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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 17, 1999
(Date of Report)
SHOPNOW.COM INC.
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(Exact Name of Registrant as Specified in Charter)
WASHINGTON 000-26707 91-1628103
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
411 FIRST AVENUE SOUTH, SUITE 200 NORTH, SEATTLE, WA 98104
(Address of Principal Executive Offices, including Zip Code)
(206) 223-1996
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 17, 1999, ShopNow.com Inc. ("ShopNow") acquired
WebCentric, Inc., a Kansas corporation d/b/a bottomdollar.com ("WebCentric"),
pursuant to an Agreement and Plan of Merger dated as of December 16, 1999,
among ShopNow, Chiefs Acquisition, Inc., a Washington corporation and
wholly-owned subsidiary of ShopNow, WebCentric, and Craig A. Johnson, Kent A.
Johnson, Eric Wendelbo, Rick Ralston, World Investments, Inc., Kent Johnson,
L.P. and Lazy J of Kansas, L.P., the stockholders of WebCentric. By the terms
of the merger agreement, Chiefs Acquisition, Inc. merged with and into
WebCentric.
WebCentric, a privately-held company established in 1997, develops
e-commerce integration technology and applications, including a comparison
shopping engine that allows consumers to search and compare the products and
services of several leading Internet merchants. WebCentric's comparison
shopping engine will be integrated into the ShopNow Network.
Upon effectiveness of the merger, each outstanding share of
WebCentric common stock was converted into 7.666 unregistered shares of
ShopNow common stock. A total of 2,161,904 unregistered shares of ShopNow
common stock were issued in connection with the transaction. ShopNow will
account for the transaction as a purchase transaction.
All options to purchase WebCentric common stock that were
outstanding prior to the merger were terminated and replaced with
nonqualified options to purchase ShopNow common stock under ShopNow's 1999
Nonofficer Employee Stock Option Plan. The exercise price and number of
shares of ShopNow common stock subject to each WebCentric option replaced was
proportionately adjusted to reflect the relative value of the ShopNow common
stock. In the aggregate, ShopNow issued replacement options to purchase an
aggregate of 121,544 shares of ShopNow common stock. One third of the
replacement options vested immediately upon the closing of the merger. The
remainder of the replacement options will vest ratably over a two-year
period. In addition, ShopNow granted options under its 1999 Nonofficer
Employee Stock Option Plan to purchase an aggregate of 462,693 shares of
ShopNow common stock at an exercise price of $15 per share to employees and
managers of WebCentric, all of whom are continuing their employment with
ShopNow. One third of the new options vested immediately upon grant. The
remainder of the new options will vest ratably over a two-year period.
ShopNow also agreed to pay approximately $1.4 million in investment
banker fees and other expenses on behalf of WebCentric.
Pursuant to the merger agreement, WebCentric's stockholders agreed
to severally indemnify ShopNow for, among other things, any damages ShopNow
suffers because of: (1) any inaccuracy in the representations and warranties
made by WebCentric or any of its stockholders in connection with the merger
agreement and the other documents related to the merger, and (2) any claim
relating to the operation of the WebCentric's business before the merger
became effective. To secure these indemnification obligations, 231,346 shares
of ShopNow common stock issued to the stockholders in the merger will be held
by, and pledged by the stockholders to, ShopNow for one year.
ShopNow issued the shares of ShopNow common stock to the
stockholders of WebCentric pursuant to the exemptions from the registration
requirements of the Securities Act of 1933 provided by Section 4(2) and
Regulation D of the Securities Act.
The merger agreement is filed as an exhibit to this report and is
incorporated into this report by reference. This summary of the provisions of
this agreement is not complete, and you should refer to the exhibits for a
copy of the actual agreement.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL INFORMATION
The required financial statements with respect to WebCentric, Inc.
are not available as of the date of this Current Report on Form 8-K. In
accordance with paragraph 4 of Item 7(a) of Form 8-K, ShopNow will file the
financial statements by amendment as soon as practicable and no later than 60
days from the date on which this Form 8-K must be filed.
(b) PRO FORMA FINANCIAL INFORMATION
The required pro forma financial statements with respect to
WebCentric, Inc. and ShopNow are not available as of the date of this Current
Report on Form 8-K. In accordance with paragraph 4 of Item 7(a) of Form 8-K,
ShopNow will file the financial statements by amendment as soon as
practicable and no later than 60 days from the date on which this Form 8-K
must be filed.
(c) EXHIBITS
2.1 Agreement and Plan of Merger dated as of December 16, 1999,
among ShopNow.com Inc., Chiefs Acquisition, Inc.,
WebCentric, Inc. and the Stockholders of WebCentric, Inc.
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SIGNATURE
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 hereunto duly authorized.
SHOPNOW.COM INC.
Dated: December 28, 1999 By /s/ Alan Koslow
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Alan D. Koslow
Executive Vice President, Chief Financial
Officer and General Counsel
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EXHIBIT INDEX
Exhibit Number Description
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2.1 Agreement and Plan of Merger dated as of December 16, 1999, among
ShopNow.com Inc., Chiefs Acquisition, Inc., WebCentric, Inc. and
the Stockholders of WebCentric, Inc.
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AGREEMENT AND PLAN OF MERGER
AMONG
SHOPNOW.COM INC.
CHIEFS ACQUISITION, INC.,
WEBCENTRIC, INC.
AND
THE STOCKHOLDERS OF WEBCENTRIC, INC.
DATED AS OF DECEMBER 16, 1999
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CONTENTS
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ARTICLE I - THE MERGER......................................................1
1.1 The Merger........................................................1
1.2 The Closing.......................................................2
1.3 Effective Date and Time...........................................2
1.4 Articles of Incorporation of the Surviving Corporation............2
1.5 Bylaws of the Surviving Corporation...............................2
1.6 Directors and Officers............................................3
1.7 Conversion of Shares..............................................3
1.7.1 Exchange Ratio..........................................3
1.7.2 Exchange of Certificates................................6
1.7.3 No Fractional Shares....................................6
1.7.4 No Further Transfers....................................6
1.8 Amendment to Provide for Alternative Merger Structures............6
1.9 Option Grants.....................................................7
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE STOCKHOLDERS...........................................7
2.1 Organization......................................................8
2.2 Enforceability....................................................8
2.3 Capitalization....................................................8
2.4 Subsidiaries and Affiliates.......................................10
2.5 No Approvals; No Conflicts........................................10
2.6 Financial Statements..............................................11
2.7 Absence of Certain Changes or Events..............................11
2.8 Taxes.............................................................13
2.9 Property..........................................................16
2.10 Contracts.........................................................17
2.10.1 Material Contracts......................................17
2.10.2 Required Consents.......................................19
2.11 Claims and Legal Proceedings......................................19
2.12 Labor and Employment Matters......................................19
2.13 Employee Benefit Plans............................................20
2.13.1 Employee Benefit Plan Listing...........................20
2.13.2 Documents Provided......................................21
2.13.3 Compliance..............................................21
2.13.4 Qualification...........................................22
2.13.5 Contributions and Premium Payments......................22
2.13.6 Related Employers.......................................22
2.13.7 Certain Pension Plans...................................22
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2.13.8 Post-Termination Benefits...............................23
2.13.9 Parachute Payments......................................23
2.13.10 Suits, Claims and Investigations........................23
2.13.11 Payments Resulting from Transactions....................23
2.13.12 Definitions.............................................24
2.14 Intellectual Property.............................................25
2.14.1 General.................................................25
2.14.2 Company Technology......................................25
2.14.3 Third Party Technology..................................26
2.14.4 Trademarks..............................................26
2.14.5 Intellectual Property Rights............................27
2.14.6 Maintenance of Rights...................................27
2.14.7 Third Party Claims......................................27
2.14.8 Infringement by the Company.............................28
2.14.9 Confidentiality.........................................28
2.14.10 Warranty Against Defects................................29
2.14.11 Domain Names............................................29
2.14.12 Year 2000...............................................29
2.14.13 Participating Developers................................30
2.14.14 No Impairment; Compliance with Laws.....................30
2.15 Corporate Books and Records.......................................30
2.16 Licenses, Permits, Authorizations, etc............................31
2.17 Compliance With Laws..............................................31
2.18 Insurance.........................................................31
2.19 Brokers or Finders................................................32
2.20 Absence of Questionable Payments..................................32
2.21 Bank Accounts.....................................................32
2.22 Customers and Suppliers...........................................33
2.23 Accounts Receivable...............................................33
2.24 Creditors' List...................................................33
2.25 Insider Interests.................................................33
2.26 Compliance With Environmental Laws................................34
2.27 Information Supplied by the Company...............................35
2.28 Full Disclosure...................................................35
2.29 Hart-Scott-Rodino.................................................35
ARTICLE IIA - ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF THE STOCKHOLDERS.........................................35
2A.1 Sophistication; Accreditation.....................................36
2A.2 Ownership.........................................................36
2A.3 SEC Documents.....................................................36
2A.4 No Registration...................................................36
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2A.5 Claims Against the Company........................................37
2A.6 Brokers or Agents.................................................37
2A.7 Investment for Own Account........................................37
2A.8 Residency.........................................................37
2A.9 Legends...........................................................37
2A.10 Hart-Scott-Rodino.................................................38
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
SHOPNOW AND PURCHASER...................................................38
3.1 Organization......................................................38
