used in) financing activities............ 583 (5,433)
Effect of exchange rate changes on cash & cash equivalents....................... 39 --
Net cash acquired in CitySearch Merger.......................................... -- 57,877
Net cash acquired in CityAuction Merger.......................................... 13 --
Net cash acquired in Match.com Merger............................................ 18 --
Net cash acquired in Web Media Ventures Merger................................... 152 --
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Net decrease in cash and cash equivalents........................................ (38,948) 57,877
Cash and cash equivalents at beginning of period................................. 106,910 --
--------- ---------
Cash and cash equivalents at end of period....................................... $ 67,962 $ 57,877
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</TABLE>
See accompanying notes.
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Ticketmaster Online-CitySearch, Inc. (the "Company") combined
CitySearch and Ticketmaster Online to create a leading provider of local city
guides, local advertising and live event ticketing on the Internet. The
Company has integrated its local CitySearch city guides with its Ticketmaster
Online live events ticketing and merchandise distribution capabilities to
offer online ticketing, merchandise, electronic coupons and other
transactions to a broader audience of consumers. In 1999, the Company
acquired CityAuction, Inc., an online auction company and Match.com, Inc. and
Web Media Ventures, L.L.C. both online personals companies. The Company has
integrated these acquisitions into its other online offerings.
BASIS OF PRESENTATION
Prior to the Merger (as defined below), Ticketmaster Multimedia
Holdings, Inc. (the predecessor company) ("Ticketmaster Online") was a wholly
owned subsidiary of Ticketmaster Corporation ("Ticketmaster Corp.").
Ticketmaster Corp. is a wholly owned subsidiary of Ticketmaster Group, Inc.
("Ticketmaster Group"), which is a wholly owned subsidiary of USA Networks,
Inc. ("USAi").
In July 1997, USAi acquired a controlling interest in Ticketmaster
Group through the issuance of shares of USAi common stock (the "Ticketmaster
Acquisition"). In June 1998, USAi completed its acquisition of Ticketmaster
Group in a tax-free merger (collectively with the Ticketmaster Acquisition,
the "Ticketmaster Transaction"), pursuant to which each outstanding share of
Ticketmaster Group common stock not owned by USAi was exchanged for 1.126
shares of USAi common stock. A portion of the Ticketmaster Group acquisition
cost has been allocated to the assets acquired and liabilities assumed of
Ticketmaster Online based on the fair value of the respective portion of
Ticketmaster Online acquired in the Ticketmaster Transaction.
On September 28, 1998, pursuant to an Amended and Restated Agreement
and Plan of Reorganization dated as of August 12, 1998 (the "Merger
Agreement"), by and among CitySearch, Inc. ("CitySearch"), USAi, Ticketmaster
Group, Ticketmaster Online and Tiberius, Inc., a wholly-owned subsidiary of
CitySearch, Tiberius was merged with and into Ticketmaster Online, with
Ticketmaster Online continuing as the surviving corporation and as a
wholly-owned subsidiary of CitySearch (the "Merger"). In connection with the
Merger Agreement, all issued and outstanding shares of Ticketmaster Online's
Common Stock held by Ticketmaster Corp. were converted into an aggregate of
37,238,000 shares of CitySearch Common Stock and such shares were
subsequently reclassified as Class A Common Stock of the Company. The Merger
was accounted for using the "reverse purchase" method of accounting, pursuant
to which Ticketmaster Online was treated as the acquiring entity for
accounting purposes, and the assets acquired and liabilities assumed of
CitySearch were recorded at their respective fair values. The accompanying
financial statements prior to the Merger reflect the financial position,
results of operations and cash flows of Ticketmaster Online. The accompanying
financial statements, subsequent to the Merger, include the assets and
liabilities of CitySearch and the results of operations of CitySearch from
September 29, 1998.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals)
<PAGE>
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the eleven months ended December 31, 1998.
PRO FORMA FINANCIAL DATA (UNAUDITED)
The following unaudited pro forma information presents a summary of
the results of the Company assuming the Merger, the Ticketmaster Transaction
and the tender offer by USAi to purchase shares of Common Stock from
CitySearch stockholders in connection with the Merger had all occurred as of
January 1, 1998, with pro forma adjustments to give effect to amortization of
goodwill, certain other adjustments to conform to the terms of the License
and Services Agreement dated August 12, 1998 by and among Ticketmaster Corp.,
Ticketmaster Online and USAi (the "Ticketmaster License Agreement"), and the
related income tax effects. The pro forma information also gives effect to
the Company's change in year end from January 31 to December 31. The pro
forma financial information is not necessarily indicative of the results of
operations as they would have been had the transactions occurred as of
January 1, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
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(in thousands)
<S> <C>
Revenues............................................... $ 26,555
Net loss............................................... $ (56,802)
Basic and diluted net loss per share................... $ (.92)
</TABLE>
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are determined by dividing the net
earnings (loss) by the weighted average shares of Common Stock outstanding
during the period. Diluted earnings (loss) per share are determined by
dividing the net earnings (loss) by the weighted average shares of Common
Stock outstanding plus the dilutive effects of stock options, warrants and
other convertible securities. Basic and diluted earnings (loss) per share are
the same for the nine months ended September 30, 1999 because the effects of
outstanding stock options are antidilutive. Basic and dilutive earnings
(loss) per share are the same for the nine months ended September 30, 1998
because there were no dilutive securities outstanding during those periods.
The number of shares used in computing basic and diluted earnings
(loss) per share for the nine months ended September 30, 1998 represent the
number of shares of CitySearch Common Stock exchanged in the Merger.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's balances to
conform to the current year presentation.
<PAGE>
NOTE 2 -- BUSINESS COMBINATIONS
Acquisition of CityAuction, Inc.
On March 29, 1999, the Company completed the acquisition of
CityAuction, Inc. ("CityAuction"), a person-to-person online auction
community. In connection with the acquisition, the Company issued an
aggregate of approximately 800,000 shares of its Class B Common Stock for all
the outstanding capital stock of CityAuction, Inc. representing an aggregate
purchase price of $27.2 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $28.1 million
of goodwill which is amortized over five years. The results of operations of
CityAuction are included in the accompanying statement of operations from the
date of acquisition.
Acquisition of Match.com, Inc.
On June 14, 1999, the Company completed the acquisition of
Match.com, Inc ("Match.com"), an Internet personals company. In connection
with the acquisition, the Company issued 1,924,777 shares of Class B Common
Stock to the former owners of Match.com representing a total purchase price
of approximately $43.3 million. The acquisition was accounted for using the
purchase method of accounting which resulted in approximately $42.6 million
of goodwill which is being amortized over five years. The results of
operations of Match.com are included in the accompanying statement of
operations from the date of acquisition.
Acquisition of Web Media
On September 13, 1999, the Company purchased all the outstanding
limited liability company units ("Units") of Web Media Ventures, L.L.C. ("Web
Media"). Web Media is an Internet personals company distributing its services
through a network of affiliated Internet sites. In connection with the
acquisition, the Company issued 1,204,215 million shares of Class B Common
Stock in exchange for all of the Web Media Units and became obligated to
issue $2.2 million of Class B Common Stock payable in two quarterly
installments and an additional number of shares of Class B Common Stock no
later than 270 days after the closing of the transaction. The number of
shares to be issued upon payment of the quarterly installments and contingent
consideration will be determined by dividing the value of the consideration
required to be issued by the stock price at the time of issuance subject to
certain minimum and maximum prices. The last installment is subject to
adjustment based on the achievement of certain 1999 calendar revenue targets
by Web Media. The maximum number of shares to be issued in the quarterly
installments and upon the achievement of certain revenue targets is
1,131,924. The total purchase price recorded at September 13, 1999 was $36.6
million, representing the consideration value attributed to the initial
issuance of 1,204,215 million shares of Class B Common Stock, the two
quarterly installments and that portion of the final payment which is
certain. The purchase price will be increased to reflect the additional
shares to be issued upon achievement of the revenue targets based on the
stock price at that time. The acquisition was accounted for using the
purchase method of accounting. The acquisition has resulted in $36.4 million
of goodwill being recorded initially with adjustments to be made at the
issuance of additional shares if the revenue targets are achieved. The total
amount of goodwill to be recorded will approximate the purchase price which
is being amortized by the Company over a period of five years. The results of
operations of Web Media are included in the accompanying statement of
operations from the date of acquisition. Web Media conducts operations under
the name of One and Only Networks.
Transaction Regarding Sidewalk.com
On September 18, 1999, the Company acquired certain assets associated
with the entertainment city guide (A&E) portion of the Sidewalk.com web site
("Sidewalk") from Microsoft Corporation ("Microsoft"). The Company also entered
into a four year distribution agreement with Microsoft pursuant to which the
Company will become the exclusive provider of local city guide content on the
Microsoft Network ("MSN") and the Company's internet personals Web sites will
become the premier provider of personals content to MSN. In addition, the
Company and Microsoft entered into additional cross-promotional arrangements. In
connection
<PAGE>
with these transactions, the Company issued to Microsoft 7,000,000 shares of
its Class B Common Stock and two warrants to purchase an aggregate of
4,500,000 shares of its Class B Common Stock. The first warrant for 3,000,000
shares has an initial exercise price of $30 per share, which adjusts downward
by $1/16 for each $1/16 increase in the price of the Class B Common Stock
over $30 at the time the warrant is exercised. The second warrant for
1,500,000 shares has a fixed exercise price of $60 per share of Class B
Common Stock. The Company granted Microsoft certain registration rights in
connection with the transaction. The impact of the Company's ownership of the
Sidewalk assets is included in the accompanying statement of operations from
the date the transaction closed.
The fair value of the consideration provided in exchange for the Sidewalk assets
and distribution agreement amounted to $338 million and has been recorded in
goodwill and other intangibles in the accompanying condensed consolidated
balance sheet. The Sidewalk intangible is being amortized over five years. The
distribution agreement is being amortized over four years with the amortization
expense included in sales and marketing.
Investments
In September 1999, the Company purchased a minority equity position in
FairMarket, Inc., a privately-held, online auction company in exchange for cash
and other consideration consisting of a license to FairMarket of the CityAuction
auction technology and the Company's agreement to a multi-year Auction Services
Agreement with FairMarket, Inc. The FairMarket investment will be accounted for
using the cost method of accounting.
NOTE 3-- SUBSEQUENT EVENT
Investment in foodline.com
In October 1999, the Company purchased a minority equity position in
foodline.com, Inc., a privately-held, online restaurant reservations company in
exchange for $5,000,000 cash. The Company and foodline.com also entered into a
multi-year content sharing and distribution agreement. The foodline.com
investment will be accounted for using the equity method of accounting.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE RELATED NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH
BELOW AND ELSEWHERE IN THIS REPORT. CAPITALIZED TERMS USED BELOW HAVE THE
MEANING ASCRIBED TO THEM IN THE SECTIONS ABOVE.
OVERVIEW
The Company combined CitySearch and Ticketmaster Online to create a
leading provider of local city guides, local advertising and live event
ticketing on the Internet. The Company has integrated its local CitySearch city
guides with its Ticketmaster Online live events ticketing and merchandise
distribution capabilities to offer online ticketing, merchandise, electronic
coupons and other transactions to a broader audience of consumers. CitySearch
was founded in September 1995 and Ticketmaster Online launched its online
ticketing services in November 1996 as a wholly-owned subsidiary of Ticketmaster
Corp. On September 28, 1998, pursuant to the Merger, a wholly-owned subsidiary
of CitySearch merged into Ticketmaster Online, with Ticketmaster Online
continuing as the surviving corporation and as a wholly-owned subsidiary of
CitySearch. The Merger was accounted for using the "reverse purchase" method of
accounting pursuant to which Ticketmaster Online was treated as the acquiring
<PAGE>
entity for accounting purposes. In 1999, the Company acquired CityAuction,
Inc., an online auction company and Match.com, Inc. and Web Media Ventures,
L.L.C. both online personals companies. The Company has integrated these
acquisitions into its other online offerings.
OPERATING LOSSES
The Company incurred net losses of $72.4 million and $0.2 million
for the nine months ended September 30, 1999 and 1998, respectively. At
September 30, 1999, the Company had an accumulated deficit of $88.5 million.
RESULTS OF OPERATIONS
TICKETING OPERATIONS REVENUES. Ticketing operations revenues were
$16.6 million and $43.8 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $4.6 million and $10.6
million for the corresponding periods of the preceding year. The increase is
primarily attributable to a significant increase in the number of tickets
sold (from 858,000 to 2,536,000 tickets for the three months ended September
30, 1998 and 1999, respectively and from 1,967,000 to 6,755,000 tickets for
the nine months ended September 30, 1998 and 1999, respectively).
Additionally, the average convenience charge increased 20.8% in the three
months ended September 30, 1999 over the corresponding period in 1998 and
increased 19.5% in the nine months ended September 30,1999 over the same
period in 1998, respectively. The convenience charge increased due to
generally higher ticket prices.
SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising
revenues were $1.8 million and $4.0 million for the three months and nine
months ended September 30, 1999, respectively, as compared to $2.1 million
and $4.6 million for the corresponding periods of the preceding year. The
decrease was primarily attributable to a decrease in sponsorship and
promotion activity with one strategic marketing partner with which our
relationship ended in December 1998.
CITY GUIDE AND RELATED REVENUES. City guide and related revenues
were $9.0 million and $21.1 million for the three months and nine months
ended September 30, 1999, respectively, representing the CitySearch city
guide and related revenues of the CitySearch business acquired and the
additional revenues represented by the acquisitions of the auction and
personals businesses.
TICKETING OPERATIONS EXPENSES. Ticketing operations expenses consist
primarily of expenses associated with ticket fulfillment, licenses and
royalties, Web site design and layout, service and network infrastructure
maintenance and data communications. Ticketing operations expenses were $12.3
million and $32.6 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $2.5 million and $5.9
million for the corresponding periods of the preceding year. Ticketing
operations expenses are primarily variable in nature and have increased
during the periods presented in conjunction with the increase in ticketing
operations revenue and the payment of the license fee to Ticketmaster Corp.
and can be expected to increase in future periods to the extent ticketing
operations revenues increase during such periods.
CITY GUIDE AND RELATED EXPENSES. City guide and related expenses
consist primarily of the expenses associated with the design, layout,
photography, customer service and editorial resources used in the production
and maintenance of business Web sites and editorial content and network
infrastructure maintenance. This category also includes the costs of
consulting services in partner-led markets and customer service, network
infrastructure and affiliate referral costs for the auction and personals
businesses. City guide and related expenses were $8.6 million and $19.1
million for the three months and nine months ended September 30, 1999,
respectively. City guide and related expenses are expensed as incurred. City
guide and related expenses can be expected to increase in future periods as
city guide and related sales increase, as new cities are added to the city
guide network in future periods and as the full impact of the personals
acquisitions are included in future periods.
<PAGE>
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of costs related to the compensation of sales and marketing
personnel, advertising and travel. Sales and marketing expenses were $14.0
million and $29.6 million for the three months and nine months ended
September 30, 1999, respectively, as compared to $0.4 million and $0.8
million for the corresponding periods of the preceding year. The increase for
the nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998 is due primarily to the sales and marketing costs of
CitySearch amounting to $28.2 million and increased salary related and
operating support costs associated with the growth in sales and marketing
activities. The Company expects that sales and marketing expenses will
increase in absolute dollars as the Company continues to roll out its
nationwide network of city guide cities and the full impact of the personals
acquisitions are included in future periods.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
include the costs to develop, test and upgrade the Company's online service
and the enterprise management systems. These costs consist primarily of
salaries for product development personnel, contract labor expense,
consulting fees, software licenses, hardware costs and recruiting fees.
Research and development expenses were $2.1 million and $5.6 million for the
three months and nine months ended September 30, 1999, respectively, which
represents primarily the research and development cost of CitySearch. The
Company believes that timely deployment of new and enhanced products and
technology is critical to attaining its strategic objectives and to remaining
competitive. Accordingly, the Company intends to continue recruiting and
hiring experienced research and development personnel and making other
investments in research and development. As such, the Company expects that
research and development expenditures can be expected to increase in absolute
dollars in future periods. In accordance with applicable accounting
requirements, the Company has expensed research and development costs as
incurred for product maintenance and has capitalized such costs for new
product functionality.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses consist primarily of administrative and senior management personnel
costs. General and administrative expenses were $4.1 million and $10.0
million for the three months and nine months ended September 30, 1999,
respectively, as compared to $0.5 and $1.5 million in the corresponding
periods of the preceding year. The substantial increase for the nine month
period ended September 30, 1999 was due primarily to general and
administrative expenses of CitySearch amounting to $9.3 million. The Company
expects that general and administrative expenses will increase in absolute
dollars to support the Company's growth.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of
goodwill and other intangibles consists of goodwill associated with the
Ticketmaster Acquisition, the Merger and the acquisitions of CityAuction,
Match.com, Web Media and the Sidewalk assets. Amortization of goodwill and
other intangibles was $18.6 million and $44.3 million for the three months
and nine months ended September 30, 1999 as compared to $4.0 million for both
the three months and nine months ended September 30, 1998, respectively,
primarily relating to the Merger and Ticketmaster Acquisition. Amortization
of goodwill in the prior year periods began during the three month period
ending September 30, 1998 as the Ticketmaster Acquisition did not occur until
the end of June 1998.
MERGER AND OTHER TRANSACTIONS COSTS. Merger and other transaction
costs were $0.5 million and $3.3 million for the three month and nine month
periods ended September 30, 1999, respectively. These costs are primarily a
result of advisory fees, regulatory filing fees and legal and accounting
costs related to the terminated merger between the Company, certain assets
owned by the Company's majority shareholder and Lycos, Inc., as well as
certain expenses related to the operation of Sidewalk city guides before the
integration of these properties into the CitySearch network.
INTEREST INCOME, NET. Net interest income consists primarily of
interest earned on the Company's cash and cash equivalents, less interest
expense on capital lease obligations. The Company had net interest income of
$1.0 million and $3.2 million for the three months and nine months ended
September 30, 1999, respectively, and had no interest expense in the
corresponding periods of the preceding year. The Company invests its cash
balances in short-term, investment grade, interest-bearing securities.
INCOME TAXES. The provision for income taxes was $0.04 million and
$0.2
<PAGE>
million for the three months and nine months ended September 30, 1999,
respectively as compared to $1.5 million and $3.0 million for the
corresponding periods in the preceding year. The Company's effective tax rate
differs from the statutory federal income tax rate, primarily as a result of
state income taxes, operating losses not benefited and non-deductible
goodwill. The Company expects that its tax provision will remain nominal for
the balance of 1999 and 2000 due to the availability of net operating losses
of CitySearch. However, certain net operating loss carryforwards, existing at
the Merger date, will not be available to further offset taxable income of
the Company.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities of $26.8 million for the nine
months ended September 30, 1999 arose primarily from the difference between
net loss from operations, the change in working capital and the amortization
of goodwill relating to the Ticketmaster Acquisition and Merger. The cash
provided by operating activities of $5.8 million for the nine month period
ended September 30, 1998 arose primarily from the income from operations
before depreciation and amortization and the prepayment of revenue associated
with advertising activities.
Net cash used in investing activities was $12.9 million and $0.4
million for the nine months ended September 30, 1999 and September 30, 1998,
respectively, and consisting primarily of capital expenditures for computers,
purchased software and software development, equipment and leasehold
improvements and the investment in Fairmarket, Inc.
Net cash provided in financing activities was $0.6 million and net
cash used in financing activities was $5.4 million for the nine month periods
ended September 30, 1999 and 1998, respectively. The $6.0 million reduction
in the cash used in financing activities arose as the relationship between
Ticketmaster Online and Ticketmaster Corp. changed as a result of the Merger.
Prior to the Merger Ticketmaster Online did not operate as an independent
company therefore all financing activities were accounted for through
intercompany means.
At September 30, 1999, the Company's cash and cash equivalents were
$68.0 million. Existing cash and cash equivalents are expected to be
sufficient to meet working capital and capital expenditure requirements for
at least the next six to nine months. The Company is currently considering
various alternatives to raise additional funds, including without limitation,
through a private sale of equity, a public sale of equity and debt financing.
If additional funds are raised through the issuance of equity securities,
stockholders of the Company may experience significant dilution. Furthermore,
there can be no assurance that additional financing will be available when
needed or that if available, such financing will include terms favorable to
the Company or its stockholders. If such financing is not available when
required or is not available on acceptable terms, the Company may be unable
to develop or enhance its products and services, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
YEAR 2000
The widespread use of computer programs that rely on two-digit dates
to perform computation and decision-making functions may cause computer
systems, including systems and software used by the Company and its Web
services, to malfunction prior to or in the Year 2000 and lead to significant
business delays and disruptions in the Company's business and operations in
the United States and internationally. The Company has developed a plan to
minimize the impact of this Year 2000 problem. Pursuant to such plan, the
Company has established a Year 2000 Committee consisting of senior managers
from relevant functional areas and an independent Year 2000 professional
consultant. The Year 2000 Committee has reviewed all areas of the Company's
business and operations that may be affected and has assigned responsibility
for each area to individuals knowledgeable about their respective areas. The
Year 2000 Committee has made these individuals responsible for the initial
assessment of risk and initial estimate of hardware cost, software cost and
time required to achieve compliance. The Company concluded its initial
assessment in the fourth quarter
<PAGE>
of 1998 and is implementing remediation necessary to achieve compliance.
Remediation will continue through year-end 1999. The Company estimates that
the dollar cost of Year 2000 compliance is approximately $350,000 through the
end of 1999. However, the Company continues to review and update its
assessment of remediation requirements and costs including those associated
with its recent and pending acquisitions and actual costs could materially
differ.
Several systems provided by third parties are required for the
operation of the Company's services, any of which may contain software code
that is not Year 2000 compliant. These systems include server software used
to operate the Company's network servers, software controlling routers,
switches and other components of the Company's data network, disk management
software used to control the Company's data disk arrays, firewall, security,
monitoring and back- up software used by the Company, as well as desktop PC
applications software. In most cases, the Company employs widely available
software applications and other products from leading third party vendors,
and expects that such vendors will provide any required upgrades or
modifications in a timely fashion. However, any failure of third party
suppliers to provide Year 2000 compliant versions of the products used by the
Company could result in a temporary disruption of the Company's services or
otherwise disrupt the Company's operations. In addition, the Company's
partners may operate their city guide sites in proximity to other
applications that may not be Year 2000 compliant. While the Company has
assigned an individual to coordinate each partner's compliance efforts to
ensure uninterrupted operations, the Company has limited ability to influence
decisions by its partners. Non-compliant systems that adjoin partners' city
guide applications could result in interruption or disruption of the city
guide service, which in turn could reduce royalties or other amounts due to
the Company and could tarnish the Company's public image as a technology
company. There can be no assurance that the Company, its third party
suppliers or its partners will be Year 2000 compliant at the end of the
millennium. Failure to achieve compliance could result in complete failure or
inaccessibility of the Company's or its partners' services, and could
adversely affect the Company's business, financial condition and results of
operations.
Year 2000 compliance problems could also undermine the general
infrastructure necessary to support the Company's operations. For instance,
the Company depends on third party Internet service providers for
connectivity to the Internet. Any interruption of service from the Company's
Internet service providers could result in a temporary interruption of the
Company's services. Moreover, the effects of Year 2000 compliance
deficiencies on the integrity and stability of the Internet are difficult to
predict. A significant disruption in the ability of businesses and consumers
to reliably access the Internet or portions of it would have an adverse
effect on demand for the Company's services and adversely impact the
Company's business, financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment portfolio. The Company has not
used derivative financial instruments in its investment portfolio. The
Company invests its excess cash in debt instruments of the U.S. Government
and its agencies, and in high-quality corporate issuers and, by policy,
limits the amount of credit exposure to any one issuer. The Company protects
and preserves its invested funds by limiting default, market and reinvestment
risk.
Investments in both fixed rate and floating rate interest earning
instruments carries a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected
if interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates or the Company may suffer losses in principal if forced to sell
securities which have declined in market value due to changes in interest
rates.
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of Unregistered Securities
In September 1999, the Company issued 7,000,000 shares of
Class B Common Stock as consideration for the acquisition of the Sidewalk
assets. The Company also issued two warrants to purchase an aggregate of
4,500,000 shares in connection with such transaction. The shares and warrants
were issued to the former owner of the Sidewalk assets. In September 1999,
the Company issued an aggregate of 1,204,000 shares of Class B Common Stock
as partial consideration for the Web Media acquisition. The shares were
issued to the former owners of Web Media. The issuances of these securities
were deemed to be exempt from registration under the Securities Act of 1933
(the "Securities Act") in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.39 FairMarket, Inc. Series D Preferred Stock Purchase Agreement dated as
of September 15, 1999 between FairMarket, Inc. and the Registrant.
10.40 Series A Preferred Stock Purchase Agreement by and between
foodline.com, Inc. and the Registrant dated as of October 25, 1999.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On September 29, 1999, the Company filed a Report on Form 8-K relating to the
Acquisition of the Sidewalk assets.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: November 15, 1999 TICKETMASTER ONLINE - CITYSEARCH, INC.
By: /s/ CHARLES CONN
-----------------------------------------------
Charles Conn
Chief Executive Officer
(Principal Executive Officer)
By: /s/ THOMAS MCINERNEY
-----------------------------------------------
Thomas McInerney
Chief Financial Officer and Executive Vice
President
(Principal Financial and Accounting Officer)
<PAGE>
FAIRMARKET, INC.
SERIES D PREFERRED
STOCK PURCHASE AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
1. Purchase and Sale of Stock . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Sale and Issuance of Series D Preferred Stock . . . . . . . . 1
1.2 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Subsequent Sale of Series D Preferred Stock . . . . . . . . . 1
2. Representations and Warranties of the Company. . . . . . . . . . . . . . 2
2.1 Organization, Good Standing and Qualification . . . . . . . . 2
2.2 Capitalization and Voting Rights. . . . . . . . . . . . . . . 2
2.3 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Valid Issuance of Preferred and Common Stock. . . . . . . . . 3
2.6 Governmental Consents . . . . . . . . . . . . . . . . . . . . 3
2.7 Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Proprietary Information and Employee Stock
Purchase Agreements . . . . . . . . . . . . . . . . . . . . 4
2.10 Patents and Trademarks . . . . . . . . . . . . . . . . . . . 4
2.11 Compliance with Other Instruments. . . . . . . . . . . . . . 5
2.12 Agreements; Action . . . . . . . . . . . . . . . . . . . . . 5
2.13 Related-Party Transactions . . . . . . . . . . . . . . . . . 6
2.14 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.15 Environmental and Safety Laws. . . . . . . . . . . . . . . . 6
2.16 Manufacturing and Marketing Rights . . . . . . . . . . . . . 6
2.17 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Registration Rights. . . . . . . . . . . . . . . . . . . . . 7
2.19 Corporate Documents. . . . . . . . . . . . . . . . . . . . . 7
2.20 Title to Property and Assets . . . . . . . . . . . . . . . . 7
2.21 Small Business Concern . . . . . . . . . . . . . . . . . . . 7
2.22 Financial Statements . . . . . . . . . . . . . . . . . . . . 7
2.23 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.24 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 9
2.25 Tax Returns, Payments and Elections. . . . . . . . . . . . . 9
2.26 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .10
2.27 Minute Books . . . . . . . . . . . . . . . . . . . . . . . .10
2.28 Labor Agreements and Actions; Employee Compensation. . . . .10
2.29 Section 83(b) Elections. . . . . . . . . . . . . . . . . . .10
2.30 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.31 Significant Customers and Suppliers. . . . . . . . . . . . .10
2.32 Qualified Small Business Stock . . . . . . . . . . . . . . .10
3. Representations and Warranties of the Investors. . . . . . . . . . . . .11
3.1 Authorization . . . . . . . . . . . . . . . . . . . . . . . .11
3.2 Purchase Entirely for Own Account . . . . . . . . . . . . . .11
3.3 Disclosure of Information . . . . . . . . . . . . . . . . . .11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
3.4 Investment Experience . . . . . . . . . . . . . . . . . . . .11
3.5 Accredited Investor . . . . . . . . . . . . . . . . . . . . .12
3.6 Restricted Securities . . . . . . . . . . . . . . . . . . . .12
3.7 Further Limitations on Disposition. . . . . . . . . . . . . .12
3.8 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . .12
4. Conditions of Investors' Obligations at Closing. . . . . . . . . . . . .13
4.1 Representations and Warranties. . . . . . . . . . . . . . . .13
4.2 Performance . . . . . . . . . . . . . . . . . . . . . . . . .13
4.3 Compliance Certificate. . . . . . . . . . . . . . . . . . . .13
4.4 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .13
4.5 Proceedings and Documents . . . . . . . . . . . . . . . . . .13
4.6 Proprietary Information and Employee Stock
Purchase Agreements . . . . . . . . . . . . . . . . . . . .13
4.7 Opinion of Company Counsel. . . . . . . . . . . . . . . . . .13
4.8 Investors' Rights Agreement . . . . . . . . . . . . . . . . .13
5. Conditions of the Company's Obligations at Closing . . . . . . . . . . .14
5.1 Representations and Warranties. . . . . . . . . . . . . . . .14
5.2 Payment of Purchase Price . . . . . . . . . . . . . . . . . .14
5.3 Qualifications. . . . . . . . . . . . . . . . . . . . . . . .14
6. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.1 Survival of Warranties. . . . . . . . . . . . . . . . . . . .14
6.2 Successors and Assigns. . . . . . . . . . . . . . . . . . . .14
6.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . .14
6.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . .14
6.5 Titles and Subtitles. . . . . . . . . . . . . . . . . . . . .14
6.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . .14
6.7 Finder's Fee. . . . . . . . . . . . . . . . . . . . . . . . .15
6.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .15
6.9 Amendments and Waivers. . . . . . . . . . . . . . . . . . . .15
6.10 Severability . . . . . . . . . . . . . . . . . . . . . . . .15
6.11 Aggregation of Stock . . . . . . . . . . . . . . . . . . . .16
6.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SCHEDULE A Schedule of Investors
EXHIBIT A Restated Certificate of Incorporation
EXHIBIT B List of Stockholders
EXHIBIT C Legal Opinion of Counsel to the Company
</TABLE>
iii
<PAGE>
FAIRMARKET, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 15th day of September, 1999, by
and among FairMarket, Inc., a Delaware corporation (the "Company"), and the
investors listed on SCHEDULE A hereto, each of which is herein referred to as an
"Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF SERIES D PREFERRED STOCK.