3.2 Enforceability....................................................39
3.3 Securities........................................................39
3.4 No Approvals or Notices Required; No Conflicts With
Instruments.......................................................39
3.5 SEC Documents.....................................................40
3.6 Information Supplied by ShopNow...................................40
3.7 Full Disclosure...................................................40
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS OF
SHOPNOW AND PURCHASER...................................................41
4.1 Accuracy of Representations and Warranties........................41
4.2 Performance of Agreements.........................................41
4.3 Opinion of Counsel for the Company................................41
4.4 Compliance Certificate............................................41
4.5 Material Adverse Change...........................................42
4.6 Approvals and Consents............................................42
4.7 Proceedings and Documents; Secretary's Certificate................42
4.8 Nonforeign Affidavit..............................................42
4.9 Compliance With Laws..............................................42
4.10 Legal Proceedings.................................................43
4.11 Noncompetition Arrangements.......................................43
4.12 Termination of Certain Agreements.................................43
4.13 Termination of Stock Purchase Agreements and Associated
Promissory Notes..................................................43
4.14 Exercise or Termination of Stock Purchase Rights;
Conversion of Convertible Securities..............................44
4.15 Amendment of Option Agreements....................................44
4.16 Consents to Merger................................................44
4.17 Merger Consideration Spreadsheet..................................44
4.18 Option Consideration Spreadsheet..................................44
4.19 Resignations......................................................45
4.20 Tax Clearance Certificates........................................45
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4.21 Repayment of Indebtedness, Releases of Liens......................45
4.22 Termination of Employee Offer Letters.............................45
4.23 Agreement of Broadview Capital LLC................................45
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY AND THE STOCKHOLDERS............................................46
5.1 Accuracy of Representations and Warranties........................46
5.2 Performance of Agreements.........................................46
5.3 Opinion of Counsel for ShopNow and Purchaser......................46
5.4 Compliance Certificate............................................46
5.5 Proceedings and Documents; Secretary's Certificate................46
5.6 Legal Proceedings.................................................47
5.7 Material Adverse Change...........................................47
5.8 Approvals and Consents............................................47
5.9 Compliance With Laws..............................................47
ARTICLE VI - COVENANTS.......................................................47
6.1 Conduct of Business by the Company Pending the Merger.............48
6.2 Access to Information; Confidentiality............................50
6.3 No Alternative Transactions.......................................50
6.4 Notification of Certain Matters...................................50
6.5 Further Action; Commercially Reasonable Efforts...................51
6.6 Publicity.........................................................51
6.7 Bring-Down Capitalization Schedule................................52
6.8 Execution of All Operative Documents..............................52
6.9 Agreement to Vote Shares..........................................52
6.10 Limitation on Sales of Company Common Stock.......................52
6.11 Waiver of Dissenter's Rights......................................53
6.12 Stockholder Representative........................................53
6.13 Release of Stockholders for Obligations of the Company............54
6.14 Listing Application...............................................54
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER..............................54
7.1 Termination.......................................................54
7.2 Effect of Termination.............................................55
7.3 Amendment.........................................................56
7.4 Waiver............................................................56
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION..................................56
8.1 Survival..........................................................56
8.2 Indemnification by the Stockholders...............................57
8.3 Indemnification by ShopNow........................................57
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8.4 Threshold and Limitations.........................................58
8.5 Procedure for Indemnification.....................................59
8.5 Holdback..........................................................60
8.5.1 Pledge..................................................60
8.5.2 Holdback Release........................................61
8.5.3 Claims Procedure........................................61
8.5.4 Voting; Disposition.....................................62
8.5.5 Merger or Recapitalization..............................63
8.5.6 Taxation of Dividends...................................63
8.6 Specific Performance..............................................63
ARTICLE IX - GENERAL.........................................................64
9.1 Tax Matters - Company and Stockholders............................64
9.2 Expenses..........................................................64
9.3 Notices...........................................................65
9.4 Severability......................................................66
9.5 Entire Agreement..................................................66
9.6 Assignment........................................................67
9.7 Parties in Interest...............................................67
9.8 Governing Law; Venue..............................................67
9.9 Headings..........................................................67
9.10 Counterparts......................................................67
9.11 Waiver of Jury Trial..............................................68
EXHIBITS
1.3 -- Articles of Merger
2 -- Company Disclosure Memorandum
2A -- Stockholder Disclosure Memorandum
2.14 -- Form of Invention Assignment and Confidential Information
Agreement
4.3 -- Opinion of Counsel for the Company
4.8 -- FIRPTA Affidavit
4.11 -- Form of Intellectual Property Agreement
4.15 -- Form of Option Termination Agreement
4.22 -- Form of Employee Offer Letter Termination
5.3 -- Opinion of Counsel for ShopNow and Purchaser
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AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger ("AGREEMENT") dated as of December, 16,
1999, by and among ShopNow.com Inc. a Washington corporation ("SHOPNOW"),
Chiefs Acquisition, Inc., a Washington corporation and wholly owned
subsidiary of ShopNow ("PURCHASER"), WebCentric Inc., a Kansas corporation
(the "COMPANY") and Craig A. Johnson, Kent A. Johnson, Eric Wendelbo, Rick
Ralston, World Investments, Inc., Kent Johnson, L.P. and Lazy J of Kansas,
L.P. (the "STOCKHOLDERS").
RECITALS
A. The Company, the Stockholders, ShopNow and Purchaser believe it
advisable and in their respective best interests to effect a merger of the
Company and Purchaser pursuant to this Agreement (the "MERGER").
B. The Board of Directors of the Company and the Stockholders, who
constitute all of the stockholders of the Company, have approved this
Agreement and the Merger as required by applicable law.
C. The Boards of Directors of ShopNow and Purchaser and the sole
shareholder of Purchaser have approved this Agreement and the Merger as
required by applicable law.
D. It is intended that the Merger will qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE").
AGREEMENT
In consideration of the terms hereof, the parties hereto agree as follows:
ARTICLE I - THE MERGER
1.1 THE MERGER
Upon the terms and subject to the conditions hereof, (a) at the
Effective Time (as defined in Section 1.3) the separate existence of
Purchaser shall cease and Purchaser shall be merged with and into the Company
(the Company as the surviving corporation after the Merger is sometimes
referred to herein as the "SURVIVING CORPORATION") and (b) from and after the
Effective Time, the Merger shall have all the effects of a merger under the
laws of the state of Washington and the state of Kansas and other applicable
law.
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1.2 THE CLOSING
Subject to the terms and conditions of this Agreement, the closing of
the Merger (the "CLOSING") shall take place on the earliest practicable
business day (the "CLOSING DATE") after the satisfaction or waiver of the
conditions set forth in Articles IV and V at 10 a.m. local time at the
offices of Perkins Coie LLP, 1201 Third Avenue, 48th Floor, Seattle,
Washington, or such other date, time or location as ShopNow and the Company
shall agree.
1.3 EFFECTIVE DATE AND TIME
On the Closing Date and subject to the terms and conditions hereof,
articles of merger and a certificate of merger (the "ARTICLES OF MERGER"),
substantially in the form attached hereto as EXHIBIT 1.3 complying with the
applicable provisions of the Washington Business Corporation Act ("WASHINGTON
LAW") and the Kansas General Corporation Code ("KANSAS LAW") and in such form
and executed in such manner as required by Washington Law and Kansas Law,
shall be delivered for filing with the Secretary of State of the state of
Washington (the "WASHINGTON SECRETARY") and the Secretary of State of the
state of Kansas (the "KANSAS SECRETARY"). The Merger shall become effective
on the date (the "EFFECTIVE DATE") and at the time (the "EFFECTIVE TIME") of
filing of the Articles of Merger or at such other time as may be specified in
the Articles of Merger as filed. If the Washington Secretary or the Kansas
Secretary requires any changes in the Articles of Merger as a condition to
filing or issuing its certificate to the effect that the Merger is effective,
ShopNow, Purchaser, the Company and the Stockholders will execute any
necessary revisions incorporating such changes, provided such changes are not
inconsistent with and do not result in any material change in the terms of
this Agreement.
1.4 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
At the Effective Time, the Articles of Incorporation of the Surviving
Corporation shall be amended and restated in their entirety to conform to the
Articles of Incorporation of Purchaser as in effect immediately prior to the
Effective Time; provided, however, that Article I thereof shall be amended to
read as follows: "The name of this corporation is WebCentric, Inc."
Thereafter, the Articles of Incorporation of the Surviving Corporation may be
amended in accordance with their terms and as provided by law.
1.5 BYLAWS OF THE SURVIVING CORPORATION
At the Effective Time, the Bylaws of Purchaser as in effect immediately
prior to the Effective Time shall become the Bylaws of the Surviving
Corporation. Thereafter,
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the Bylaws may be amended or repealed in accordance with their terms and the
Articles of Incorporation of the Surviving Corporation and as provided by law.
1.6 DIRECTORS AND OFFICERS
At the Effective Time, the directors and officers of the Company shall
resign and the directors of Purchaser shall continue in office as the
directors of the Surviving Corporation and the officers of Purchaser shall
continue in office as the officers of the Surviving Corporation, and such
directors and officers shall hold office in accordance with and subject to
the Articles of Incorporation and Bylaws of the Surviving Corporation.
1.7 CONVERSION OF SHARES
1.7.1 EXCHANGE RATIO
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof:
(a) All shares of any class of capital stock of the Company held
by the Company as treasury shares shall be canceled.