(a) The Company shall adopt and file with the Secretary of
State of Delaware on or before the Closing (as defined below) the Restated
Certificate of Incorporation in the form attached hereto as EXHIBIT A (the
"Restated Certificate").
(b) On or prior to the Closing (as defined below), the
Company shall have authorized (i) the sale and issuance to the Investors of the
Series D Preferred Stock and (ii) the issuance of the shares of Common Stock to
be issued upon conversion of the Series D Preferred Stock (the "Conversion
Shares"). The Series D Preferred Stock and the Conversion Shares shall have the
rights, preferences, privileges and restrictions set forth in the Restated
Certificate.
(c) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the Closing and
the Company agrees to sell and issue to each Investor at the Closing, that
number of shares of the Company's Series D Preferred Stock set forth opposite
such Investor's name on SCHEDULE A hereto for the purchase price set forth
thereon.
1.2 CLOSING. The purchase and sale of the Series D Preferred
Stock shall take place at the offices of Goodwin, Procter & Hoar LLP, Exchange
Place, Boston, Massachusetts, at 11:00 A.M., on the date hereof, or at such
other time and place as the Company and Investors acquiring in the aggregate
more than half the shares of Series D Preferred Stock to be sold pursuant hereto
mutually agree upon orally or in writing (which time and place are designated as
the "Closing"). At the Closing the Company shall deliver to each Investor a
certificate representing the Series D Preferred Stock that such Investor is
purchasing against payment of the purchase price therefor by check, wire
transfer of immediately available funds, cancellation of indebtedness, or any
combination thereof, or as the parties may otherwise agree.
1.3 SUBSEQUENT SALE OF SERIES D PREFERRED STOCK. The Company may
sell up to the balance of the authorized number of shares of Series D Preferred
Stock not sold at the Closing to such purchasers as it shall select at a price
not less than $7.00 per share. Any such purchaser shall become a party to this
Agreement and that certain Investors' Rights Agreement dated February 25, 1999,
as amended, by and among the Company and its preferred stockholders
<PAGE>
(the "Investors' Rights Agreement") and shall have the rights and obligations
hereunder and thereunder, unless such purchaser enters into an acquisition
agreement that provides otherwise.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions") furnished each Investor,
specifically identifying the relevant subparagraph hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
2.2 CAPITALIZATION AND VOTING RIGHTS. After giving effect to the
Restated Certificate the authorized capital of the Company consists of:
(a) PREFERRED STOCK. 20,000,000 shares of Preferred Stock,
par value $.001 (the "Preferred Stock"), (i) of which 754,603 shares have been
designated Series A Preferred Stock (the "Series A Preferred Stock"), 754,603
shares of which are issued and outstanding; (ii) 1,890,000 shares have been
designated Series B Preferred Stock (the "Series B Preferred Stock"), 1,890,000
shares of which are issued and outstanding, (iii) 6,168,282 shares have been
designated Series C Preferred Stock (the "Series C Preferred Stock"), 6,168,282
shares of which are issued and outstanding, and (iv) 10,000,000 shares have been
designated Series D Preferred Stock ("Series D Preferred Stock"), 5,250,000
shares of which are issued and outstanding. The rights, privileges and
preferences of the Preferred Stock will be as stated in the Company's Restated
Certificate and Amended and Restated Bylaws ("Bylaws").
(b) COMMON STOCK. 36,000,000 shares of common stock, par
value $.001 ("Common Stock"), of which 5,044,097 shares are issued and
outstanding.
(c) The outstanding shares of Preferred Stock and Common
Stock are owned by the stockholders and in the numbers specified in EXHIBIT B
hereto.
(d) The outstanding shares of Common Stock are all duly and
validly authorized and issued, fully paid and nonassessable, and were issued in
accordance with the registration or qualification provisions of the Securities
Act of 1933, as amended (the "Act") and any relevant state securities laws, or
pursuant to valid exemptions therefrom.
(e) Except for (A) the conversion privileges of the
Preferred Stock, (B) the rights provided in Section 2.4 of the Investors' Rights
Agreement, (C) currently outstanding options to purchase 3,140,744 shares of
Common Stock granted to employees and other service providers pursuant to the
Company's Amended and Restated 1997 Stock Option Plan and 1999 Stock Option Plan
(the "Option Plans") and (D) (1) warrants issued to Lycos, Inc. exercisable for
a total of 1,320,000 shares of Common Stock and (2) warrants issued to Microsoft
Corporation exercisable for a total of 4,500,000 shares of Common Stock, there
are
2
<PAGE>
not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock. In addition to the
aforementioned options, the Company has reserved an additional 896,987 shares
of its Common Stock for purchase upon exercise of options to be granted in
the future under the Option Plans or a similar plan approved by the Board of
Directors of the Company. The Company is not a party or subject to any
agreement or understanding, and, to the best of the Company's knowledge,
except for the Amendment to Investors' Rights Agreement being entered into
simultaneously with this Agreement, there is no agreement or understanding
between any persons and/or entities, which affects or relates to the voting
or giving of written consents with respect to any security or by a director
of the Company.
2.3 SUBSIDIARIES. The Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association, or
other business entity. The Company is not a participant in any joint venture,
partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Amendment to
Investors' Rights Agreement (the "Transaction Documents"), the performance of
all obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series D
Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series D Preferred Stock has been taken or will be taken prior
to the Closing, and this Agreement and the Investors' Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.5 VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Series D
Preferred Stock that is being purchased by the Investors hereunder, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and under applicable state and federal securities laws. The Common
Stock issuable upon conversion of the Series D Preferred Stock purchased under
this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Certificate, will be duly
and validly issued, fully paid, and nonassessable and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and the Investors' Rights Agreement and under applicable state and
federal securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except the filing of the Restated Certificate
with the Secretary of State of Delaware.
3
<PAGE>
2.7 OFFERING. Subject in part to the truth and accuracy of each
Investor's representations set forth in Section 3 of this Agreement, the offer,
sale and issuance of the Series D Preferred Stock as contemplated by this
Agreement are exempt from the registration requirements of any applicable state
and federal securities laws, and neither the Company nor any authorized agent
acting on its behalf will take any action hereafter that would cause the loss of
such exemption.
2.8 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently threatened
against the Company that questions the validity of the Transaction Documents, or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse changes in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions, suits, proceedings or investigations pending or threatened
(or any basis therefor known to the Company) involving the prior employment of
any of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of their
former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
2.9 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE
AGREEMENTS. Each employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement and an Employee Stock Purchase
Agreement in a form customary in the Company's industry. The Company is not
aware that any of its employees, officers or consultants are in violation
thereof, and the Company will use its best efforts to prevent any such
violation.
2.10 PATENTS AND TRADEMARKS. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes necessary for its
business as now conducted and as proposed to be conducted without any conflict
with or infringement of the rights of others. The Schedule of Exceptions
contains a complete list of patents and pending patent applications of the
Company. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity,
except, in either case, for standard end-user, object code, internal-use
software license and support/maintenance agreements. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
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interfere with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company's business as proposed to
be conducted. Neither the execution nor delivery of the Transaction
Documents, nor the carrying on of the Company's business by the employees of
the Company, nor the conduct of the Company's business as proposed, will, to
the best of the Company's knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees is now
obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any of its employees (or people it currently
intends to hire) made prior to or outside the scope of their employment by
the Company.
2.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provision of its Restated Certificate or Bylaws,
or of any instrument, judgment, order, writ, decree or contract to which it
is a party or by which it is bound, or, to the best of its knowledge, of any
provision of any federal or state statute, rule or regulation applicable to
the Company. The execution, delivery and performance of the Transaction
Documents, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree
or contract or an event that results in the creation of any lien, charge or
encumbrance upon any assets of the Company or the suspension, revocation,
impairment, forfeiture, or nonrenewal of any material permit, license,
authorization, or approval applicable to the Company, its business or
operations or any of its assets or properties.
2.12 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated by the
Transaction Documents, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof except in their capacities as
stockholders of the Company.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or by which it is bound that may involve (i)
obligations (contingent or otherwise) of, or payments to the Company in
excess of, $25,000, or (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from the Company (other than the
license of the Company's software and products in the ordinary course of
business), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for
money borrowed or any other liabilities individually in excess of $10,000 or,
in the case of indebtedness and/or liabilities individually less than
$10,000, in excess of $30,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
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(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under its
Restated Certificate or Bylaws that adversely affects its business as now
conducted or as proposed to be conducted, its properties or its financial
condition.
(f) The Company has not engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.13 RELATED-PARTY TRANSACTIONS. No employee, officer, or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
2.14 PERMITS. The Company has all franchises, permits, licenses,
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.15 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.16 MANUFACTURING AND MARKETING RIGHTS. The Company has not
granted rights to manufacture, produce, assemble, license, market, or sell its
products to any other person
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and is not bound by any agreement that affects the Company's exclusive right
to develop, manufacture, assemble, distribute, market or sell its products.
2.17 DISCLOSURE. The Company has fully provided each Investor with
all the information that such Investor has requested for deciding whether to
purchase the Series D Preferred Stock and all information that the Company
believes is reasonably necessary to enable such Investor to make such decision.
Neither the Transaction Documents, nor any other statements or certificates made
or delivered in connection herewith or therewith contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements herein or therein not misleading.
2.18 REGISTRATION RIGHTS. Except as provided in the Investors'
Rights Agreement, as amended, and except for the registration rights granted to
Lycos, Inc. pursuant to the Warrant Agreement, dated May 12, 1999, the Company
has not granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity.
2.19 CORPORATE DOCUMENTS. Except for amendments necessary to
satisfy representations and warranties or conditions contained herein (the
form of which amendments has been approved by the Investors), the Restated
Certificate and Bylaws of the Company are in the form previously provided to
special counsel for the Investors.
2.20 TITLE TO PROPERTY AND ASSETS. The Company owns its
property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or
use of such property or assets. With respect to the property and assets it
leases, the Company is in compliance with such leases and, to the best of its
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.21 SMALL BUSINESS CONCERN. The Company is a "Small Business
Concern" as that term is defined in the Small Business Investment Act of
1958, as amended, and in the regulations of the Small Business Administration
(the "S.B.A.") promulgated thereunder.
2.22 FINANCIAL STATEMENTS. The Company has delivered to each
Investor its financial statements at June 30, 1999 and for the six months
then ended (the "Financial Statements"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods indicated and with each other,
except that the Financial Statements may not contain all footnotes required
by generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of
the dates, and for the periods, indicated therein, subject to normal year-end
audit adjustments. Except as set forth in the Financial Statements, the
Company has no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to June
30, 1999 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which, in
both cases, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. Except as disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of
any indebtedness of any other
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person, firm or corporation. The Company maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with generally accepted accounting principles.
2.23 CHANGES. Since June 30, 1999 there has not been:
(a) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the Company (as
such business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted and as it is proposed to be conducted);
(e) any material change or amendment to a material contract
or arrangement by which the Company or any of its assets or properties is bound
or subject;
(f) any material change in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
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(l) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital stock, or any direct
or indirect redemption, purchase or other acquisition of any of such stock by
the Company;
(m) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely
affect the assets, properties, financial condition, operating results or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any
of the things described in this Section 2.23.
2.24 EMPLOYEE BENEFIT PLANS. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security
Act of 1974.
2.25 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed
all tax returns and reports (including information returns and reports) as
required by law. These returns and reports are true and correct in all
material respects. The Company has paid all taxes and other assessments due,
except those contested by it in good faith that are listed in the Schedule of
Exceptions. The provision for taxes of the Company as shown in the Financial
Statements is adequate for taxes due or accrued as of the date thereof. The
Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended (the "Code"), to be treated as a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a
material effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company elected pursuant to the Internal Revenue Code
of 1986, as amended (the "Code"), to be treated as an "S" corporation
pursuant to Subchapter S of the Code (the "Subchapter S Election"),
commencing February 20, 1997, and the Company and its shareholders reported
income and filed tax returns consistently therewith from February 20, 1997 to
November 17, 1997, whereupon the Company terminated its Subchapter S
Election. The Company does not have any liability or any potential or
deferred liability for taxes pursuant to Section 1371(d)(2), Section 1374 or
Section 1375 of the Code, nor is the Company liable for any other taxes
imposed pursuant to or resulting from its Subchapter S Election. The Company
has never had any tax deficiency proposed or assessed against it and has not
executed any waiver of any statute of limitations on the assessment or
collection of any tax or governmental charge. None of the Company's federal
income tax returns and none of its state income or franchise tax or sales or
use tax returns has ever been audited by governmental authorities. Since the
date of the Financial Statements, the Company has not incurred any taxes,
assessments or governmental charges other than in the ordinary course of
business and the Company has made adequate provisions on its books of account
for all taxes, assessments and governmental charges with respect to its
business, properties and operations for such period. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the same
to the proper tax receiving officers or authorized depositories.
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2.26 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed. The Company has applied for term life
insurance, payable to the Company, on the life Scott Randall in the amount of
$1,000,000.
2.27 MINUTE BOOKS. The minute books of the Company provided to the
Investors contain a complete summary of all meetings of directors and
stockholders since the time of incorporation and reflect all transactions
referred to in such minutes accurately in all material respects.
2.28 LABOR AGREEMENTS AND ACTIONS; EMPLOYEE COMPENSATION. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the best of the Company's knowledge, has sought to represent any of the
employees, representatives or agents of the Company. There is no strike or
other labor dispute involving the Company pending, or to the best of the
Company's knowledge, threatened, that could have a material adverse effect on
the assets, properties, financial condition, operating results, or business of
the Company (as such business is presently conducted and as it is proposed to be
conducted), nor is the Company aware of any labor organization activity
involving its employees. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. The employment of each
officer and employee of the Company is terminable at the will of the Company.
To the best of its knowledge, the Company has complied in all material respects
with all applicable state and federal equal employment opportunity and other
laws related to employment. The Company is not a party to or bound by any
currently effective employment contract, deferred compensation agreement, bonus
plan, incentive plan, profit sharing plan, retirement agreement, or other
employee compensation agreement.
2.29 SECTION 83(b) ELECTIONS. To the best of the Company's
knowledge, all individuals who have purchased unvested shares of the
Company's Common Stock have timely filed elections under Section 83(b) of the
Code and any analogous provisions of applicable state tax laws.
2.30 BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
2.31 SIGNIFICANT CUSTOMERS AND SUPPLIERS. No customer or
supplier that was significant to the Company during the period covered by the
financial statements referred to in Section 2.23 or that has been significant
to the Company thereafter, has terminated, materially reduced or threatened
to terminate or materially reduce its purchases from or provision of products
or services to the Company, as the case may be.
2.32 QUALIFIED SMALL BUSINESS STOCK. As of the Closing: (i) the
Company will be an eligible corporation as defined in Section 1202(e)(4) of the
Internal Revenue Code of 1986,
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as amended (the "Code"), (ii) the Company will not have made any purchases of
its own stock during the one-year period proceeding the Closing having an
aggregate value exceeding 5% of the aggregate value of all its stock as of
the beginning of such period and (iii) the Company's aggregate gross assets,
as defined by Code Section 1202(d)(2), at no time between February 20, 1997
and through the Closing have exceeded or will exceed $50 million, taking into
account the assets of any corporations required to be aggregated with the
Company in accordance with Code Section 1202(d)(3).
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants that:
3.1 AUTHORIZATION. Such Investor has full power and authority to
enter into this Agreement and the Investors' Rights Agreement, and each such
Agreement constitutes its valid and legally binding obligation, enforceable in
accordance with its terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Investors' Rights Agreement may be limited by applicable
federal or state securities laws.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series D Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof (collectively,
the "Securities") will be acquired for investment for such Investor's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, such Investor further represents that
such Investor does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Securities.
3.3 DISCLOSURE OF INFORMATION. Such Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Series D Preferred Stock. Such Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Series D Preferred Stock and the business, properties, prospects and financial
condition of the Company. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 2 of this Agreement or
the right of the Investors to rely thereon.
3.4 INVESTMENT EXPERIENCE. Such Investor is an investor in
securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment, and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series D
Preferred Stock. If other than an individual, Investor also represents it
has not been organized for the purpose of acquiring the Series D Preferred
Stock.
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3.5 ACCREDITED INVESTOR. Such Investor is an "accredited
investor" within the meaning of Securities and Exchange Commission ("SEC") Rule
501 of Regulation D, as presently in effect.
3.6 RESTRICTED SECURITIES. Such Investor understands that the
Securities it is purchasing are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act, only in certain limited circumstances. In this connection, such
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
3.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Investor further agrees not
to make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 3 and the Investors' Rights Agreement provided and to the extent
this Section and such agreement are then applicable, and:
(a) There is then in effect a Registration Statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, such Investor shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company that
such disposition will not require registration of such shares under the Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144 except in unusual circumstances.
(c) Notwithstanding the provisions of Paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by an Investor that is a partnership to a partner of such
partnership or a retired partner of such partnership who retires after the date
hereof, or to the estate of any such partner or retired partner or the transfer
by gift, will or intestate succession of any partner to his or her spouse or to
the siblings, lineal descendants or ancestors of such partner or his or her
spouse, or for a transfer by an Investor to a corporate subsidiary or affiliate
of such Investor if the transferee agrees in writing to be subject to the terms
hereof to the same extent as if he or she were an original Investor hereunder.
3.8 LEGENDS. It is understood that the certificates evidencing
the Securities may bear substantially the following legend:
"These securities have not been registered under the Securities Act
of 1933, as amended. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
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4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of each Investor under subsection 1.1(b) of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions, any of which may be waived by Investors acquiring in the
aggregate more than half of the Series D Preferred Stock to be sold pursuant
hereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing.
4.3 COMPLIANCE CERTIFICATE. The President or Chief Financial
Officer of the Company shall deliver to Investors purchasing more than
200,000 shares of Series D Preferred Stock hereunder (the "Major Investors")
at the Closing a certificate stating that the conditions specified in
Sections 4.1 and 4.2 have been fulfilled and stating that there has been no
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since the date of the Financial Statements.
4.4 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
and all documents incident thereto shall be reasonably satisfactory in form
and substance to the Major Investors' special counsel, and they shall have
received all such counterpart original and certified or other copies of such
documents as they may reasonably request. This may include, without
limitation, good standing certificates and certification by the Company's
Secretary regarding the Company's Certificate of Incorporation and Bylaws and
Board of Directors and stockholder resolutions relating to this transaction.
4.6 PROPRIETARY INFORMATION AND EMPLOYEE STOCK PURCHASE
AGREEMENTS. Each employee of and consultant to the Company shall have
entered into a Proprietary Information and Inventions Agreement in the form
previously provided to special counsel for the Major Investors.
4.7 OPINION OF COMPANY COUNSEL. Each Major Investor shall have
received from Goodwin, Procter & Hoar LLP, counsel for the Company, an
opinion, dated as of the Closing, in the form attached hereto as EXHIBIT C.
4.8 INVESTORS' RIGHTS AGREEMENT. Each Investor shall have
become a party to the Investors' Rights Agreement.
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4.9 AUCTION SERVICES AGREEMENT AND LICENSE AGREEMENT. The
Auction Services Agreement and License Agreement between the Company and the
Investor shall have been executed and delivered by the parties thereto.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to each Investor under this Agreement are subject
to the fulfillment on or before the Closing of each of the following
conditions by that Investor:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Investors contained in Section 3 shall be true on and as of
the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investors shall have
delivered the purchase price specified in Section 1.2.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement and
the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investors or the Company.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements
among Delaware residents entered into and to be performed entirely within
Delaware.
6.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.6 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed
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to be given (a) five (5) days after deposit with the U.S. Postal Service or
other applicable postal service, if delivered by first class mail, postage
prepaid, (b) upon delivery, if delivered by hand, (c) one business day after
the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery
by facsimile transmission, if deliverable by facsimile transmission, with
copy by first class mail, postage prepaid, and shall be addressed, if to
Investor, at each Investor's address as set forth on the Schedule of
Purchasers to this Agreement, and, if to the Company, at the address of its
principal corporate offices (attention: Secretary), or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties hereto.
6.7 FINDER'S FEE. Except as set forth in the Schedule of
Exceptions, each party represents that it neither is nor will be obligated
for any finders' fee or commission in connection with this transaction. Each
Investor agrees to indemnify and to hold harmless the Company from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which such Investor or any of its officers, partners,
employees, or representatives is responsible.
Except as set forth in the Schedule of Exceptions, the Company
agrees to indemnify and hold harmless each Investor from any liability for
any commission or compensation in the nature of a finders' fee (and the costs
and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives is
responsible.
6.8 EXPENSES. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to
the negotiation, execution, delivery and performance of this Agreement. If
the Closing is effected, the Company shall, at the Closing, reimburse the
reasonable fees of special counsel for the Major Investors. If any action at
law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors' Rights Agreement or the Restated Certificate, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders
of a majority of the Common Stock issuable or issued upon conversion of the
Series D Preferred Stock. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding (including securities
into which such securities are convertible), each future holder of all such
securities, and the Company; provided, that no amendment or waiver that
disproportionately and adversely affects any holder of Series D Preferred
Stock shall be effective as against such holder unless signed by such holder.
The Company shall promptly provide to each Investor a copy of any amendment
or waiver effected in accordance with this paragraph.
6.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and
15
<PAGE>
the balance of the Agreement shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
6.11 AGGREGATION OF STOCK. All shares of the Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
6.12 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
FAIRMARKET, INC.
By: /S/ SCOTT RANDALL
---------------------------------
Scott Randall, President
Address: 400 Unicorn Park Drive
Woburn, MA 01801
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
INVESTORS:
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: /s/ Bradley K. Serwin
---------------------------------
Name: Brad K. Serwin
Title: Vice President
SIGNATURE PAGE TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
NUMBER OF TOTAL PURCHASE
NAME AND ADDRESS SHARES PURCHASED PRICE OF SHARES
---------------- ---------------- ---------------
<S> <C> <C>
Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd. 750,000 $5,250,000
Suite 200
Pasadena, CA 91101 1,500,000 $10,500,000
(Consideration for execution
and delivery of the Auction
Services Agreement and the
related License Agreement of
even date herewith)
TOTAL 2,250,000 $15,750,000
</TABLE>
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
BY AND BETWEEN
FOODLINE.COM, INC.
AND
TICKETMASTER ONLINE-CITYSEARCH, INC.
DATED AS OF OCTOBER 25, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II AGREEMENT TO PURCHASE AND SELL STOCK . . . . . . . . . . . . . . 3
2.1. Authorization. . . . . . . . . . . . . . . . . . . . . . 3
2.2. Agreement to Purchase and Sell Stock.. . . . . . . . . . 3
ARTICLE III CLOSING; DELIVERY . . . . . . . . . . . . . . . . . . . . . . . 3
3.1. The Closing. . . . . . . . . . . . . . . . . . . . . . . 3
3.2. Delivery.. . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 3
4.1. Organization, Good Standing and Qualification. . . . . . 3
4.2. Capitalization.. . . . . . . . . . . . . . . . . . . . . 4
4.3. Subsidiaries.. . . . . . . . . . . . . . . . . . . . . . 4
4.4. Due Authorization. . . . . . . . . . . . . . . . . . . . 4
4.5. Valid Issuance of Stock. . . . . . . . . . . . . . . . . 5
4.6. Liabilities. . . . . . . . . . . . . . . . . . . . . . . 5
4.7. Title to Properties and Assets.. . . . . . . . . . . . . 5
4.8. Intellectual Property; Software. . . . . . . . . . . . . 6
4.9. Material Contracts and Obligations.. . . . . . . . . . .10
4.10. Litigation. . . . . . . . . . . . . . . . . . . . . . .10
4.11. Required Consents.. . . . . . . . . . . . . . . . . . .10
4.12. Compliance with Other Instruments.. . . . . . . . . . .11
4.13. Disclosure. . . . . . . . . . . . . . . . . . . . . . .11
4.14. Registration Rights.. . . . . . . . . . . . . . . . . .11
4.15. Insurance.. . . . . . . . . . . . . . . . . . . . . . .11
4.16. Financial Statements. . . . . . . . . . . . . . . . . .11
4.17. Certain Actions.. . . . . . . . . . . . . . . . . . . .12
4.18. Activities Since Balance Sheet Date.. . . . . . . . . .12
4.19. Tax Matters.. . . . . . . . . . . . . . . . . . . . . .13
4.20. Tax Elections.. . . . . . . . . . . . . . . . . . . . .13
4.21. Environmental Matters.. . . . . . . . . . . . . . . . .14
4.22. Employee Benefits.. . . . . . . . . . . . . . . . . . .14
4.23. Interested Party Transactions.. . . . . . . . . . . . .15
4.24. Stock Restriction Agreements. . . . . . . . . . . . . .15
4.25. Minute Books. . . . . . . . . . . . . . . . . . . . . .15
4.26. Labor Agreements and Actions. . . . . . . . . . . . . .15
4.27. Year 2000 Compliance. . . . . . . . . . . . . . . . . .15
4.28. No Restrictions on Shares.. . . . . . . . . . . . . . .16
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . .16
5.1. Organization; Due Authorization; No Conflicts. . . . . .16
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.2. Investigation; Economic Risk.. . . . . . . . . . . . . .16
5.3. Purchase for Own Account.. . . . . . . . . . . . . . . .17
5.4. Exempt from Registration; Restricted Securities. . . . .17
5.5. Restrictive Legends. . . . . . . . . . . . . . . . . . .17
5.6. Removal of Restrictive Legend. . . . . . . . . . . . . .17
5.7. Status of Purchaser. . . . . . . . . . . . . . . . . . .17
ARTICLE VI CERTAIN COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .18
6.1. Use of Proceeds. . . . . . . . . . . . . . . . . . . . .18
6.2. Expenses.. . . . . . . . . . . . . . . . . . . . . . . .18
6.3. Conduct of the Business. . . . . . . . . . . . . . . . .18
6.4. Further Assurances.. . . . . . . . . . . . . . . . . . .19
6.5. Confidentiality; Public Announcements. . . . . . . . . .19
6.6. Inspection.. . . . . . . . . . . . . . . . . . . . . . .20
6.7. Other Investments. . . . . . . . . . . . . . . . . . . .20
ARTICLE VII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . .21
7.1. Conditions to Each Party's Obligations.. . . . . . . . .21
7.2. Conditions to Obligation of Purchaser. . . . . . . . . .21
7.3. Conditions to Obligation of the Company. . . . . . . . .22
ARTICLE VIII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .23
8.1. Agreement to Indemnify.. . . . . . . . . . . . . . . . .23
8.2. Survival of Representations, Warranties and Covenants. .23
8.3. Limitation.. . . . . . . . . . . . . . . . . . . . . . .24
8.4. Claims for Indemnification.. . . . . . . . . . . . . . .24
8.5. Defense of Claims. . . . . . . . . . . . . . . . . . . .24
ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .25
9.1. Governing Law. . . . . . . . . . . . . . . . . . . . . .25
9.2. Captions.. . . . . . . . . . . . . . . . . . . . . . . .25
9.3. Successors and Assigns.. . . . . . . . . . . . . . . . .26
9.4. Entire Agreement.. . . . . . . . . . . . . . . . . . . .26
9.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . .26
9.6. Amendments and Waivers.. . . . . . . . . . . . . . . . .27
9.7. Delays or Omissions. . . . . . . . . . . . . . . . . . .27
9.8. Finder's Fees. . . . . . . . . . . . . . . . . . . . . .28
9.9. Counterparts; Effectiveness. . . . . . . . . . . . . . .28
9.10. Severability. . . . . . . . . . . . . . . . . . . . . .28
9.11. Construction. . . . . . . . . . . . . . . . . . . . . .28
9.12. Cumulative Remedies.. . . . . . . . . . . . . . . . . .28
9.13. Third-Party Beneficiaries.. . . . . . . . . . . . . . .28
</TABLE>
ii
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Amended and Restated Certificate of Incorporation
Exhibit B Distribution Agreement
Exhibit C Investor Rights Agreement
Exhibit D Co-Sale and First Refusal Rights Agreement
Exhibit E Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
</TABLE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 4.2(c). . . . . . . .Options, Warrants, Reserved Shares
Schedule 4.2(d) . . . . . . .Outstanding Security Holders
Schedule 4.6 . . . . . . . . .Liabilities
Schedule 4.7(a) . . . . . . .Title to Properties and Assets
Schedule 4.7(a) . . . . . . .Real Property
Schedule 4.8(b). . . . . . . .Intellectual Property Rights
Schedule 4.8(d). . . . . . . .Intellectual Property
Schedule 4.8(g) . . . . . . .Software
Schedule 4.8(h). . . . . . . .Licensed Software
Schedule 4.8(i). . . . . . . .Software Agreements
Schedule 4.9 . . . . . . . . .Material Contracts
Schedule 4.14. . . . . . . . .Registration Rights
Schedule 4.15 . . . . . . . .Insurance
Schedule 4.16. . . . . . . . .Financial Statements
Schedule 4.20. . . . . . . . .Tax Elections
Schedule 4.23. . . . . . . . .Interested Party Transactions
Schedule 6.3 . . . . . . . . .Capital Expenditures
</TABLE>
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "AGREEMENT") is
entered into as of October 25, 1999 (the "EFFECTIVE DATE") by and between
foodline.com, Inc., a Delaware corporation (the "COMPANY"), and Ticketmaster
Online-CitySearch, Inc., a Delaware corporation ("PURCHASER").