(b) Each issued and outstanding share of common stock, par value
$.01 per share, of the Company (the "COMPANY COMMON STOCK") that is issued
and outstanding immediately prior to the Effective Time, including each share
of Company Common Stock issued upon conversion of each issued and outstanding
share of the Company's Series A Preferred Stock (the "COMPANY PREFERRED
STOCK") shall be converted into the right to receive from ShopNow a number of
shares of ShopNow common stock, par value $.001 per share (the "SHOPNOW
COMMON STOCK"), determined by dividing (a) the ShopNow Base Shares (as
defined below) by (b) the Fully Diluted Common Stock Number (as defined
below).
The quotient derived in Section 1.7.1(b) shall be rounded to three decimal
points and shall be referred to herein as the "EXCHANGE RATIO." The "SHOPNOW
BASE SHARES" shall mean the total number of shares of ShopNow Common Stock to
be issued in the Merger, which shall be equal to the number of shares
determined by dividing (a) $50 million by (b) the average of the closing
sales prices of ShopNow Common Stock as reported on the Nasdaq National
Market for each of the five trading days immediately preceding the day on
which this Agreement is executed (such average, the "BASE PRICE"), subject to
adjustment as provided in Section 1.7.1(f). The "FULLY DILUTED COMMON STOCK
NUMBER" shall mean the total number of shares of Company Common Stock
outstanding immediately prior to the Effective Time on a fully diluted basis,
as
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set forth on SCHEDULE 2.3(b) to the Company Disclosure Memorandum, which
calculation assumes (x) the exercise on a cash exercise basis of all
outstanding rights, warrants or options, vested or unvested, to acquire
Company Common Stock, regardless of restrictions on exercise or conversion
and (y) the conversion of all outstanding securities (including, without
limitation, the Company Preferred Stock) and notes convertible at any time
into Company Common Stock (such rights, warrants, notes, options and
convertible securities referenced in clauses (x) and (y) being referred to
herein as "STOCK PURCHASE RIGHTS"). The shares of ShopNow Common Stock so
issued shall be referred to herein as the "CLOSING SHARES." The number of
shares of ShopNow Common Stock to be issued at the Closing to each
Stockholder under this Section 1.7.1(b) shall be calculated by aggregating
all shares of Company Common Stock held by each such Stockholder, so that
such number of shares of ShopNow Common Stock to be issued shall be equal to
the number of shares of Company Common Stock held by such Stockholder
multiplied by the Exchange Ratio, with fractional shares rounded up to the
nearest whole number pursuant to Section 1.7.3 hereof.
(c) Notwithstanding the foregoing, at the Effective Time
certificates representing the number of Closing Shares determined by dividing
$5,000,000 by the Base Price (the "INDEMNIFICATION SHARES") shall be held by,
and pledged by the Stockholders on a PRO RATA basis to, ShopNow, subject to
the effectiveness of the Merger, to secure the indemnification obligations of
the Stockholders pursuant to Article VIII hereof (the "HOLDBACK"). The
number of Indemnification Shares to be pledged by each Stockholder shall be
determined by multiplying (i) the quotient obtained by dividing the total
number of shares of Company Common Stock held by such Stockholder immediately
prior to the Effective Time by the total number of Shares of Company Common
Stock outstanding immediately prior to the Effective Time (rounded to ten
decimal places, with .5 being rounded up) by (ii) the aggregate number of
Indemnification Shares, as calculated pursuant to this Section 1.7.1(c).
Fractional shares of ShopNow Common Stock shall not be pledged. In lieu
thereof, each Stockholder of the Company shall round such fractional share to
the nearest whole number, with .5 being rounded up, and pledge only full
shares of ShopNow Common Stock. Such Pledged Shares shall be free of any
other escrow or pledge obligation.
(d) Each issued and outstanding share of capital stock of
Purchaser shall be converted into one share of common stock of the Surviving
Corporation.
(e) Each outstanding option to purchase shares of Company Common
Stock issued pursuant to the Company's Stock Option Plan (the "COMPANY OPTION
PLAN"), whether or not vested or exercisable (each an "OPTION"), shall be
exchanged for
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a nonqualified stock option (each such option, a "REPLACEMENT OPTION") to
acquire that number of shares of ShopNow Common Stock equal to the product of
the Exchange Ratio and the number of shares of Company Common Stock subject
to such Option, at a price per share (rounded to the nearest $.01, with $.005
rounded up) equal to the aggregate exercise price for the shares of Company
Common Stock subject to such Option divided by the number of full shares of
ShopNow Common Stock deemed to be purchasable pursuant to such Option;
provided, however, that the number of shares of ShopNow Common Stock that may
be purchased upon exercise of such Option shall not include any fractional
shares, and ShopNow shall pay to the holder thereof as soon as practicable
after the Effective Date an amount of cash equal to such fraction, if any,
multiplied by the Base Price. One-third of the Replacement Options shall be
vested upon the Closing of the Merger, and the remaining Replacement Options
shall vest on a quarterly basis ratably over the two years following the
Closing Date. All other terms and conditions of the Replacement Options
shall be governed by ShopNow's 1999 Nonofficer Employee Stock Option Plan.
(f) The aggregate number of Closing Shares shall be subject to
adjustment as follows:
(i) The Company shall cause to be prepared and delivered to
ShopNow, on the date immediately prior to the Closing Date, a pro forma
balance sheet for the Company as of the Closing Date (the "CLOSING BALANCE
SHEET"). The Closing Balance Sheet shall be prepared by the Company from the
books and records of the Company in accordance with GAAP (as defined below),
applied on a basis consistent with the policies employed in the preparation
of the Company Balance Sheet (as defined in Section 2.6 hereto).
(ii) The Company shall apply its cash balances to repay all
of the Company Debt Liability (as defined below) prior to the Effective Time.
In the event that the Closing Balance Sheet reflects any Company Debt
Liability, the aggregate number of Closing Shares shall be reduced by that
number of shares of ShopNow Common Stock determined by dividing the dollar
amount of the Company Debt Liability by the Base Price. "COMPANY DEBT
LIABILITY" shall mean any long-term liability, notes payable, loans or other
debt of the Company, other than (w) payables or accrued expenses listed on
SCHEDULE 1.7.1 to the Company Disclosure Memorandum, which expenses have been
approved by ShopNow, (x) payables or accrued expenses incurred in the
ordinary course of business after the date hereof (provided such payables and
accrued expenses do not exceed $25,000), (y) liabilities which are incurred
in the ordinary course of the Company's business activities, as permitted by
Section 6.1, and (z) with respect to clauses (x) and (y) above, accrued
interest in the ordinary course.
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(iii) The aggregate number of Closing Shares shall be reduced
by that number of shares of ShopNow Common Stock determined by dividing
$650,000 by the Base Price.
1.7.2 EXCHANGE OF CERTIFICATES
(a) At the Effective Time, upon surrender to ShopNow of one or
more certificates representing shares of Company Capital Stock for
cancellation (or appropriate affidavits of loss and, if required by the
Surviving Corporation, the posting of a bond in such amount as the Surviving
Corporation may reasonably direct as indemnity against any claim that may be
made with respect to such certificates), each Stockholder shall be entitled
to receive from Continental Stock Transfer & Trust Company, as ShopNow's
transfer agent, certificates representing the number of shares of ShopNow
Common Stock that such Stockholder is entitled to receive pursuant to Section
1.7.1 hereof; provided, however, that those certificates representing the
Indemnification Shares shall be retained by, and pledged by the Stockholders
to, ShopNow in accordance with Section 8.5 hereof.
(b) The shares of ShopNow Common Stock that each Stockholder shall
be entitled to receive pursuant to the Merger shall be deemed to have been
issued at the Effective Time, and no interest shall accrue on any of the
Closing Shares.
1.7.3 NO FRACTIONAL SHARES
No certificates or scrip representing fractional shares of ShopNow
Common Stock shall be issued by virtue of the Merger. The aggregate number
of shares of ShopNow Common Stock a Stockholder is entitled to receive
pursuant to Section 1.7.1(b) shall be rounded to the nearest whole number of
shares, with .5 being rounded up.
1.7.4 NO FURTHER TRANSFERS
After the Effective Time, there shall be no transfers of any shares of
Company Common Stock on the stock transfer books of the Surviving
Corporation. If, after the Effective Time, certificates formerly representing
shares of Company Common Stock are presented to the Surviving Corporation,
they shall be forwarded to ShopNow and shall be canceled and exchanged in
accordance with this Section 1.7.
1.8 AMENDMENT TO PROVIDE FOR ALTERNATIVE MERGER STRUCTURES
If at any time prior to the Closing Date, ShopNow elects to have
Purchaser be the Surviving Corporation or elects to have the Company merge
directly into ShopNow
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or a different subsidiary of ShopNow merge with and into the Company in a
forward or reverse triangular merger, the parties shall promptly enter into
an amendment to this Agreement to so provide, so long as such action does not
result in a breach of a representation or warranty set forth in Article II,
or the inability to satisfy any of the conditions set forth in Articles IV
and V hereof.