R E C I T A L S
WHEREAS, Purchaser desires to purchase from the Company and the Company
desires to sell to Purchaser 4,300,153 shares of the Company's Series A
Preferred Stock (the "SHARES"), representing 30.3% of the Company's issued and
outstanding capital stock on a fully-diluted basis (treating (i) all outstanding
options, warrants and rights to purchase or receive stock as fully exercised,
and (ii) all securities convertible into shares of the Company's common stock,
including, without limitation, the shares of Series A Preferred Stock to be
issued to the Additional Holders (as defined below), as converted) in exchange
for cash consideration in an amount equal to Five Million Dollars ($5,000,000);
and
WHEREAS, the Company has agreed to issue additional shares of Series A
Preferred Stock to (a) certain additional investors (the "ADDITIONAL
INVESTORS"), on terms and conditions set forth in Subscription Agreements to be
entered into between the Company and each of the Additional Investors and
(b) certain holders (collectively with the Additional Investors, the "ADDITIONAL
HOLDERS") of convertible promissory notes of the Company which will be converted
into shares of Series A Preferred Stock simultaneously with the consummation of
the transactions contemplated by this Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the respective meanings given thereto in the
sections indicated below:
<TABLE>
<CAPTION>
DEFINED TERM SECTION PAGE
<S> <C> <C>
Act. . . . . . . . . . . . . . . . . . .Section 4.5(b). . . 5
Additional Holders . . . . . . . . . . .Preamble. . . . . . 1
Additional Investors . . . . . . . . . .Preamble. . . . . . 1
Aggregate Purchase Price . . . . . . . .Section 2.2 . . . . 3
Aggregate Threshold. . . . . . . . . . .Section 8.3 . . . . 23
<PAGE>
Agreement. . . . . . . . . . . . . . . .Preamble. . . . . . 1
Balance Sheet Date . . . . . . . . . . .Section 4.16. . . . 11
CERCLA . . . . . . . . . . . . . . . . .Section 4.21. . . . 13
Certificate. . . . . . . . . . . . . . .Section 2.1 . . . . 3
Closing Date . . . . . . . . . . . . . .Section 3.1 . . . . 3
Closing. . . . . . . . . . . . . . . . .Section 3.1 . . . . 3
Code . . . . . . . . . . . . . . . . . .Section 4.20. . . . 13
Common Stock . . . . . . . . . . . . . .Section 4.2(a). . . 4
Company Intellectual Property Assets . .Section 4.8(b). . . 6
Company Marks. . . . . . . . . . . . . .Section 4.8(d). . . 7
Company Required Consents. . . . . . . .Section 4.11. . . . 10
Company. . . . . . . . . . . . . . . . .Preamble. . . . . . 1
Conversion Shares. . . . . . . . . . . .Section 4.2(c). . . 4
Copyrights . . . . . . . . . . . . . . .Section 4.8(a). . . 6
Damages. . . . . . . . . . . . . . . . .Section 8.1(a). . . 22
Designated Software Agreements . . . . .Section 4.8(i). . . 9
Effective Date . . . . . . . . . . . . .Preamble. . . . . . 1
Employee Pension Benefit Plan. . . . . .Section 4.22(a) . . 14
ERISA. . . . . . . . . . . . . . . . . .Section 4.22(a) . . 14
Financial Statements . . . . . . . . . .Section 4.16. . . . 11
GAAP . . . . . . . . . . . . . . . . . .Section 4.16. . . . 11
Hazardous Materials. . . . . . . . . . .Section 4.21. . . . 13
Indemnifying Party . . . . . . . . . . .Section 8.1(c). . . 22
Indemnitee . . . . . . . . . . . . . . .Section 8.1(c). . . 22
Intellectual Property Rights . . . . . .Section 4.8(a). . . 5
Intellectual Property. . . . . . . . . .Section 4.8(a). . . 6
Investment Transactions. . . . . . . . .Section 6.7 . . . . 19
Investor Rights Agreement. . . . . . . .Section 4.14. . . . 11
Licensed Software Agreements . . . . . .Section 4.8(h). . . 8
Licensed Software. . . . . . . . . . . .Section 4.8(g). . . 8
Marks. . . . . . . . . . . . . . . . . .Section 4.8(a). . . 6
Material Contracts . . . . . . . . . . .Section 4.9 . . . . 10
Multiemployer Plan . . . . . . . . . . .Section 4.22(a) . . 14
Notes. . . . . . . . . . . . . . . . . .Preamble. . . . . . 1
Other Licensed Technology. . . . . . . .Section 4.8(h). . . 8
Owned Software . . . . . . . . . . . . .Section 4.8(g). . . 8
Patents. . . . . . . . . . . . . . . . .Section 4.8(a). . . 6
Proceedings. . . . . . . . . . . . . . .Section 4.10. . . . 10
Purchaser. . . . . . . . . . . . . . . .Preamble. . . . . . 1
Real Property. . . . . . . . . . . . . .Section 4.7(c). . . 5
SEC. . . . . . . . . . . . . . . . . . .Section 4.14. . . . 11
Shares . . . . . . . . . . . . . . . . .Preamble. . . . . . 1
Software . . . . . . . . . . . . . . . .Section 4.8(a). . . 6
Tax Returns. . . . . . . . . . . . . . .Section 4.19(a) . . 13
Taxes. . . . . . . . . . . . . . . . . .Section 4.19(a) . . 12
Trade Secrets. . . . . . . . . . . . . .Section 4.8(a). . . 6
</TABLE>
2
<PAGE>
ARTICLE II
AGREEMENT TO PURCHASE AND SELL STOCK
2.1 AUTHORIZATION. As of the Closing (as defined below), the Company
will have authorized the issuance, pursuant to the terms and conditions of
this Agreement, of 6,978,359 shares of the Company's Series A Preferred
Stock, having the rights, preferences, privileges and restrictions set forth
in the Amended and Restated Certificate of Incorporation of the Company
attached to this Agreement as EXHIBIT A (the "CERTIFICATE").
2.2 AGREEMENT TO PURCHASE AND SELL STOCK. Subject to the terms and
conditions hereof, the Company will issue and sell to Purchaser, and
Purchaser agrees to purchase from the Company, the Shares, for an aggregate
purchase price of Five Million Dollars ($5,000,000) (the "AGGREGATE PURCHASE
PRICE").
ARTICLE III
CLOSING; DELIVERY
3.1 THE CLOSING. The closing (the "CLOSING") of the transactions
contemplated by this Agreement shall be held at the offices of Gibson, Dunn &
Crutcher LLP at 333 South Grand Avenue, Los Angeles, California 90071, on
October 28, 1999, or at such other time and place as to which the Company and
Purchaser may agree (the "CLOSING DATE").
3.2 DELIVERY. At the Closing, the Company will deliver to Purchaser a
certificate representing the Shares and Purchaser will deliver to the Company by
wire transfer (to a bank account designated by the Company in writing at least
one (1) business day prior to the Closing) an amount in cash equal to the
Aggregate Purchase Price.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
4.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under, and by
virtue of, the laws of its state of incorporation, and has all requisite
corporate power and authority to own its properties and assets and to carry on
its business as now conducted and as presently proposed to be conducted. The
Company is qualified to do business as a foreign corporation in each
jurisdiction where failure to be so qualified would have a material adverse
effect on its condition (financial or otherwise), business, assets, properties
or operations.
4.2 CAPITALIZATION. Immediately prior to the Closing, the authorized
capital stock of the Company will consist of the following:
3
<PAGE>
(a) COMMON STOCK. A total of 19,000,000 authorized shares of
Common Stock, $0.01 par value (the "COMMON STOCK"), of which 5,174,800 shares
are issued and outstanding.
(b) PREFERRED STOCK. A total of 11,000,000 authorized shares of
Preferred Stock, $0.01 par value, of which 6,978,359 shares will be designated
Series A Preferred Stock, none of which will be issued and outstanding.
(c) OPTIONS, WARRANTS AND RESERVED SHARES. The Company has
reserved an aggregate of 6,978,359 shares of its Common Stock for possible
issuance upon conversion of the shares of Series A Preferred Stock to be
issued hereunder (the "CONVERSION SHARES"). Except as set forth on SCHEDULE
4.2(c), there are no options, warrants, conversion privileges or other
rights, or agreements, obligations or other commitments, whether written or
oral, contingent or otherwise, with respect to the issuance thereof,
presently outstanding to purchase any of the capital stock of the Company.
Except as set forth on SCHEDULE 4.2(c), no shares (including the Shares and
the Conversion Shares) of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options or other stock
issuable by the Company, are subject to any rights of first refusal,
preemptive rights or other rights to purchase such stock (whether in favor of
the Company or any other person), pursuant to any agreement, commitment or
other obligation of the Company, whether written or oral, contingent or
otherwise. Except as set forth on SCHEDULE 4.2(c) and except for the
transactions contemplated by this Agreement, the Company is not currently
engaged in, nor does it currently intend to engage in, any discussions or
negotiations which could reasonably be expected to lead to the issuance of
any capital stock of the Company.
(d) OUTSTANDING SECURITY HOLDERS. SCHEDULE 4.2(d) sets forth a
complete list of all outstanding shareholders, option holders and other
security holders of the Company as of the Effective Date. SCHEDULE 4.2(d)
lists, for each option holder of the Company, such option holder's name, the
exercise price(s) of all option(s) granted to such optionholder, the term(s)
of such option(s), the vesting period(s) of such option(s), and any
contingencies applicable to such option(s).
4.3 SUBSIDIARIES. Except as set forth on SCHEDULE 4.3, the Company does
not presently own or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, association, or other entity.
4.4 DUE AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of, and the performance of all obligations of the Company
under, this Agreement and the authorization, issuance, reservation for issuance
and delivery of all of the Shares being sold under this Agreement and of the
Conversion Shares has been taken or will be taken prior to the Closing. This
Agreement is a valid and binding obligation of the Company, enforceable in
accordance with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, moratorium, reorganization and similar laws affecting
creditors' rights generally and to general equitable principles.
4
<PAGE>
4.5 VALID ISSUANCE OF STOCK.
(a) The Shares, when issued, sold and delivered in accordance with
the terms of this Agreement, will be duly and validly issued, fully paid and
non-assessable. The Conversion Shares have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certificate,
will be duly and validly issued, fully paid and non assessable.
(b) The outstanding shares of the capital stock of the Company are
duly and validly issued, fully paid and non-assessable, and shares of such
capital stock, and all outstanding stock, options and other securities of the
Company have been issued in full compliance with the registration and prospectus
delivery requirements of the Securities Act of 1933, as amended (the "ACT"), and
the registration and qualification requirements of all applicable state
securities laws, or in compliance with applicable exemptions therefrom, and all
other provisions of applicable federal and state securities laws, including,
without limitation, anti-fraud provisions.
4.6 LIABILITIES. Except as set forth on SCHEDULE 4.6, he Company has no
indebtedness for borrowed money that the Company has, directly or indirectly,
created, incurred, assumed or guaranteed, or with respect to which Company has
otherwise become directly or indirectly liable.
4.7 TITLE TO PROPERTIES AND ASSETS.
(a) Except as set forth on SCHEDULE 4.7(a), (i) the Company has,
or will have, as of the Closing, a good and valid title to or, in the case of
leased properties or properties held under license, a good and valid leasehold
or license interest in, all of its properties and assets and (ii) the Company
holds title to each such property and asset which it purports to own, free and
clear of all liens, adverse claims, mortgages, pledges, encumbrances, security
interest or charge of any kind. The representations in this SECTION 4.7 do not
apply to the Marks or Intellectual Property Rights as to which only the
representations in SECTION 4.8 shall apply.
(b) All of the tangible assets of the Company, are, or will be as
of the Closing, in all material respects in reasonably serviceable operating
condition and repair and are adequate for the conduct of the business of the
Company in substantially the same manner as has heretofore been conducted.
(c) SCHEDULE 4.7(c) sets forth a true and complete list of all
real property owned or leased by the Company (collectively, the "REAL
PROPERTY"), including the location of, and a brief description of the nature of
the activities conducted on, such Real Property.
4.8 INTELLECTUAL PROPERTY; SOFTWARE.
(a) For all purposes of this Agreement,
(i) "INTELLECTUAL PROPERTY RIGHTS" means intellectual
property rights arising from or in respect of the following, whether
protected, created or arising under the laws of the United States or any
other jurisdiction: (A) fictional business names, trade
5
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names, service names, registered and unregistered trademarks and service
marks and logos (including any Internet domain names), and applications
therefor (collectively, "MARKS"); (B) patents, patent rights and all
applications therefor, including any and all continuation, divisional,
continuation-in-part, or reissue patent applications or patents issuing
thereon (collectively, "PATENTS"); (C) copyrights and all registrations
and applications therefor (collectively, "COPYRIGHTS"); and (D) know-how,
trade secrets, inventions, discoveries, concepts, ideas, methods,
processes, designs, formulae, technical data, drawings, specifications,
data bases and other proprietary and confidential information, including
customer lists, in each case to the extent not included in the foregoing
clauses (B) or (C) (collectively, "TRADE SECRETS"; Marks, Patents,
Copyrights and Trade Secrets are, collectively, "INTELLECTUAL PROPERTY").
(ii) "SOFTWARE" means any and all (A) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (B) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (C) descriptions, flow-charts and other
work product used to design, plan, organize and develop any of the
foregoing, and (D) all documentation, including user manuals and training
materials, relating to any of the foregoing, in each case developed or
licensed by the Company, or used in or necessary for the conduct of its
business, specifically excluding those items prepared for customers in the
operation of the Company's business for which the customer contractually
has vested title.
(b) SCHEDULE 4.8(b) sets forth a complete and correct list of all
Intellectual Property Rights owned, licensed or used by the Company in the
conduct of its business (other than any Intellectual Property Rights consisting
of "shrink-wrap" licensed software), together with a listing of all material
licenses, franchises, licensing agreements (whether as licensor or licensee) to
which the Company is a party, and any other arrangement with respect to such
Intellectual Property Rights. All Intellectual Property Rights owned, licensed
or used by the Company or used or exercised in or necessary to the conduct of
the Company's business, are referred to herein, collectively, as the "COMPANY
INTELLECTUAL PROPERTY ASSETS."
(c) The Company has not, during the three years preceding the date
of this Agreement, been a party to any Proceeding, nor, to the knowledge of the
Company, is any Proceeding threatened that involved or is likely to involve a
claim of infringement or misappropriation by any person (including any
governmental authority) of any Intellectual Property Right of such person. No
Company Intellectual Property Asset is subject to any outstanding order,
judgment, decree, or stipulation to which the Company is subject in any
proceeding to which the Company is a party or, to its knowledge, any other
proceeding, restricting the use thereof by the Company, or restricting the
licensing thereof by the Company or any person. The current use and
exploitation of the Intellectual Property Assets by the Company (including
without limitation the licensing or other distribution of Software to third
parties by the Company) does not conflict with, infringe upon, violate or result
in the misappropriation of Intellectual Property Right of any person.
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(d) Except as set forth on SCHEDULE 4.8(d):
(i) The Company owns no right, title or interest in any
Patent. The Company owns all right, title and interest in each of the
Marks listed in SCHEDULE 4.8(b) (collectively, the "COMPANY MARKS"), free
and clear of any and all liens and encumbrances, and the Company has not
received any notice or claim (whether written or oral) challenging the
Company's exclusive and complete ownership of any Company Marks or
suggesting that any other Person has any claim of legal or beneficial
ownership or other claim or interest with respect thereto;
(ii) The Company Marks are legally valid and enforceable
without any material qualification, limitation or restriction on their use
and the Company has not received any notice or claim (whether written or
oral) challenging the validity or enforceability of any Company Marks;
(iii) The Company has not taken any action (or failed to take
any action), or used or enforced (or failed to use or enforce) any of the
Company Marks, in each case in a manner that would result in the
abandonment, cancellation, forfeiture, relinquishment, or unenforceability
of any of the Owned Marks or any of the Company's rights therein;
(iv) The Company has taken reasonable steps to protect the
Company's rights in and to each of the Company Marks and to prevent the
unauthorized use thereof by any other Person, in each case in accordance
with standard industry practice, and has adequately policed the Company
Marks against third party infringement of which it is aware;
(v) The Company has not granted to any Person any right,
license or permission to use any of the Company Marks;
(vi) All Company Marks that have been registered have been
effectively registered in accordance with all applicable legal
requirements and are currently in compliance with all legal requirements;
(vii) All maintenance fees, annuities, and the like due on
Company Marks have been timely paid; and
(viii) No Mark that constitutes a Company Mark has been or is
now involved in any opposition or cancellation proceeding and, to the
Company's knowledge, no such action is threatened with the respect to any
of the Company Marks.