1.9 OPTION GRANTS
No later than thirty days after the Effective Time, ShopNow will act to
grant nonqualified stock options (the "NEW OPTIONS") under its 1999
Nonofficer Employee Stock Option Plan, its Amended and Restated 1996 Combined
Incentive and Nonqualified Stock Option Plan or such other plan having
substantially similar terms as ShopNow shall determine in its sole
discretion, to acquire an aggregate number of shares of ShopNow Common Stock
determined by dividing (i) $10 million by (ii) the Base Price, to members of
the management of the Company immediately prior to the Effective Time (the
"MANAGEMENT MEMBERS") and to employees of the Company immediately prior to
the Effective Time who are not Management Members (the "RETAINED EMPLOYEES")
who have been offered and have accepted employment with ShopNow or the
Surviving Corporation and commence employment with ShopNow or the Surviving
Corporation after the Effective Time (with the allocation of such grants
among such employees to be mutually acceptable to the Company and ShopNow),
at an exercise price of $15 per share. One-third of the New Options shall be
vested upon grant, and the remaining balance of the New Options shall vest on
a quarterly basis over a period of two years. Of the aggregate number of New
Options, one-half shall be granted to the Management Members and one-half
shall be granted to the Retained Employees.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
Except as is otherwise set forth with appropriate Section references in
the Company Disclosure Memorandum attached as EXHIBIT 2 (the "COMPANY
DISCLOSURE MEMORANDUM"), each of which exceptions shall specifically identify
or cross-reference the provision of this Article II to which such exception
relates, and which shall constitute in its entirety a representation and
warranty under this Article II, and in order to induce ShopNow and Purchaser
to enter into and perform this Agreement and the other agreements,
certificates and questionnaires that are required to be completed and
executed pursuant to this Agreement (collectively, the "OPERATIVE
DOCUMENTS"), the Company and the Stockholders severally represent and warrant
to ShopNow and Purchaser as of the date of this Agreement and as of the
Closing Date as follows in this Article II.
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2.1 ORGANIZATION
The Company is a corporation duly organized and validly existing under
the laws of the state of Kansas. The Company has all requisite corporate
power and authority to execute, deliver and perform its obligations under
this Agreement and the Operative Documents, and to consummate the
transactions contemplated hereby and thereby. Each Stockholder has the
power, authority and capacity to execute, deliver and perform his or its
obligations under this Agreement and each of the Operative Documents and to
consummate the transactions contemplated hereby and thereby. The Company is
duly qualified and licensed as a foreign corporation to do business and is in
good standing in each jurisdiction in which the character of the Company's
properties occupied, owned or held under lease or the nature of the business
conducted by the Company makes such qualification or licensing necessary,
including, without limitation, Oklahoma.
2.2 ENFORCEABILITY
All corporate action on the part of the Company and its officers,
directors and Stockholders necessary for the authorization, execution,
delivery and performance of this Agreement and the Operative Documents, the
consummation of the Merger, and the performance of all the Company's
obligations under this Agreement and the Operative Documents has been taken
or will be taken as of or prior to the Effective Time. This Agreement and
each of the Operative Documents has been duly executed and delivered by the
Company and each Stockholder, as applicable, and this Agreement is, and each
of the Operative Documents is, a legal, valid and binding obligation of the
Company and each Stockholder, as applicable, enforceable against each of them
in accordance with its terms.
2.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 1,000,000
shares of Company Common Stock, par value $.01 per share, and 24,000 shares
of Series A Preferred Stock, par value $.01 per share.
(b) The issued and outstanding capital stock of the Company consists
solely of 258,012 shares of Company Common Stock and 24,000 shares of Series
A Preferred Stock of the Company, par value $.01 per share, (the "COMPANY
PREFERRED STOCK" and, collectively with the Company Common Stock, the
"OUTSTANDING SHARES"), which are held of record and beneficially by the
Stockholders in the amounts described on SCHEDULE 2.3(b) to the Company
Disclosure Memorandum. All outstanding shares of Company Preferred Stock
will be converted on a one-for-one basis into Company
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Common Stock prior to the Closing Date. The Outstanding Shares are, and
immediately prior to the Closing will be, duly authorized and validly issued,
fully paid and nonassessable, and issued in compliance with all applicable
federal and state securities laws. No Person (as defined in Section 2.5
hereof) other than the Stockholders holds any interest in any of the
Outstanding Shares. True and correct copies of the stock records of the
Company showing all issuances and transfers of shares of capital stock of the
Company since inception have been delivered to ShopNow or its counsel.
(c) As of the date of this Agreement and as of the Closing Date, other
than options to purchase up to 15,855 shares of Company Common Stock that
have been granted under the Company Stock Option Plan, there are no
outstanding rights of first refusal or offer, preemptive rights, Stock
Purchase Rights or other agreements, either directly or indirectly, for the
purchase or acquisition from the Company or any Stockholder of any shares of
Company Common Stock or any securities convertible into or exchangeable for
shares of Company Common Stock. Set forth on SCHEDULE 2.3(c) to the Company
Disclosure Memorandum is a spreadsheet accurately reflecting the number of
options and other Stock Purchase Rights outstanding, the grant or issue
dates, vesting schedules and exercise or conversion prices thereof and, in
each case, the identities of the holders and an indication of their
relationships to the Company (if any exist other than a security holder).
Assuming execution of the Option Waiver Agreement by all of the holders of
outstanding Options, the vesting schedules of the Options will not be
accelerated as a result of the transactions contemplated by this Agreement.
The Company has delivered to ShopNow or its counsel true and correct copies
of the Company Option Plan, all stock option agreements and exercise
documentation relating to Options granted thereunder and all agreements with
respect to Stock Purchase Rights. SCHEDULE 2.3(c) to the Company Disclosure
Memorandum also identifies all options, warrants or other Stock Purchase
Rights that have been offered in connection with any employee or consulting
agreement but that, as of the date hereof, have not been issued or granted.
(d) Except as set forth on SCHEDULE 2.3(d) to the Company Disclosure
Memorandum, the Company is not a party or subject to any agreement or
understanding and there is no agreement or understanding between any Persons
that affects or relates to the voting or giving of written consents with
respect to any securities of the Company or the voting by any director of the
Company. No Stockholder or any affiliate thereof is indebted to the Company,
and the Company is not indebted to any Stockholder or any affiliate thereof.
The Company is not under any contractual or other obligation to register any
of its presently outstanding securities or any of its securities that may
hereafter be issued.
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(e) All rights of refusal, co-sale rights and registration rights
granted by the Company with respect to the Company Capital Stock or Stock
Purchase Rights of the Company are described on SCHEDULE 2.3(e) to the
Company Disclosure Memorandum.
(f) All Options to be replaced by ShopNow have been granted in
compliance with the exemption from registration provided for by Rule 701
promulgated by the Securities and Exchange Commission under the Securities
Act.
2.4 SUBSIDIARIES AND AFFILIATES
Except as otherwise set forth in SCHEDULE 2.4 to the Company Disclosure
Memorandum, the Company does not own, directly or indirectly, any ownership,
equity, or voting interest in, any corporation, partnership, joint venture or
other entity, and has no agreement or commitment to purchase any such
interest.
2.5 NO APPROVALS; NO CONFLICTS
The execution, delivery and performance of this Agreement and the
Operative Documents by the Company and each of the Stockholders, as
applicable, and the consummation by them of the transactions contemplated
hereby and thereby will not
(a) constitute a violation (with or without the giving of notice
or lapse of time, or both) of any provision of law or any judgment, decree,
order, regulation or rule of any court or other governmental authority
applicable to the Company or the Stockholders, except for such violations as
would not have a Company Material Adverse Effect (as defined in Section 2.7);
(b) require any consent, approval or authorization of, or
declaration, filing or registration with, any person, corporation,
partnership, joint venture, association, organization, other entity or
governmental or regulatory authority (a "PERSON"), except for the filing of
all documents necessary to consummate the Merger with the Washington
Secretary and the Kansas Secretary;
(c) result in a default under (with or without the giving of
notice or lapse of time, or both), or acceleration or termination of, or the
creation in any party of the right to accelerate, terminate, modify or
cancel, any Material Contract (as that term is defined in Section 2.10.1) or,
except as would not have a Company Material Adverse Effect, any other
agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Company or the Stockholders are parties or by which
they are bound or to which their assets are subject;
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(d) result in the creation of any liens, mortgages, pledges, deeds
of trust, security interests, charges, encumbrances or other adverse claims
of interest of any kind (each, an "ENCUMBRANCE") upon any assets of the
Company or the Outstanding Shares, except as would not have a Company
Material Adverse Effect;
(e) conflict with or result in a breach of or constitute a default
under any provision of the Company's Articles of Incorporation or Bylaws, or
(f) invalidate or adversely affect any permit, license or
authorization or status used in the conduct of the Company's business.
2.6 FINANCIAL STATEMENTS
The Company has delivered to ShopNow (a) audited balance sheets,
statements of income and expense, statements of cash flow and statements of
stockholders' equity of the Company as of or for the fiscal years ended
December 31, 1998 and 1997, (b) an audited balance sheet for the nine-month
period ended September 30, 1999 and (c) an unaudited interim balance sheet
and statement of operations as of and for the eleven-month period ended
November 30, 1999. All the foregoing financial statements, together with the
Closing Balance Sheet, are herein referred to as the "COMPANY FINANCIAL
STATEMENTS." The balance sheet of the Company as of September 30, 1999 is
herein referred to as the "COMPANY BALANCE SHEET." The Company Financial
Statements have been prepared in conformity with generally accepted
accounting principles in the United States ("GAAP") on a basis consistent
with prior accounting periods and fairly present the financial position,
results of operations and changes in financial position of the Company as of
the dates and for the periods indicated. The Company has no contractual
liabilities or obligations and, to the knowledge of the Company or
Stockholders, no liabilities or obligations of any nature (absolute,
contingent or otherwise) that are not fully reflected or reserved against in
the Company Balance Sheet, except liabilities or obligations incurred since
the date of the Company Balance Sheet in the ordinary course of business and
consistent with past practice that are not in excess of $25,000 in the
aggregate or $10,000 individually. The Company maintains standard systems of
accounting that are adequate for its business. The Company is not a
guarantor, indemnitor, surety or other obligor of any indebtedness of any
other Person. The Company has not capitalized software development costs.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS
Except for transactions specifically contemplated in this Agreement or
as set forth on SCHEDULE 2.7 of the Company Disclosure Memorandum, since the
date of the
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Company Balance Sheet, neither the Company nor any of its officers or
directors in their representative capacities on behalf of the Company have:
(a) taken any action or entered into or agreed to enter into any
transaction, agreement or commitment other than in the ordinary course of
business;
(b) forgiven or canceled any indebtedness or waived any claims or
rights of material value (including, without limitation, any indebtedness
owing by any Stockholder, officer, director, employee or affiliate of the
Company);
(c) granted any increase in the compensation of directors,
officers, employees or consultants, except for bonuses and increases made in
the ordinary course of business consistent with past practice which do not
exceed $25,000 in the aggregate;
(d) suffered any change having a material adverse effect on the
Company's business operations, assets, liabilities (absolute, accrued,
contingent or otherwise), condition (financial or otherwise) or prospects
(such effect, a "COMPANY MATERIAL ADVERSE EFFECT");
(e) borrowed or agreed to borrow any funds, incurred or become
subject to, whether directly or by way of assumption or guarantee or
otherwise, any obligations or liabilities (absolute, accrued, contingent or
otherwise) in excess of $10,000 individually or in excess of $25,000 in the
aggregate, except liabilities and obligations that are incurred in the
ordinary course of business and consistent with past practice, or increased,
or experienced any change in any assumptions underlying or methods of
calculating, any bad debt, contingency or other reserves;
(f) paid, discharged or satisfied any material claims, liabilities
or obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of claims, liabilities and obligations
reflected or reserved against in the Company Balance Sheet or incurred in the
ordinary course of business and consistent with past practice since the date
of the Company Balance Sheet, or prepaid any obligation having a fixed
maturity of more than 90 days from the date such obligation was issued or
incurred;
(g) knowingly permitted or allowed any of its property or assets
(real, personal or mixed, tangible or intangible) to be subjected to any
Encumbrance;
(h) purchased or sold, transferred or otherwise disposed of any of
its material properties or assets (real, personal or mixed, tangible or
intangible);
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(i) disposed of or permitted to lapse any rights to the use of any
trademark, trade name, patent or copyright, or disposed of or disclosed to
any Person without obtaining an appropriate confidentiality agreement from
any such Person any trade secret, formula, process or know-how not
theretofore a matter of public knowledge;
(j) made any single capital expenditure or commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital
assets or otherwise or made aggregate capital expenditures in excess of
$25,000 for additions to property, plant, equipment or intangible capital
assets or otherwise;
(k) made any material change in accounting methods or practices or
internal control procedure;
(l) issued any capital stock or other securities, or declared,
paid or set aside for payment any dividend or other distribution in respect
of its capital stock, or redeemed, purchased or otherwise acquired, directly
or indirectly, any shares of capital stock or other securities of the
Company, or otherwise permitted the withdrawal by any of the holders of
Company Capital Stock of any cash or other assets (real, personal or mixed,
tangible or intangible), in compensation, indebtedness or otherwise, other
than payments of compensation in the ordinary course of business and
consistent with past practice;
(m) paid, loaned or advanced any amount to, or sold, transferred
or leased any properties or assets (real, personal or mixed, tangible or
intangible) to any of the Stockholders or any of the Company's, officers,
directors or employees or any affiliate of any of the Stockholders or of the
Company's, officers, directors or employees, except compensation paid to
officers and employees at rates not exceeding the rates of compensation paid
during the fiscal year last ended and except for advances for travel and
other business-related expenses; or
(n) agreed, whether in writing or otherwise, to take any action
described in this Section 2.7.
2.8 TAXES
(a) (i) All Tax Returns (as defined below) required to be filed by or
on behalf of the Company have been timely filed and all such Tax Returns were
(at the time they were filed) and are true, correct and complete in all
respects; (ii) all Taxes (as defined below) of the Company (whether or not
reflected on any Tax Return) have been fully and timely paid; (iii) no
waivers of statutes of limitation have been given or requested with respect
to the Company in connection with any Tax Returns covering
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the Company with respect to any Taxes payable by it; (iv) no taxing authority
in a jurisdiction where the Company does not file Tax Returns has made a
claim, assertion or threat to the Company that the Company is or may be
subject to taxation by such jurisdiction; (v) the Company has duly and timely
withheld from employee salaries, wages and other compensation and paid over
to the appropriate governmental authority all amounts required to be so
withheld and paid over for all periods under all applicable laws; (vi) there
are no liens with respect to Taxes on any of the Company's property or assets
other than liens for current Taxes not yet payable; (vii) there are no Tax
rulings, requests for rulings, or closing agreements relating to the Company
that could affect the liability for Taxes or the amount of taxable income of
the Company for any period (or portion of a period) after the date hereof;
and (viii) any adjustment of Taxes of the Company made by the IRS (as defined
below) in any examination that is required to be reported to the appropriate
state, local or foreign taxing authorities has been reported, and any
additional Taxes due with respect thereto have been paid.
(b) Neither the Company nor any other Person on behalf of the Company
(i) has filed a consent pursuant to Section 341(f) of the Code or agreed to
have Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
the Company; (ii) has executed or entered into a closing agreement pursuant
to Section 7121 of the Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (iii) has agreed to or
is required to make any adjustments pursuant to Section 481(a) of the Code or
any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or has notice that a governmental
authority has proposed any such adjustment or change in accounting method.
(c) There is no outstanding dispute or claim concerning any Tax
liability of the Company, nor to the knowledge of the Company or any
Stockholder is any such claim or dispute pending. SCHEDULE 2.8 to the
Company Disclosure Memorandum lists all Tax Returns filed with respect to the
Company for taxable periods ended on or after the Company's inception or the
inception of any predecessor that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Company has delivered
to ShopNow correct and complete copies of all Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company since the Company's inception.
(d) The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
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(e) The Company is not a party to any Tax allocation or sharing
agreement. The Company (i) has not been a member of a Tax Group (as defined
below) filing a consolidated income Tax Return under Section 1501 of the Code
(or any similar provision of state, local or foreign law) and (ii) does not
have any liability for Taxes of any Person under Treasury Regulations Section
1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor by contract or otherwise.
(f) The unpaid Taxes of the Company (i) did not, as of November 30,
1999, exceed the reserve for Tax liability set forth on the face (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) of the Company Balance Sheet and (ii) do not
exceed that reserve as adjusted for the passage of time and operations in the
ordinary course of business through the Closing Date.
(g) There has been no ownership change, as defined in Section 382(g) of
the Code (or any comparable provision of state, local or foreign law), with
respect to the Company during or after any taxable period in which the
Company incurred a net operating loss. SCHEDULE 2.8 to the Company
Disclosure Memorandum sets forth the amount of any net operating loss, net
capital loss, net-unrealized built-in loss (as defined under Section 382 of
the Code), unused investment or other credit, unused foreign tax or excess
charitable contribution allocable to the Company.
(h) None of the Options are "incentive stock options" within the
meaning of Section 422 of the Code, and no holder of any Option has a basis
for treating any Option as an incentive stock option.
As used in this Agreement, the following terms shall have the following
meanings:
"TAXES" means all foreign, federal, state, county or local taxes,
charges, fees, levies, imposts, duties and other assessments, including, but
not limited to, any income, alternative minimum or add-on, estimated, gross
income, gross receipts, sales, use, transfer, transactions, intangibles, ad
valorem, value-added, franchise, registration, title, license, capital,
paid-up capital, profits, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real property, recording, personal
property, federal highway use, commercial rent, environmental (including, but
not limited to, taxes under Section 59A of the Code) or windfall profit tax,
custom, duty or other tax, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest, penalties or
additions to tax; and "TAX" means any of the foregoing Taxes.
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"TAX GROUP" means any federal, state, local or foreign consolidated,
affiliated, combined, unitary or other similar group of which the Company is
now or was formerly a member.
"TAX RETURNS" means any return, declaration, report, claim or refund,
information return, statement or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
2.9 PROPERTY
(a) The Company owns no real property other than the leasehold
interests described on SCHEDULE 2.9(a) to the Company Disclosure Memorandum
(the "REAL PROPERTY"). The Company has delivered to ShopNow or its counsel
true and complete copies of all written leases, subleases, rental agreements,
contracts of sale, tenancies or licenses relating to the Real Property and
written summaries of the terms of any oral leases, subleases, rental
agreements, contracts of sale, tenancies or licenses to which the Real
Property is subject.
(b) SCHEDULE 2.9(b) to the Company Disclosure Memorandum contains a
complete and accurate list of each item of personal property having a value
in excess of $5,000 that is owned, leased, rented or used by the Company (the
"PERSONAL PROPERTY"); provided that such list need not describe the
Technology or the IP Rights (as defined in Sections 2.14.2 and 2.14.5,
respectively), listed on the schedules to the Company Disclosure Memorandum
described in or related to Section 2.14. The Company has delivered to
ShopNow true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses to which the Personal Property is
subject.
(c) The Real Property and the Personal Property include all the
properties and assets (whether real, personal or mixed, tangible or
intangible) (other than, in the case of the Personal Property, property
rights with an individual value of less than $5,000 and the Technology and IP
Rights) reflected in the Company Balance Sheet. The Real Property and the
Personal Property include all material property used in the business of the
Company, other than the Technology and IP Rights. The Company's offices and
other structures and its Personal Property are of a quality consistent with
industry standards, are in good operating condition and repair, normal wear
and tear excepted, are adequate for the uses to which they are being put, and
comply in all material respects with applicable safety and other laws and
regulations.