(e) The Company has taken reasonable precautions (as determined by
the Company's management) to protect the secrecy of any of its Trade Secrets
that derive commercial value from not being generally known to the public. The
Company has the absolute and unrestricted right to use all of the Trade Secrets
and none of the Trade Secrets owned by the Company is subject to any liens or
encumbrances, and the Company has not received any notice
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or claim challenging the Company's absolute and unrestricted right to use any
of the Trade Secrets or suggesting that any other person has any claim with
respect thereto. None of the Trade Secrets has been, or is alleged to have
been, misappropriated from any other person. Except under appropriate
confidentiality obligations, to its best knowledge, there has been no
disclosure by the Company of material confidential information or other Trade
Secrets that derive commercial value from not being generally known to the
public.
(f) The Company either owns the entire right, title and interest
in, to and under, or has acquired a license to use, any and all Company
Intellectual Property Assets which are material to the conduct of its business
in the manner that the business has heretofore been or is presently being
conducted or as contemplated to be conducted pursuant to the Company's current
business plans, and no other Intellectual Property Rights are necessary for the
unimpaired continued operation of such businesses after the Effective Time in
the manner that such businesses have heretofore been or are presently being
conducted.
(g) SCHEDULE 4.8(g) sets forth a complete and accurate list of
all of the material Software (excluding Software that is available in
consumer retail stores and subject to "shrink-wrap" agreements). SCHEDULE
4.8(g) specifically identifies all material Software that is owned
exclusively by the Company (the "OWNED SOFTWARE") and all material Software
that is used by the Company in the conduct of its business that is not
exclusively owned by the Company (excluding software that is available in
consumer retail stores and subject to "shrink-wrap" agreements) (the
"LICENSED SOFTWARE"). The Company is the owner of all right, title and
interest in and to all Owned Software, including without limitation all
Copyrights, Trade Secrets and other Intellectual Property Rights relating
thereto, free and clear of any and all liens and encumbrances, and the
Company has not received any notice or claim (whether written, oral or
otherwise) challenging the Company's complete and exclusive ownership of all
Owned Software and all such Intellectual Property Rights relating thereto or
claiming that any other person has any claim of legal or beneficial ownership
with respect thereto. The Company has not assigned, licensed, transferred or
encumbered any of its rights in or to any Owned Software, including without
limitation any Copyrights, Trade Secrets or other Intellectual Property
Rights with respect thereto, to any person, excluding any non-exclusive
licenses granted to distributors or customers in the ordinary course of
business. The Company has lawfully acquired the right to use the Licensed
Software, as it is used in the conduct of its business as presently
conducted, and has not exercised any rights in respect of any Licensed
Software, including without limitation any reproduction, distribution or
derivative work rights, outside the scope of any license expressly granted by
the person from which the right to use such Licensed Software was obtained.
(h) SCHEDULE 4.8(h) contains a complete and accurate specific list
of all agreements and arrangements pertaining to the Licensed Software
(excluding software that is available in consumer retail stores and subject to
"shrink-wrap" agreements) (collectively, "LICENSED SOFTWARE AGREEMENTS") and a
complete and accurate list of all agreements and arrangements pertaining to any
other technology used or practiced by the Company as to which a person other
than the Company owns the applicable Intellectual Property Rights (collectively,
"OTHER LICENSED TECHNOLOGY AGREEMENTS" and, together with Licensed Software
Agreements,
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the "Licensed Technology Agreements"). SCHEDULE 4.8(h) sets forth a
complete and accurate list of all royalty obligations of the Company under any
Licensed Technology Agreements. All Licensed Technology Agreements are in full
force and effect, and the Company is not in material breach thereof, nor is it
aware of any claim or basis for any claim to the contrary. All Licensed
Technology Agreements will be maintained by the Company in full force and effect
through the Effective Time. There are no outstanding, and, to the Company's
knowledge, no threatened disputes with respect to any Licensed Technology
Agreement. The rights licensed under each Licensed Technology Agreement shall
be exercisable by the Company on and after the Effective Time to the same extent
as prior to the Effective Time. The Licensed Technology Agreements together
expressly confer on the Company valid and enforceable rights under or in respect
of all of the Intellectual Property Rights that are not owned exclusively by the
Company and that are used or practiced in the Company's business. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will result in the impairment of any rights
under, any Licensed Technology Agreement.
(i) SCHEDULE 4.8(i) contains a complete and accurate list of all
agreements and arrangements involving the grant by the Company to any person of
any right to distribute, prepare derivative works based on, support or maintain
or otherwise commercially exploit any Software, including without limitation any
value-added reseller agreements, joint development or marketing agreements or
strategic alliance agreements involving any Software (collectively, "DESIGNATED
SOFTWARE AGREEMENTS"). All Designated Software Agreements are in full force and
effect, and the Company is not in material breach thereof, nor is it aware of
any claim or basis for a claim to the contrary. All Designated Software
Agreements will be maintained by the Company in full force and effect through
the Effective Time. There are no outstanding and, to the Company's knowledge,
no threatened disputes or disagreements with respect to any Designated Software
Agreement. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in any
impairment of rights under any Designated Software Agreement.
(j) To the Company's knowledge, the Company has taken commercially
reasonable actions in accordance with industry practice to protect its
Intellectual Property Rights in relation to employees, independent contractors
and consultants, including entering into agreements with such persons that
assign to the Company all of the employee's, contractor's or consultant's
rights, including all Intellectual Property Rights, in any Intellectual Property
created or developed thereby that is used in connection with, or that relates
to, the business of the Company. To the knowledge of the Company, no employee
of the Company has entered into any contract or other agreement with any person
(other than the Company) that restricts or limits in any way the scope or type
of work in which the employee may be engaged for the Company or requires the
employee to transfer, assign, or disclose information concerning the employee's
work with the Company to any other person.
4.9 MATERIAL CONTRACTS AND OBLIGATIONS. All agreements, contracts,
leases, licenses, instruments, commitments (oral or written), indebtedness,
liabilities and other obligations to which the Company is a party or by which it
is bound that (a) are material to the conduct and operations of its business and
properties, (b) involve any of the officers, consultants, directors,
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employees or shareholders of the Company or (c) obligate the Company to
share, license or develop any product or technology (the "MATERIAL
CONTRACTS") are listed in SCHEDULE 4.9 and have been made available for
inspection by Purchaser and its counsel. For purposes of this SECTION 4.9,
"material" shall mean any agreement, contract, indebtedness, liability or
other obligation either (i) having an aggregate value, cost or amount in
excess of U.S. $10,000 or (ii) not terminable upon thirty days' notice.
4.10. LITIGATION. There is no action, suit, proceeding, claim,
arbitration or investigation ("PROCEEDING") pending (or, to the Company's
knowledge, currently threatened) against the Company, its activities, properties
or assets or, to the Company's knowledge, against any officer, director or
employee of the Company in connection with such officer's, director's or
employee's relationship with, or actions taken on behalf of; the Company. To
the Company's knowledge, there is no factual or legal basis for any such
Proceeding that might result, individually or in the aggregate, in any material
adverse change in the business, properties, assets, condition (financial or
otherwise) or operations of the Company. The Company is not a party to or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality and there is no Proceeding by
the Company currently pending or which the Company intends to initiate.
4.11 REQUIRED CONSENTS. All consents, approvals, orders, authorizations
or registrations, qualifications, designations, declarations or filings on the
part of the Company with any federal, state or local governmental authority or
otherwise required in connection with the consummation of the transactions
contemplated herein (the "COMPANY REQUIRED CONSENTS"), shall have been obtained
prior to and be effective as of the Closing. Based in part on the
representations of Purchaser set forth in ARTICLE V below, the offer, sale and
issuance of the Shares in conformity with the terms of this Agreement are exempt
from the registration and prospectus delivery requirements of the Act.
4.12 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in any
violation, breach or default of any term of the Company's charter or bylaws or
in any material respect of any term or provision of any mortgage, indenture,
contract, agreement or instrument to which Company is a party or by which it may
be bound, or of any provision of any foreign or domestic state or federal
judgment, decree, order, statute, rule or regulation applicable to or binding
upon Company. The execution, delivery and performance of and compliance with
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such violation or default, or be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
either a default under Company's charter or bylaws, or any agreement or contract
of Company, or, to the best of the Company's knowledge, a violation of any
statutes, laws, regulations or orders, or an event which results in the creation
of any lien, charge or encumbrance upon any of the Company's assets.
4.13. DISCLOSURE. No representation or warranty by the Company in this
Agreement or in any statement or certificate signed by any officer of the
Company furnished or to be furnished to the Purchaser pursuant to this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated therein or
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necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading.
4.14. REGISTRATION RIGHTS. Except as set forth on SCHEDULE 4.14 hereto
or as granted pursuant to the Investor Rights Agreement to be entered into
substantially in the form of EXHIBIT C hereto ("INVESTOR RIGHTS AGREEMENT"),
the Company has not granted or agreed to grant any person or entity any
rights (including "piggyback" registration rights) to have any securities of
the Company registered with the U.S. Securities and Exchange Commission
("SEC") or any other governmental authority.
4.15. INSURANCE. Set forth on SCHEDULE 4.15 is a complete and correct
list of all insurance policies of the Company of any kind currently in force
and also sets forth for each insurance policy the type of coverage, the name
of the insureds, the insurer, the premium, the expiration date, the
deductibles and loss retention amounts and the amounts of coverage.
4.16. FINANCIAL STATEMENTS. SCHEDULE 4.16 sets forth the Company's
unaudited balance sheet dated September 30, 1999 (the "BALANCE SHEET DATE")
and the income statements and statements of changes in cash flows of the
Company for the year ended December 31, 1998 and for each of the three-month
periods ended March 31, June 30 and September 30, 1999 (the "FINANCIAL
STATEMENTS"), in each case as reviewed by Cooper & Company, the Company's
independent auditors. Such Financial Statements (a) were prepared in
accordance with the books and records of the Company, (b) are true, correct
and complete and present fairly the financial condition of the Company as of
the dates therein indicated and the results of operations for the periods
therein specified and (c) have been prepared in accordance with Generally
Accepted Accounting Principles ("GAAP") applied on a consistent basis, except
for the omission of notes thereto and normal year-end audit adjustments.
Specifically, but not by way of limitation, the balance sheet of the
Financial Statements discloses all of the Company's material debts,
liabilities and obligations of any nature, whether due or to become due, as
of the Balance Sheet Date (including, without limitation, absolute
liabilities, accrued liabilities and contingent liabilities) to the extent
such debts, liabilities and obligations are required to be disclosed in
accordance with GAAP. The Company has good and marketable title to all
assets set forth on the balance sheet of the Financial Statements, except for
such assets as have been spent, sold or transferred in the ordinary course of
business since the Balance Sheet Date.
4.17. CERTAIN ACTIONS. Since the Balance Sheet Date, the Company has
not: (a) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital
stock; (b) incurred any indebtedness for money borrowed or incurred any other
liabilities individually in excess of $5,000 or in excess of $10,000 in the
aggregate; (c) made any loans or advances to any person, other than ordinary
advances for travel expenses; (d) sold, exchanged or otherwise disposed of
any material assets or rights other than the sale of inventory in the
ordinary course of its business; or (e) entered into any transactions with
any of its officers, directors or employees or any entity controlled by any
of such individuals (other than employment, stock option, confidentiality,
non-competition and intellectual property rights agreements entered into in
the ordinary course of business and disclosed on SCHEDULE 4.9 hereto).
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4.18. ACTIVITIES SINCE BALANCE SHEET DATE. Since the Balance Sheet Date,
there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as presently
conducted and as presently proposed to be conducted);
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the ordinary course of business that
is not material to the assets, properties, financial condition, operating
results or business of the Company;
(d) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound
or subject, except for changes or amendments which are expressly provided for
or disclosed in this Agreement;
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor or director
not approved by the Company's Board of Directors; or
(f) to the Company's knowledge, any other event or condition of
any character which would materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company.
4.19. TAX MATTERS.
(a) Definitions. For purposes of this Agreement:
(i) the term "TAXES" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service
use, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property, windfall profits, customs, duties or other
taxes, fees, assessments or charges of any kind whatsoever, together with
any interest and any penalties, additions to tax or additional amounts
with respect thereto, (B) any liability for payment of amounts described
in clause (A) whether as a result of transferee liability, of being a
member of an affiliated, consolidated, combined or unitary group for any
period, or otherwise through operation of law and (C) any liability for
the payment of amounts described in clauses (A) or (B) as a result of any
tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and
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(ii) the term "TAX RETURNS" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes.
(b) There have been no examinations or audits of any Tax Returns
of the Company by any applicable federal, state or local governmental agency,
and there are in effect no waivers of applicable statutes of limitations with
respect to Taxes of the Company for any year.
(c) The Company has accurately completed and timely filed in
correct form all Tax Returns required to have been filed by it, and the
Company has paid all Taxes required to be paid by it.
(d) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
4.20. TAX ELECTIONS. The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Internal Revenue
Code of 1986, as amended (the "CODE") (or any corresponding provision of state,
local or foreign Tax law). SCHEDULE 4.20 sets forth all elections with respect
to Taxes that would have a material effect on the Company, its financial
condition, its business as presently conducted or presently proposed to be
conducted, or any of its properties or material assets.
4.21. ENVIRONMENTAL MATTERS. During the period that the Company has owned
or leased its properties and facilities, (a) there have been no disposals,
releases or threatened releases of Hazardous Materials (as defined below) on,
from or under such properties or facilities and (b) neither the Company, nor, to
the Company's knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials. The Company has no
knowledge of any presence, disposals, releases or threatened releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to the Company having taken possession of any of
such properties or facilities. For purposes of this Agreement, the terms
"disposal," "release" and "threatened release" shall have the definitions
assigned thereto by the U.S. Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as amended
("CERCLA"). For the purposes of this SECTION 4.21, "HAZARDOUS MATERIALS" shall
mean any hazardous or toxic substance, material or waste which is regulated
under, or defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance" or "hazardous chemical" under
(i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 ET SEQ.; (iii) the U.S. Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, ET SEQ.; (iv) the U.S. Toxic Substances Control
Act, 15 U.S.C. Section 2601 ET SEQ.; (v) the U.S. Occupational Safety and Health
Act of 1970, 29 U.S.C. Section 651 ET SEQ.; (vi) regulations promulgated under
any of the above statutes or (vii) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to those
statutes identified above.