(d) The Company's leasehold interest in each parcel of the Real
Property is free and clear of all Encumbrances. Each lease of any portion of
the Real Property is
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valid, binding and enforceable in accordance with its terms against the
parties thereto and against any other Person with an interest in such Real
Property, the Company has performed in all material respects all obligations
imposed on it thereunder, and neither the Company nor, to the knowledge of
the Company or any Stockholder, any other party thereto is in default
thereunder, nor is there any event that with notice or lapse of time, or
both, would constitute a default thereunder by the Company or, to the
knowledge of the Company or any Stockholder, by any other party. The Company
has not granted any lease, sublease, tenancy or license of, or entered into
any rental agreement or contract of sale with respect to, any portion of the
Real Property.
(e) The Personal Property is free and clear of all Encumbrances, and,
other than leased Personal Property that is so noted on the list supplied
pursuant to Section 2.9(b), the Company owns such Personal Property. Each
lease, license, rental agreement, contract of sale or other agreement to
which the Personal Property is subject is valid, binding and enforceable in
accordance with its terms against the parties thereto, the Company has
performed in all material respects all obligations imposed on it thereunder,
and neither the Company nor, to the knowledge of the Company or any
Stockholder, any other party thereto is in default thereunder, except as
would not have a Company Material Adverse Effect, nor is there any event that
with notice or lapse of time, or both, would constitute a default by the
Company or, to the knowledge of the Company or any Stockholder, any other
party thereunder, except as would not have a Company Material Adverse Effect.
The Company has not granted any lease, sublease, tenancy or license of any
portion of the Personal Property, except in the ordinary course of business.
2.10 CONTRACTS
2.10.1 MATERIAL CONTRACTS
SCHEDULE 2.10.1 to the Company Disclosure Memorandum contains a
complete and accurate list (other than the IP Rights listed on THE SCHEDULES
TO THE COMPANY DISCLOSURE MEMORANDUM DESCRIBED IN AND RELATED TO SECTION
2.14) of all contracts, agreements and understandings, oral or written, to
which the Company is currently a party or by which the Company is currently
bound providing for potential payments by or to the Company in excess of
$10,000 (collectively, the "MATERIAL CONTRACTS"), including, without
limitation, security agreements, license agreements, software development
agreements, distribution agreements, joint venture agreements, reseller
agreements, credit agreements and instruments relating to the borrowing of
money. All Material Contracts are valid, binding and enforceable in
accordance with their terms against each party thereto, the Company has
performed in all material respects all obligations imposed on it thereunder,
and neither the Company nor, to the
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knowledge of the Company or any Stockholder, any other party thereto is in
default thereunder, except as would not have a Company Material Adverse
Effect, nor to the knowledge of the Company or any Stockholder is there any
event that with notice or lapse of time, or both, would constitute a default
by the Company or, to the knowledge of the Company or any Stockholder, any
other party thereunder, except as would not have a Company Material Adverse
Effect. True and complete copies of each such written contract (or written
summaries of the terms of any such oral contract) have been delivered to
ShopNow by the Company. Schedule 2.10.1 also identifies all Material
Contracts to which any of the Stockholders is a party in his or its
individual capacity or the obligations of which the Stockholders have
guaranteed for the benefit of the Company (the "PERSONAL GUARANTEES").
Except as set forth on SCHEDULE 2.10.1 to the Company Disclosure Memorandum,
the Company has no
(a) contracts with directors, officers, Stockholders, employees,
agents, consultants, advisors, salespeople, sales representatives,
distributors or dealers that cannot be canceled by the Company within 30
days' notice without liability, penalty or premium, any agreement or
arrangement providing for the payment of any bonus or commission based on
sales or earnings, or any compensation agreement or arrangement affecting or
relating to former employees of the Company;
(b) employment agreement, whether express or implied, or any other
agreement for services that contains severance or termination pay liabilities
or obligations;
(c) noncompetition agreement or other arrangement that would
prevent the Company from carrying on its business anywhere in the world;
(d) written notice or, to the knowledge of the Company or any
Stockholder, oral notice, that any party to any Material Contract intends to
cancel, terminate or refuse to renew such contract (if such contract is
renewable);
(e) material dispute with any of its suppliers, customers,
distributors, OEM resellers, licensors or licensees;
(f) product distribution agreement, development agreement or
license agreement as licensor or licensee (except for standard nonexclusive
software licenses granted to end-user customers in the ordinary course of
business, the form of which has been provided to ShopNow, or standard
licenses purchased by the Company for off-the-shelf software);
(g) joint venture contract or arrangement or any other agreement
that involves a sharing of profits with other persons;
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(h) instrument evidencing indebtedness for borrowed money by way
of a direct loan, sale of debt securities, purchase money obligation,
conditional sale or guarantee, or otherwise, except for trade indebtedness
incurred in the ordinary course of business, and except as disclosed in the
Company Financial Statements; and
(i) agreements or commitments to provide indemnification.
2.10.2 REQUIRED CONSENTS
The execution and delivery of this Agreement and the performance of the
obligations of the Company and the Stockholders hereunder will not constitute
a default under any Material Contracts to which the Company is currently a
party or by which the Company currently is bound and do not require the
consent or waiver of any other party to any such Material Contract, except
for those consents and/or waivers listed on SCHEDULE 2.10.2 to the Company
Disclosure Memorandum, all of which will be obtained on or prior to the
Closing.
2.11 CLAIMS AND LEGAL PROCEEDINGS
Except as set forth on SCHEDULE 2.11 to the Company Disclosure
Memorandum and THE SCHEDULES TO THE COMPANY DISCLOSURE MEMORANDUM DESCRIBED
IN AND RELATED TO SECTION 2.14), there are no claims, actions, suits,
arbitrations, investigations or proceedings pending or involving or, to the
knowledge of the Company or any Stockholder, threatened against the Company
before or by any court or governmental or nongovernmental department,
commission, board, bureau, agency or instrumentality, or any other Person.
To the knowledge of the Company and any Stockholder, except as set forth on
SCHEDULE 2.11 to the Company Disclosure Memorandum and the schedules to the
Company Disclosure Memorandum described in and related to Section 2.14, there
is no valid basis for any claim, action, suit, arbitration, proceeding or
investigation before or by any Person. There are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company
is a party. SCHEDULE 2.11 to the Company Disclosure Memorandum sets forth a
description of any material disputes that have been settled or resolved by
litigation or arbitration since the Company's inception.
2.12 LABOR AND EMPLOYMENT MATTERS
There are no material labor disputes, employee grievances or
disciplinary actions pending or, to the knowledge of the Company or any
Stockholder, threatened against or involving the Company or any of its
present or former employees. The Company has complied with all provisions of
law relating to employment and employment practices, terms and conditions of
employment, wages and hours, except
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for such instances of non-compliance as would not have a Material Adverse
Effect. The Company is not engaged in any unfair labor practice and has no
liability for any arrears of wages or Taxes or penalties for failure to
comply with any such provisions of law. There is no labor strike, dispute,
slowdown or stoppage pending or, to the knowledge of the Company or any
Stockholder, threatened against or affecting the Company, and the Company has
not experienced any work stoppage or other labor difficulty since its
incorporation. No collective bargaining agreement is binding on the Company.
Neither the Company nor any Stockholder has knowledge of any organizational
efforts presently being made or threatened by or on behalf of any labor union
with respect to employees of the Company. Except as set forth on Schedule
2.12 to the Company Disclosure Memorandum, each employee, officer and
consultant of the Company has executed a nondisclosure agreement in the form
provided to ShopNow. To the knowledge of the Company or any Stockholder, no
employee (or person performing similar functions) of the Company is in
violation of any such agreement or any employment agreement, noncompetition
agreement, patent disclosure agreement, invention assignment agreement,
proprietary information agreement or other contract or agreement relating to
the relationship of such employee with the Company or any other party.
SCHEDULE 2.12 to the Company Disclosure Memorandum lists (a) the names
and current compensation amounts of all directors and officers of the
Company; (b) the wage rates for nonsalaried and nonofficer salaried employees
of the Company by classification, and all union contracts (if any); (c) all
group insurance programs in effect for employees of the Company; and (d) the
names and current compensation packages of all independent contractors and
consultants of the Company. Except as would not have a Company Material
Adverse Effect, the Company is not in default with respect to any of its
obligations referred to in clause (b) above and has no, and will not incur
any, obligation or liability for severance or back pay owed through or by
virtue of the Merger. Except as disclosed on SCHEDULE 2.12 to the Company
Disclosure Memorandum, all employees of the Company are employed on an "at
will" basis, and are eligible to work and are lawfully employed in the United
States.
2.13 EMPLOYEE BENEFIT PLANS
2.13.1 EMPLOYEE BENEFIT PLAN LISTING
SCHEDULE 2.13.1 to the Company Disclosure Memorandum contains a
complete and accurate list of all Employee Benefit Plans (as defined below).
The Company does not have any agreement, arrangement, commitment or
obligation to create, enter into or contribute to any additional Employee
Benefit Plan or to modify any existing Employee Benefit Plan. There has been
no amendment, interpretation or other
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announcement or communication (written or oral) by the Company (or any other
Person) relating to, or change in participation or coverage under, any
Employee Benefit Plan that, either alone or together with other such
occurrences or events, could materially increase the expense of maintaining
the Employee Benefit Plans above the level of expense incurred with respect
thereto for the most recent fiscal year included in the Company Financial
Statements. The terms of each Employee Benefit Plan permit the Company to
amend or terminate such Employee Benefit Plan at any time and for any reason
without penalty or material expense.
2.13.2 DOCUMENTS PROVIDED
The Company has delivered to ShopNow true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the
extent applicable to the particular Employee Benefit Plan, copies of the
following: (a) all annual reports (Form 5500 series) filed since inception
with respect to such Employee Benefit Plan; (b) all summary plan
descriptions, summaries of material modifications and material employee
manuals and communications filed or distributed with respect to such Employee
Benefit Plan since inception; (c) all contracts and agreements (and any
amendments thereto) relating to such Employee Benefit Plan, including,
without limitation, all trust agreements, investment management agreements,
annuity contracts, insurance contracts, bonds, indemnification agreements and
service provider agreements; (d) the most recent determination letter issued
by the IRS (as defined below) with respect to such Employee Benefit Plan; (e)
all written communications relating to the amendment, creation or termination
of such Employee Benefit Plan, or an increase or decrease in benefits,
acceleration of payments or vesting or other events that could result in
liability to the Company sent or received since its inception; (f) all
correspondence to or from any governmental entity or agency relating to such
Employee Benefit Plan sent or received since its inception; (g) samples of
all COBRA (as defined below) and HIPAA (as defined below) forms and notices
currently in use; and (h) all coverage and nondiscrimination tests performed
with respect to such Employee Benefit Plan since its inception.
2.13.3 COMPLIANCE
With respect to each Employee Benefit Plan: (a) such Employee Benefit
Plan is, and at all times since inception has been, maintained, administered,
operated and funded in all material respects in accordance with its terms and
in compliance with all applicable requirements of all applicable laws,
statutes, orders, rules and regulations, including, without limitation, ERISA
(as defined below), COBRA, HIPAA and the Code; (b) the Company, each
fiduciary of such Employee Benefit Plan and all other
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Persons have, at all times, properly performed all obligations, whether
arising by operation of law or by contract, required to be performed by any
of them in connection with such Employee Benefit Plan; (c) all reports, Tax
Returns, information returns and other information and returns relating to
such Employee Benefit Plan required to be filed with any governmental entity
or agency have been accurately completed and timely and properly filed; (d)
all notices, statements, reports and other disclosure required to be given or
made to participants in such Employee Benefit Plan or their beneficiaries
have been accurately completed and timely and properly disclosed or provided;
(e) neither the Company nor any fiduciary of such Employee Benefit Plan has
engaged in any transaction or acted or failed to act in a manner that
violates the fiduciary requirements of ERISA or any other applicable law; (f)
no transaction or event has occurred or is threatened or about to occur
(including, without limitation, any of the transactions contemplated in or by
this Agreement or any of the other Operative Documents) that constitutes or
could constitute a "prohibited transaction," as defined in Section 4975 of
the Code or Section 406 or 407 of ERISA; and (g) the Company has not
incurred, and, to the knowledge of the Company and the Stockholders, there
exists no condition or set of circumstances in connection with which the
Company, ShopNow, Purchaser or any of their affiliates could incur, directly
or indirectly, any liability or expense (except for routine contributions and
benefit payments) under ERISA, the Code or any other applicable law, statute,
order, rule or regulation with respect to such Employee Benefit Plan or
pursuant to any indemnification or similar agreement related to such Employee
Benefit Plan.
2.13.4 QUALIFICATION
None of the Employee Benefits Plans is, and the Company has never
maintained or contributed to (or been obligated to maintain or contribute to)
an "employee pension benefit plan," as defined in Section 3(2) of ERISA.
2.13.5 CONTRIBUTIONS AND PREMIUM PAYMENTS
All contributions, premiums and other payments due or required to be
paid to (or with respect to) each Employee Benefit Plan have been timely
paid, or, if not yet due, have been fully reserved for, and specifically
identified in, the Closing Balance Sheet.
2.13.6 RELATED EMPLOYERS
The Company is not, and has never been, a member of (a) a controlled
group of corporations, within the meaning of Section 414(b) of the Code, (b)
a group of trades or businesses under common control, within the meaning of
Section 414(c) of the
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Code, (c) an affiliated service group, within the meaning of Section 414(m)
of the Code, or (d) any other group of Persons treated as a single employer
under Section 414(o) of the Code.
2.13.7 CERTAIN PENSION PLANS
The Company does not maintain or contribute to, and has never
maintained or contributed to (or been obligated to contribute to), any
multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of ERISA
or 414(f) of the Code, any multiple employer plan within the meaning of
Section 4063 or 4064 of ERISA or Section 413(c) of the Code or any employee
benefit plan, fund, program, contract or arrangement that is subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
2.13.8 POST-TERMINATION BENEFITS
Neither the Company nor any Employee Benefit Plan provides or has any
obligation to provide (or contribute toward the cost of) post-employment or
post-termination benefits of any kind, including, without limitation, death
and medical benefits, with respect to any current or former officer,
employee, agent, director or independent contractor of the Company, other
than continuation coverage mandated by Sections 601 through 608 of ERISA and
Section 4980B(f) of the Code.
2.13.9 PARACHUTE PAYMENTS
The Company has not made any payments, is not obligated to make any
payments and is not a party to any agreement that could obligate it to make
any payments that would not be deductible under Section 280G of the Code (or
any similar provision of state, local or foreign law).
2.13.10 SUITS, CLAIMS AND INVESTIGATIONS
There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Company or any Stockholder,
threatened with respect to (or against the assets of) any Employee Benefit
Plan, nor is there a basis for any such action, suit or claim. No Employee
Benefit Plan is currently under investigation, audit or review, directly or
indirectly, by the IRS, the DOL (as defined below) or any other governmental
entity or agency, and, to the knowledge of the Company and each Stockholder,
no such action is contemplated or under consideration by the IRS, the DOL or
any other governmental entity or agency.
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2.13.11 PAYMENTS RESULTING FROM TRANSACTIONS
Neither the execution and delivery of this Agreement or the other
Operative Documents nor the consummation of the transactions contemplated in
(or by) this Agreement or the other Operative Documents (either alone or
together with any other transaction or event) will (a) entitle any current or
former officer, employee, agent, director or independent contractor of the
Company to severance pay, unemployment compensation or any other payment from
the Company, ShopNow, Purchaser, any of their affiliates or any Employee
Benefit Plan, (b) increase the amount of compensation due to any individual,
(c) result in any benefit or right becoming established or increased, or
accelerate the time of payment or vesting of any benefit, under any Employee
Benefit Plan, or (d) require the Company, ShopNow, Purchaser or any of their
affiliates to transfer or set aside any assets to fund or otherwise provide
for any benefits for any individual.
2.13.12 DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
(a) "COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended.
(b) "DOL" means the United States Department of Labor.
(c) "EMPLOYEE BENEFIT PLAN" means any retirement, pension, profit
sharing, deferred compensation, stock bonus, savings, bonus, incentive,
cafeteria, medical, dental, vision, hospitalization, life insurance,
accidental death and dismemberment, medical expense reimbursement, dependent
care assistance, tuition reimbursement, disability, sick pay, holiday,
vacation, severance, change of control, stock purchase, stock option, stock
appreciation rights, fringe benefit or other employee benefit plan, fund,
policy, program, contract, arrangement or payroll practice (including,
without limitation, any "employee benefit plan," as defined in Section 3(3)
of ERISA) or any employment, consulting or personal services contract,
whether written or oral, qualified or nonqualified, or funded or unfunded,
(i) sponsored, maintained or contributed to by the Company or to which the
Company is a party, (ii) covering or benefiting any current or former
officer, employee, agent, director or independent contractor of the Company
(or any dependent or beneficiary of any such individual), or (iii) with
respect to which the Company has (or could have) any obligation or liability.
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(d) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
(e) "HIPAA" means the Health Insurance Portability and Accountability
Act of 1997, as amended.
(f) "IRS" means the United States Internal Revenue Service.
2.14 INTELLECTUAL PROPERTY
2.14.1 GENERAL
The Company owns or is licensed and has all rights that are required to
conduct its business as now conducted and as proposed to be conducted in and
to the following: (a) all products, tools, computer programs, specifications,
source code, object code, graphics, devices, techniques, algorithms, methods,
processes, procedures, packaging, trade dress, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, "look and feel"
software, development and other tools, content, inventions (whether or not
patentable or copyrightable and whether or not reduced to practice), designs,
logos, themes, know-how, concepts and other technology that are now, or
during the two years prior to the date of this Agreement have been, or
currently are proposed to be, developed, produced, used, marketed or sold by
the Company (collectively, the "TECHNOLOGY-RELATED ASSETS"); and (b) all
intellectual property and other proprietary rights in the Technology-Related
Assets, including, without limitation, all trade names, trademarks, domain
names, service marks, logos, brand names and other identifiers, trade
secrets, copyrights and domestic and foreign letters patent, and the
registrations, applications, renewals, extensions and continuations (in whole
or in part) thereof, all goodwill associated therewith and all rights and
causes of action for infringement, misappropriation, misuse, dilution or
unfair trade practices associated therewith.