4.22 EMPLOYEE BENEFITS.
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(a) For all purposes of this Agreement,
(i) "EMPLOYEE PENSION BENEFIT PLAN" means any employee
pension benefit plan, as defined in Section 3(2) of ERISA, that is subject
to Title IV of ERISA, other than a Multiemployer Plan.
(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(iii) "MULTIEMPLOYER PLAN" means a multiemployer plan, as
defined in Section 3(37) and 4001(a)(3) of ERISA.
(b) The Company does not currently sponsor and has not ever
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Pension Benefit Plan on behalf of or with respect to any
employee of the Company. The Company does not currently sponsor, maintain or
contribute to any Multiemployer Plan covering its employees.
4.23. INTERESTED PARTY TRANSACTIONS. Except as set forth SCHEDULE 4.23,
no officer or director of any of the Company or any "affiliate" or "associate"
(as those terms are defined in Rule 405 promulgated under the Act) of any such
person has had, either directly or indirectly, a material interest in: (a) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or (b) any contract or agreement to which the Company is a party or by which it
may be bound or affected.
4.24. STOCK RESTRICTION AGREEMENTS. Each person who, pursuant to any
benefit, bonus or incentive plan of the Company, holds any currently outstanding
shares of common stock or other securities of Company or any option, warrant or
right to acquire such shares or other securities, has entered into or is
otherwise bound by, an agreement granting the Company (a) the right to
repurchase the shares, or to cancel the option, warrant or right, in the event
the holder's employment or services with the Company terminate for any reason,
subject to release of such repurchase or cancellation right pursuant to such
agreement or on terms and conditions specified by the Board of Directors of the
Company and (b) a right of first refusal with respect to all such shares. The
Company has furnished to Purchaser true and complete copies of the forms of all
such stock restriction agreements.
4.25 MINUTE BOOKS. The minute books of the Company provided to Purchaser
contain a complete summary of all meetings of directors and stockholders since
the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
4.26 LABOR AGREEMENTS AND ACTIONS. The Company is not bound by or
subject to (and none of its assets or properties is bound by or subject to) any
written or oral, express or implied, contract, commitment or arrangement with
any labor union, and no labor union has requested or, to the knowledge of the
Company, has sought to represent any of the employees, representatives or agents
of Company. There is no strike or other labor dispute involving the Company
pending, or to the knowledge of the Company, threatened, which could have a
material adverse effect on the assets, properties, financial condition,
operating results or business of the Company, nor is
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the Company aware of any labor organization involving its employees. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate his or her employment with the Company,
nor does the Company have a present intention to terminate the employment of
any of the foregoing. The employment of each officer and employee is
terminable at the will of the Company, subject to the severance payment
obligations contained in agreements disclosed on SCHEDULE 4.9 hereof.
4.27 YEAR 2000 COMPLIANCE. The Company's information technology,
including the Company's internal computer systems and all software and other
products designed by and/or sold by the Company, is Year 2000 compliant.
"Year 2000 compliant" means the information technology is designed to be used
prior to, during, and after the calendar Year 2000 A.D., and the information
technology used during each such time period will accurately receive, provide
and process date/time data (including, but not limited to, calculating,
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries, including the years 1999 and 2000, and leap year calculations and
will not malfunction, cease to function, or provide invalid or incorrect results
as a result of date/time data.
4.28 NO RESTRICTIONS ON SHARES. Other than as set forth in this
Agreement, the Certificate, the Investor Rights Agreement and the Co-Sale and
First Refusal Rights Agreement to be entered into in substantially the form
attached hereto as EXHIBIT D, there are no restrictions on the Shares or
Conversion Shares.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company as follows:
5.1 ORGANIZATION; DUE AUTHORIZATION; NO CONFLICTS.
(a) The Purchaser is a corporation duly organized, validly
existing and in good standing under, and by virtue of, the laws of its state
of incorporation, and has all requisite corporate power and authority to
enter into and consummate this Agreement and the transactions and agreements
contemplated hereby. All corporate action on the part of the Purchaser, its
officers, directors and shareholders necessary for the authorization, execute
and delivery of, and the performance of all obligations of the Purchaser
under this Agreement has been taken or will be taken prior to the Closing.
This Agreement when executed and delivered by Purchaser will constitute a
valid and legally binding obligation of Purchaser, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, moratorium, reorganization
and similar laws affecting creditors' rights generally and to general
equitable principles.
(b) The Purchaser is not in any violation, breach or default of
any term of the Purchaser's charter or bylaws or in any material respect of
any term or provision of any mortgage, indenture, contract, agreement or
instrument to which the Purchaser is a party or by which it may be bound, or
of any provision of any foreign or domestic state or federal judgment,
decree, order, statute, rule or regulation applicable to or binding upon the
Purchaser. The
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execution, delivery and performance of and compliance with this Agreement and
the consummation of the transactions contemplated hereby will not result in
any such violation or default, or be in conflict with or constitute, with or
without the passage of time or the giving of notice or both, either a default
under the Purchaser's charter or bylaws, or any agreement or contract of
Purchaser, or, to the best of the Purchaser's knowledge, a violation of any
statutes, laws, regulations or orders, or an event which results in the
creation of any lien, charge or encumbrance upon any of the Purchaser's
assets.
5.2 INVESTIGATION; ECONOMIC RISK. Purchaser acknowledges that it has
had an opportunity to discuss the business, affairs and current prospects of the
Company with its officers. Purchaser further acknowledges having had access to
information about the Company that it has requested. Purchaser acknowledges
that it is able to fend for itself in the transactions contemplated by this
Agreement and has the ability to bear the economic risks of its investment
pursuant to this Agreement.
5.3 PURCHASE FOR OWN ACCOUNT. The Shares and the Conversion Shares will
be acquired for its own account, not as a nominee or agent, and not with a view
to or in connection with the sale or distribution of any part thereof; PROVIDED,
HOWEVER, that the parties agree that Purchaser may transfer a portion of its
investment in the Company to American Express or a subsidiary thereof in
connection with other business arrangements among the Company, Purchaser and
American Express. In the event that the Purchaser agrees to so transfer a
portion of its investment, it will only do so in compliance with applicable law.
5.4 EXEMPT FROM REGISTRATION; RESTRICTED SECURITIES. Purchaser
understands that the Shares and the Conversion Shares will not be registered
under the Act, on the ground that the sale provided for in this Agreement is
exempt from registration under the Act, and that the reliance of the Company on
such exemption is predicated in part on Purchaser's representations set forth in
this Agreement.
5.5 RESTRICTIVE LEGENDS. It is understood that each certificate
representing (a) the Share, (b) the Conversion Shares and (c) any other
securities issued in respect of the any of the foregoing upon any stock
split, stock dividend, recapitalization, merger or similar event shall be
stamped or otherwise imprinted with a legend substantially in the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES
ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM.
5.6 REMOVAL OF RESTRICTIVE LEGEND. The legend set forth above shall be
removed by the Company from any certificate evidencing Shares or Conversion
Shares upon delivery to the
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Company of an opinion by counsel, reasonably satisfactory to the Company,
that a registration statement under the Act is at that time in effect with
respect to the legended security or that such security can be freely
transferred in a public sale without such a registration statement being in
effect and that such transfer will not jeopardize the exemption or exemptions
from registration pursuant to which the Company issued the Shares or
Conversion Shares.
5.7 STATUS OF PURCHASER. Purchaser is an "accredited investor" as that
term is defined in Rule 501(a) of Regulation D of the Act.
ARTICLE VI
CERTAIN COVENANTS
6.1 USE OF PROCEEDS. The Company will use the proceeds from the
purchase of the Shares under this Agreement for working capital and general
corporate purposes.
6.2 EXPENSES. All costs and expenses incurred in connection with this
Agreement and in closing and carrying out the transactions contemplated hereby
shall be paid by the party incurring such cost or expense. This section shall
survive the termination of this Agreement.
6.3 CONDUCT OF THE BUSINESS. From the date hereof until the Closing
Date, the Company will conduct its business in the ordinary course and use its
commercially reasonable efforts, without paying or increasing the compensation,
payments, remuneration or fees payable to any person other than in the ordinary
course of business, to preserve intact its business organizations and
relationships and goodwill with third parties. Without limiting the generality
of the foregoing, from the date hereof until the Closing Date:
(a) Without the Purchaser's prior consent (which consent shall
not be unreasonably withheld or delayed), the Company will not and will not
agree to:
(i) purchase or otherwise acquire assets from any other
person, or sell or transfer any assets of its business, other than in the
ordinary course of business;
(ii) incur any liability, except liabilities (A) incurred in
the ordinary course of business where the aggregate dollar amount of all
such liabilities incurred does not exceed Ten Thousand Dollars ($10,000),
(B) incurred pursuant to existing obligations of the Company that are
disclosed in the Schedules hereto or (C) expressly contemplated by the
terms of this Agreement;
(iii) amend or modify in any material respect or terminate
any Material Contract or any other contract entered into by the Company
after the date hereof which, if in existence on the date hereof, would be
considered a Material Contract; or
(iv) make or commit to make any capital expenditure, or
group of related capital expenditures, in excess of Ten Thousand Dollars
($10,000), other than
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(A) capital expenditures set forth on SCHEDULE 6.3 and (B) capital
expenditures expressly required under any Material Contract.
(b) The Company will:
(i) (A) maintain its assets in the ordinary course of
business in reasonably serviceable operating order and condition,
reasonable wear and tear, damage by fire and other casualty excepted,
(B) promptly repair, restore or replace any material assets in the
ordinary course of business and (C) upon any damage, destruction or loss
to any of such assets, apply any and all insurance proceeds received with
respect thereto to the prompt repair, replacement and restoration thereof
to the condition of such assets before such event to the extent reasonably
practicable;
(ii) comply with all material applicable laws;
(iii) not allow any liens for taxes to be placed on any of
its assets, except for liens arising from taxes which are due but not yet
payable;
(iv) use its commercially reasonable efforts to obtain,
prior to the Closing Date, all Company Required Consents;
(v) promptly notify Purchaser in writing if it has
knowledge of any action, event, condition or circumstance, or group of
actions, events, conditions or circumstances that materially affect the
business of the Company, other than changes in general economic
conditions;
(vi) promptly notify Purchaser in writing of the
commencement of any Proceeding by or against the Company, or of becoming
aware of any material claim, action, suit, inquiry, proceeding, notice of
violation, subpoena, government audit or disallowance that could
reasonably be expected to result in a Proceeding; and
(vii) pay accounts payable and pursue collection of its
accounts receivable in the ordinary course of business.
6.4 FURTHER ASSURANCES. The parties hereto shall execute and deliver
such other documents, certificates, agreements and other writings and shall take
such other actions as may be reasonably necessary or desirable (including,
without limitation, obtaining the Required Consents and making necessary filings
with all governmental authorities) in order to consummate or implement
expeditiously the transactions contemplated by this Agreement. Notwithstanding
the foregoing, no party hereto shall have any obligation to expend any funds or
to incur any other obligation in connection with the consummation of the
transactions contemplated hereby (including, by way of illustration only, any
payment in connection with obtaining the Required Consents) other than normal
out-of-pocket expenses (such as fees and expenses of counsel and accountants)
reasonably necessary to consummate such transactions.
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6.5 CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS. The parties hereto shall
use their best efforts to keep this Agreement and the execution and terms
hereof confidential, and shall consult with each other before issuing any
press release or making any public statement with respect to this Agreement
or the transactions contemplated hereby. The parties may, however, disclose
such matters to its directors, officers, executive employees and professional
advisors and those of prospective financing sources to such extent as may be
reasonable for the negotiation, execution and consummation of this Agreement.
Each party shall keep confidential all information concerning the other
obtained pursuant to this Agreement and shall not use such information except
in connection with the transactions set forth herein. If for any reason such
transactions shall not be consummated, each party will return all such
information (including all copies thereof) regarding the other, to the other
party. The foregoing obligations of confidentiality in this SECTION 6.5 do
not pertain to the disclosure of information which is available publicly, is
required to be disclosed by any court or any party discloses, upon advice of
counsel, in order to comply with applicable law. The parties hereto
recognize and agree that in the event of a breach by a party of this section,
money damages would not be an adequate remedy to the injured party for such
breach and, even if money damages were adequate, it would be impossible to
ascertain or measure with any degree of accuracy the damages sustained by
such injured party therefrom. Accordingly, if there should be a breach or
threatened breach by a party of the provisions of this section, the injured
party shall be entitled to an injunction restraining the breaching party from
any breach without showing or proving actual damage sustained by the injured
party. Nothing in the preceding sentence shall limit or otherwise affect any
remedies that a party may otherwise have under applicable law.
6.6 INSPECTION. Subject to confidentiality obligations and similar
restrictions that may be applicable to information furnished to the Company
by third parties that may be in the Company's possession from time to time
(including restrictions on the disclosure of government-classified
information), prior to the Closing, the Company shall allow Purchaser and its
accountants, counsel and other representatives reasonable access, during
normal business hours, by advance arrangement with the Company's management
and in the presence of representatives of the Company and in such manner so
as not to interfere unduly with the Company's operations, to all of the
properties, books, contracts, commitments, tax returns and records of its
business and appropriate officers and employees, and shall furnish such
representatives, at Purchaser's expense for copying only, with all financial
and operating data and other information concerning its affairs as Purchaser
may reasonably request.
6.7 OTHER INVESTMENTS. The Company and each of its officers and
other employees with managerial responsibilities, directors, representatives
and agents shall immediately cease any discussions or negotiations with any
parties with respect to any investment by such parties in the securities of
the Company ("INVESTMENT TRANSACTIONS"). Until the transactions contemplated
by this Agreement have been consummated, the Company shall not and none of
its officers, directors, employees representatives or agents will, directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with or provide any non-public information to any person or
group (other than Purchaser or any designees of Purchaser) concerning any
Investment Transactions; PROVIDED, HOWEVER, that nothing herein shall prevent
the Company from conducting such "due diligence" inquiries (which shall be in
writing to the
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extent possible) in response to any Investment Transaction proposal as the
directors of the Company in their good faith judgment, after consultation
with and based upon the advice of legal counsel, may be required in order to
comply with its fiduciary duties. The Company shall promptly notify
Purchaser in the event it receives any proposal or inquiry concerning an
Investment Transaction, including the material terms and conditions thereof
and the identity of the party submitting such proposal, and shall advise
Purchaser time to time of the status and any material developments concerning
the same, including the nature and content of any "due diligence" inquiries
made by it concerning any such proposal and furnishing copies of any such
written inquiries.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of each of
the Company and Purchaser to consummate the Closing are subject to the
satisfaction of each of the following conditions:
(a) DISTRIBUTION AGREEMENT. The Company and Purchaser shall have
entered into the Distribution Agreement in substantially the form attached as
EXHIBIT B.
(b) INVESTOR RIGHTS AGREEMENT. The Company and Purchaser shall
have entered into an Investor Rights Agreement in substantially the form
attached as EXHIBIT C.
(c) CO-SALE AGREEMENT. The Company, Purchaser and certain
stockholders of the Purchaser shall have entered into an Co-Sale and First
Refusal Rights Agreement in substantially the form attached as EXHIBIT D.
7.2 CONDITIONS TO OBLIGATION OF PURCHASER. The obligation of Purchaser
to purchase the Shares at the Closing is subject to the satisfaction of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in ARTICLE IV shall be true and correct in
all material respects when made, and shall be true and correct in all material
respects as of the date of Closing with the same force and effect as if they had
been made on and as of such date, subject to changes contemplated by this
Agreement; and the Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed
and complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing and shall have obtained all approvals, consents and qualifications
necessary to complete the purchase and sale described herein.
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(c) CONSENTS AND WAIVERS. The Company shall have obtained any and
all consents and waivers necessary or appropriate for consummation by it of the
transactions contemplated by this Agreement.
(d) COMPLIANCE CERTIFICATE. At the Closing, the Company shall
deliver to Purchaser a certificate, dated the date of Closing, signed by the
Company's President certifying that the conditions specified in SECTION
7.2(a), (b), (c) and (f) have been fulfilled.
(e) SECURITIES LAWS. The offer and sale of the Shares to
Purchaser pursuant to this Agreement shall be exempt from the registration
requirements of the Act and the registration and/or qualification
requirements of all applicable state securities laws.
(f) AMENDMENT TO CERTIFICATE. The Certificate shall have been
duly adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders and shall have been duly filed with and accepted
by the Secretary of State of the State of Delaware.
(g) OPINION OF COUNSEL. The Company shall have furnished
Purchaser with a legal opinion, dated as of the date of Closing, of Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C. substantially in the form set
forth in EXHIBIT E attached hereto.
(h) NO MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, there shall have been no material adverse change in the business,
operations, prospects, condition (financial or otherwise) or results of
operations of the Company.
(i) OWNERSHIP OF TECHNOLOGY. Purchaser shall have received from
the Company all documents and other materials requested by Purchaser for the
purpose of examining and determining the Company's rights in and to any
technology, products and proprietary assets now used, proposed to be used in,
or necessary to, the Company's business as now conducted and proposed to be
conducted, and the status of the Company's ownership rights in and to all
such technology, products and proprietary assets shall be reasonably
satisfactory to Purchaser.
7.3 CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of the
Company to sell the Shares at the Closing is subject to the satisfaction of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in ARTICLE V hereof shall be true and correct
in all material respects as of the Closing.
(b) CONSENTS AND WAIVERS. The Purchaser shall have obtained any
and all consents and waivers necessary or appropriate for consummation by it of
the transactions contemplated by this Agreement.
(c) PAYMENT OF PURCHASE PRICE. Purchaser shall have delivered to
the Company the Aggregate Purchase Price in accordance with the provisions of
ARTICLE III.
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(d) CERTIFICATE EFFECTIVE. The Certificate shall have been duly
adopted by the Company by all necessary corporate action of its Board of
Directors and shareholders, and shall have been duly filed with and accepted by
the Secretary of State of the State of Delaware.
(e) SECURITIES EXEMPTIONS. The offer and sale of the Shares and
the Conversion Shares to Purchaser pursuant to this Agreement shall be exempt
from the registration requirements of the Act, and the registration and/or
qualification requirements of all applicable state securities laws.
ARTICLE VIII
INDEMNIFICATION
8.1 AGREEMENT TO INDEMNIFY.
(a) Purchaser shall be indemnified and held harmless to the
extent set forth in this ARTICLE VIII by the Company in respect of any and
all demands, claims, actions or causes of action, assessments, losses,
damages, costs, expenses, liabilities, judgments, awards, fines, sanctions,
penalties, charges and amounts paid in settlement (net of insurance proceeds
actually received), including (i) interest on cash disbursements in respect
of any of the foregoing at the per annum rate of interest publicly announced
from time to time by the Bank of America as its prime rate (or reference
rate), compounded quarterly, from the date each such cash disbursement is
made until the person incurring the same shall have been indemnified in
respect thereof and (ii) reasonable costs, fees and expenses of attorneys,
accountants and other agents of such person (collectively, "DAMAGES")
reasonably and proximately incurred by Purchaser as a result of any
inaccuracy or misrepresentation in or breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement as of the
Closing; and
(b) The Company shall be indemnified and held harmless to the
extent set forth in this ARTICLE VIII by Purchaser in respect of any and all
Damages reasonably and proximately incurred by the Company as a result of any
inaccuracy or misrepresentation in or breach of any representation, warranty,
covenant or agreement made by the Purchaser in this Agreement.
(c) Except as set forth in SECTIONS 8.1(a), and (b) and except
to the extent of confidentiality provisions in this Agreement, no person
shall have any claim or cause of action as a result of any inaccuracy or
misrepresentation in or breach of or failure to perform any representation,
warranty, covenant, agreement or obligation of a party providing
indemnification (each, an "INDEMNIFYING PARTY") against any affiliate,
stockholder, director, officer, employee, consultant or agent of such
Indemnifying Party. Nothing set forth in this ARTICLE VIII shall be deemed
to prohibit or limit the right of a party entitled to indemnification (each,
an "INDEMNITEE") at any time before, on or after the Closing Date, to seek
injunctive or other equitable relief for the failure of any Indemnifying
Party to perform any covenant or agreement contained herein.
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8.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties, covenants, agreements and obligations of each
Indemnifying Party contained herein and all claims of any party in respect of
any breach of any representation, warranty, covenant, agreement or obligation
of any Indemnifying Party contained in this Agreement, shall survive the
Closing and shall expire on the second anniversary of the Closing Date,
except for (a) covenants or obligations which by their terms shall be
performed after the Closing, which shall survive the Closing and not expire
unless otherwise provided in this Agreement, (b) (i) the inaccuracy or
misrepresentation in or breach of any representation, warranty, covenant or
agreement made by the Company at any time in this Agreement arising out of
fraud or (ii) any inaccuracy or misrepresentation in or breach of any
representation or warranty made in SECTIONS 4.2, 4.19 or 4.20, which shall
survive the Closing Date until the thirty (30) days after the expiration of
any applicable statute of limitations, including extensions thereof and (c)
the representations and warranties of the Company made in SECTION 4.8, which
shall survive the Closing Date until the fifth anniversary of the Closing
Date. Notwithstanding anything herein to the contrary, indemnification for
claims for which written notice as provided in SECTION 8.5 has been timely
given shall not expire until the final resolution of such claim in accordance
with SECTION 9.13.
8.3 LIMITATION. The Purchaser shall be entitled to indemnification
pursuant to SECTION 8.1(a) only if the total aggregate Damages under
SECTION 8.1(a) exceeds One Hundred Thousand Dollars ($100,000) (the "AGGREGATE
THRESHOLD"); PROVIDED, HOWEVER, that once such aggregate Damages reach the
Aggregate Threshold, the Purchaser shall be entitled to receive the amount of
all Damages in excess of the Aggregate Threshold. The aggregate amount which
the Purchaser shall be entitled to be indemnified for under SECTION 8.1(a) will
not exceed the Aggregate Purchase Price.
8.4 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe that
such Indemnitee is entitled to indemnification pursuant to this ARTICLE VIII in
respect of any Damages, such Indemnitee shall give the appropriate Indemnifying
Party prompt written notice thereof. Any such notice shall set forth in
reasonable detail and to the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give notice of any claim for
indemnification promptly, but within the periods specified by SECTION 8.2 shall
not adversely affect such Indemnitee's right to indemnity hereunder except to
the extent that such failure adversely affects the right of the Indemnifying
Party to assert any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall have only the
twenty (20) Business Day period referred to in the next sentence to dispute or
deny such claim. The Indemnifying Party shall have twenty (20) Business Days
following its receipt of such notice either (a) to acquiesce in such claim and
its respective responsibilities to indemnify the Indemnitee in respect thereof
in accordance with the terms of this ARTICLE VIII by giving such Indemnitee
written notice of such acquiescence or (b) to object to the claim by giving such
Indemnitee written notice of the objection. If the Indemnifying Party does not
object thereto within such twenty (20) Business Day period, such Indemnifying
Party shall be deemed to have acquiesced in such claim and their respective
responsibilities to indemnify the Indemnitee in respect thereof in accordance
with the terms of this ARTICLE VIII.
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8.5 DEFENSE OF CLAIMS. In connection with any claim which may give
rise to indemnity under this ARTICLE VIII resulting from or arising out of
any claim or Proceeding against an Indemnitee by a person that is not a party
hereto, the Indemnifying Party may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice sent at any time to
the relevant Indemnitee, assume the defense of any such claim or Proceeding
if the Indemnifying Party with respect to such claim or Proceeding
acknowledges to the Indemnitee the Indemnitee's right to indemnity pursuant
hereto in respect of the entirety of such claim (as such claim may have been
modified through written agreement of the parties or arbitration hereunder)
and provide assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Party will be financially able to satisfy such claim in full if
such claim or Proceeding is decided adversely. If the Indemnifying Party
assumes the defense of any such claim or Proceeding, the Indemnifying Party
shall select counsel reasonably acceptable to such Indemnitee to conduct the
defense of such claim or Proceeding, shall take all steps reasonably
necessary in the defense or settlement thereof and shall at all times
diligently and promptly pursue the resolution thereof. If the Indemnifying
Party shall have assumed the defense of any claim or Proceeding in accordance
with this SECTION 8.5, the Indemnifying Party shall be authorized to consent
to a settlement of, or the entry of any judgment arising from, any such claim
or Proceeding, without the prior written consent of such Indemnitee;
PROVIDED, HOWEVER, that the Indemnifying Party shall pay or cause to be paid
all amounts arising out of such settlement or judgment either concurrently
with the effectiveness thereof or shall obtain and deliver to such
Indemnitees prior to the execution of such settlement a general release
executed by the person not a party hereto, which general release shall
release such Indemnitee from any liability in such matter; PROVIDED, FURTHER,
that the Indemnifying Party shall not be authorized to encumber any of the
assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and PROVIDED, FURTHER, that a
condition to any such settlement shall be a complete release of such
Indemnitee and its affiliates, officers, employees, consultants and agents
with respect to such claim. Such Indemnitee shall be entitled to participate
in (but not control) the defense of any such action, with its own counsel and
at its own expense. Each Indemnitee shall, and shall cause each of its
affiliates, officers, employees, consultants and agents to, cooperate fully
with the Indemnifying Party in the defense of any claim or Proceeding being
defended by the Indemnifying Party pursuant to this SECTION 8.5. If the
Indemnifying Party does not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this SECTION 8.5, such
Indemnitee may defend against such claim or Proceeding in such manner as it
may deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Party, on such terms as such
Indemnitee may deem appropriate. If the Indemnifying Party seeks to question
the manner in which such Indemnitee defended such claim or Proceeding or the
amount of or nature of any such settlement, the Indemnifying Party shall have
the burden to prove by a preponderance of the evidence that such Indemnitee
did not defend such claim or Proceeding in a reasonably prudent manner.
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ARTICLE IX
MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the internal laws (without reference to choice or conflict of
laws) of the State of Delaware.
9.2 CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
9.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto whose rights or obligations hereunder are affected by such
amendments. This Agreement and the rights and obligations therein may not be
assigned by Purchaser without the written consent of the Company except to a
parent corporation, a subsidiary or affiliate and except for American Express
or any subsidiary of American Express, as provided in SECTION 5.3. This
Agreement and the rights and obligations therein may not be assigned by the
Company without the written consent of Purchaser.
9.4 ENTIRE AGREEMENT. This Agreement (including the Schedules and
the other agreements executed by the parties simultaneously herewith,
including the agreements and instruments forms of which are attached as
Exhibits hereto) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior or
contemporaneous agreements, understandings and negotiations, both written and
oral, between the parties with respect to the subject matter of this
Agreement; PROVIDED, HOWEVER, that nothing in this Agreement shall be deemed
to terminate or supersede the provisions of any confidentiality and
nondisclosure agreements executed by the parties hereto prior to the date
hereof, which agreements shall continue in full force and effect until
terminated in accordance with their respective terms. Neither this Agreement
nor any provision hereof is intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
9.5 NOTICES. Except as may be otherwise provided herein, all
notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been
duly given (a) when hand delivered to the other party, (b) when received when
sent by facsimile at the address and number set forth below, subject to
receipt of confirmation, (c) three business days after deposit in the United
States mail, registered or certified mail, return receipt requested, postage
prepaid and addressed to the other party as set forth below or (d) the next
business day after deposit with a national overnight delivery service,
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, PROVIDED that the sending party
receives a confirmation of delivery from the delivery service provider.
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To the Company: foodline.com, Inc.
135 Fifth Avenue, 10th Floor
New York, New York
Attention: President
Fax No.: (212) 420-9963
With copies to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention: Richard R. Kelly, Esq.
Fax No.: (617) 542-2241
To Purchaser: Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, California
Attention: Bradley K. Serwin, Esq.
Fax No.: (626) 405-9929
With copies to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Kenneth M. Doran, Esq.
Fax No.: (213) 229-7520
Each person making a communication hereunder by facsimile shall promptly
confirm by telephone to the person to whom such communication was addressed each
communication made by it by facsimile pursuant hereto but the absence of such
confirmation shall not affect the validity of any such communication. A party
may change or supplement the addresses given above, or designate additional
addresses, for purposes of this SECTION 9.5 by giving the other party written
notice of the new address in the manner set forth above.
9.6 AMENDMENTS AND WAIVERS.
(a) Any provision of this Agreement may be amended or waived if,
and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent occurrence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise
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thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
9.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to the Company or to Purchaser, upon any breach or
default of any party hereto under this Agreement, shall impair any such right,
power or remedy of the Company or Purchaser, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of any
similar breach of default thereafter occurring; nor shall any waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the Company
or Purchaser of any breach of default under this Agreement or any waiver on the
part of the Company or Purchaser of any provisions or conditions of this
Agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to the Company or Purchaser shall be
cumulative and not alternative.
9.8 FINDER'S FEES. Each party hereby agrees to indemnify and to hold
harmless the other party hereto from and against any liability for any
commission or compensation in the nature of a finder's fee of any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the indemnifying party or any of its
employees or representatives are responsible.
9.9 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts and the signatures delivered by telecopy, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument and delivered in person. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other parties hereto.
9.10 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended..
9.11 CONSTRUCTION. The parties hereto intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty or covenant contained herein
in any respect, the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) that the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty or covenant.
9.12 CUMULATIVE REMEDIES. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
27
<PAGE>
9.13 THIRD-PARTY BENEFICIARIES. No provision of this Agreement shall
create any third-party beneficiary rights in any person, including any employee
of Purchaser or employee or former employee of the Company (including any
beneficiary or dependent thereof).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year herein above first written.
FOODLINE.COM, INC.,
a Delaware corporation
By: /s/ PAUL LIGHTFOOT
---------------------------
Paul Lightfoot
Chief Executive Officer
TICKETMASTER ONLINE-CITYSEARCH, INC., a
Delaware corporation
By: /s/ BRADLEY K. SERWIN
---------------------------
Name: Brad Serwin
---------------------------
Title: V.P.
---------------------------
29
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<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 67,962 106,910
<SECURITIES> 0 0
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<ALLOWANCES> (485) (58)
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<PP&E> 22,528 11,487
<DEPRECIATION> (9,061) (5,594)
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0 0
0 0
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<INCOME-TAX> 182 2,993
<INCOME-CONTINUING> (72,444) (164)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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<NET-INCOME> (72,444) (164)
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