2.14.2 COMPANY TECHNOLOGY
SCHEDULE 2.14.2 to the Company Disclosure Memorandum sets forth a list
of all products and tools developed, produced, used, marketed or sold by the
Company during the two years prior to the date of this Agreement, together
with all prior versions, predecessors or precursors to such products or tools
(collectively, the "PRODUCTS"). Except for the Third Party Technologies (as
defined in Section 2.14.3 hereof), the Company owns all right, title and
interest in and to the following (collectively, the "TECHNOLOGY"), free and
clear of all Encumbrances: (a) the Products, together with any and all
codes, techniques, software tools, formats, designs, user interfaces, content
and "look and feel" related thereto; (b) any and all updates,
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enhancements, corrections, modifications, improvements and new releases
related to the items set forth in clause (a) above; (c) any and all
technology and work in progress related to the items set forth in clauses (a)
and (b) above; and (d) all inventions, discoveries, processes, designs, trade
secrets, know-how and other confidential or proprietary information related
to the items set forth in clauses (a), (b), and (c) above. The Technology,
excluding the Third Party Technologies (as defined below), is sometimes
referred to herein as the "COMPANY TECHNOLOGY."
2.14.3 THIRD PARTY TECHNOLOGY
SCHEDULE 2.14.3 to the Company Disclosure Memorandum sets forth a list
of all Technology used in the Company's business for which the Company does
not own all right, title and interest (collectively, the "THIRD PARTY
TECHNOLOGIES"), and all license agreements or other contracts pursuant to
which the Company has the right to use (in the manner used by the Company, or
intended or necessary for use with the Company Technology) the Third Party
Technologies (the "THIRD PARTY LICENSES"), indicating, with respect to each
of the Third Party Technologies listed therein, the owner thereof and the
Third Party License applicable thereto. The Company has the lawful right to
use (free of any material restriction other than those set forth in the Third
Party Licenses, which restrictions do not and will not materially affect or
impair the Company's ability to carry on its business as now conducted or
proposed to be conducted) (a) all Third Party Technology that is incorporated
in or used in the development or production of the Company Technology and (b)
all other Third Party Technology necessary for the conduct of the Company's
business as now conducted and as proposed to be conducted. All Third Party
Licenses are valid, binding and in full force and effect; the Company and, to
the knowledge of the Company or any Stockholder, each other party thereto has
performed in all material respects his, her or its obligations thereunder;
and neither the Company nor, to the knowledge of the Company or any
Stockholder, any other party thereto is in default thereunder, nor has there
occurred any event or circumstance that with notice or lapse of time or both
would constitute a default or event of default on the part of the Company or,
to the knowledge of the Company or any Stockholder, any other party thereto
or give to any other party thereto the right to terminate or modify any Third
Party License. The Company has not received notice that any party to any
Third Party License intends to cancel, terminate or refuse to renew such
Third Party License or to exercise or decline to exercise any option or right
thereunder.
2.14.4 TRADEMARKS
SCHEDULE 2.14.4 to the Company Disclosure Memorandum sets forth a list
of all trademarks, trade names, brand names, service marks, logos or other
identifiers for the
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Products or otherwise used by the Company in its business (the "MARKS"). The
Company has full legal and beneficial ownership, free and clear of any
Encumbrances, of all rights conferred by use of the Marks in connection with
the Products or otherwise in the Company's business and, as to those Marks
that have been registered in the United States Patent and Trademark Office,
by federal registration of the Marks.
2.14.5 INTELLECTUAL PROPERTY RIGHTS
SCHEDULE 2.14.5 to the Company Disclosure Memorandum sets forth all
patents, patent applications, copyright registrations (and applications
therefor) and trademark registrations (and applications therefor)
(collectively, the "IP REGISTRATIONS") associated with the Company Technology
and the Marks. The Company owns all right, title and interest, free and clear
of any Encumbrances, in and to the IP Registrations, together with any other
rights in or to any copyrights (registered or unregistered), rights in the
Marks (registered or unregistered), trade secret rights and other
intellectual property rights (including, without limitation, rights of
enforcement) contained or embodied in the Company Technology and the Marks
(collectively, the "IP RIGHTS").
2.14.6 MAINTENANCE OF RIGHTS
Except as set forth on SCHEDULE 2.14.6 to the Company Disclosure
Memorandum, the Company has not conducted its business, and has not used or
enforced (or, to the knowledge of the Company or any Stockholder, failed to
use or enforce) the IP Rights, in a manner that would result in the
abandonment, cancellation or unenforceability of any item of the IP Rights or
the IP Registrations, and the Company has not taken (or, to the knowledge of
the Company or any Stockholder, failed to take) any action that would result
in the forfeiture or relinquishment of any IP Rights or IP Registrations.
The IP Registrations are valid and subsisting. The Company has the exclusive
right to file, prosecute and maintain all of the IP Registrations. Except as
set forth in SCHEDULE 2.14.6 to the Company Disclosure Memorandum, the
Company has not granted to any third party any rights or permissions to use
any of the Technology or the IP Rights. Except pursuant to reasonably
prudent safeguards, (a) no third party has received from the Company or, to
the knowledge of the Company or any Stockholder, from any other party any
confidential information relating to the Technology or the IP Rights and (b)
the Company is not under any contractual or other obligation to disclose to
any third party any Company Technology.
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2.14.7 THIRD PARTY CLAIMS
Except as set forth on SCHEDULE 2.14.7 to the Company Disclosure
Memorandum, (a) the Company has not received any notice or claim (whether
written, oral or otherwise), and neither the Company nor any Stockholder
otherwise knows of any claim, challenging the Company's ownership or rights
in the Company Technology or the IP Rights or claiming that any other person
or entity has any legal or beneficial ownership with respect thereto; (b) all
the IP Rights 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, oral or otherwise), and
neither the Company nor any Stockholder otherwise knows of any claim,
challenging the validity or enforceability of any of the IP Rights; and (c)
to the knowledge of the Company or any Stockholder, no other person or entity
is infringing or misappropriating any part of the IP Rights or otherwise
making any unauthorized use of the Company Technology.
2.14.8 INFRINGEMENT BY THE COMPANY
Except as set forth on SCHEDULE 2.14.8 to the Company Disclosure
Memorandum, (a) the use of any of the Technology in the Company's business
does not and will not infringe, violate or interfere with or constitute an
appropriation of any right, title or interest (including, without limitation,
any patent, copyright or trade secret right) held by any other person or
entity, and there have been no claims made with respect thereto; (b) the use
of any of the Marks and other IP Rights in the Company's business will not
infringe, violate or interfere with or constitute an appropriation of any
right, title or interest (including, without limitation, any patent,
copyright, trademark or trade secret right) held by any other person or
entity, and there have been no claims made with respect thereto; (c) the
Company has not received any notice or claim (whether written, oral or
otherwise), and neither the Company nor any Stockholder otherwise knows of
any claim, regarding any infringement, misappropriation, misuse, abuse or
other interference with any third party intellectual property or proprietary
rights (including, without limitation, infringement of any patent, copyright,
trademark or trade secret right of any third party) by the Company, the
Technology or the Marks or other IP Rights, or claiming that any other entity
has any claim of infringement with respect thereto; (d) the Company has not
entered into any agreement or offered to indemnify any Person against any
charge of infringement of any IP Right; and (e) the Company has not entered
into any agreement granting any Person the right to bring any infringement
action with respect to, or otherwise enforce, any of the Company's rights
relating to the Company Technology.
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2.14.9 CONFIDENTIALITY
Except as set forth on SCHEDULE 2.14.9 to the Company Disclosure
Memorandum, (a) the Company has not disclosed any source code regarding the
Technology to any person or entity other than employees or independent
contractors of the Company who are under written nondisclosure agreements;
(b) the Company has at all times maintained and diligently enforced
commercially reasonable procedures to protect all confidential information
relating to the Technology; (c) neither the Company nor any escrow agent is
under any contractual or other obligation to disclose the source code or any
other proprietary information included in or relating to the Technology; and
(d) the Company has not deposited any source code relating to the Technology
into any source code escrows or similar arrangements. If, as disclosed on
SCHEDULE 2.14.9 to the Company Disclosure Memorandum, the Company has
deposited any source code to the Technology into source code escrows or
similar arrangements, no event has occurred that has or could reasonably form
the basis for a release of such source code from such escrows or arrangements.
2.14.10 WARRANTY AGAINST DEFECTS
Except as set forth in SCHEDULE 2.14.10 to the Company Disclosure
Memorandum and except as would not have a Company Material Adverse Effect,
the Technology and the medium on which any Technology is delivered (a) is
free from known defects in material and workmanship, (b) substantially
conforms to, and will perform substantially in accordance with, the
applicable specifications, documentation and samples of such Technology and
(c) does not contain any viruses or other harmful code arising from any
action or omission by the Company and, to the knowledge of the Company or any
of the Stockholders, does not contain any viruses or other harmful code
arising from any action or omission of any third party.
2.14.11 DOMAIN NAMES
SCHEDULE 2.14.11 to the Company Disclosure Memorandum sets forth a list
of all Internet domain names used by the Company in its business
(collectively, the "DOMAIN NAMES"). The Company has, and after the Effective
Time the Surviving Corporation will have, a valid registration and all
material rights (free of any material restriction) in and to the Domain
Names, including, without limitation, all rights necessary to continue to
conduct the Company's business as it is currently conducted and proposed to
be conducted following the Effective Time.
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2.14.12 YEAR 2000
The Company Technology, and to the knowledge of the Company and each
Stockholder (without any independent investigation or review of Third Party
Technology), the Third Party Technology, is Year 2000 Compliant. Year 2000
Compliance issues will not have a Company Material Adverse Effect. "YEAR
2000 COMPLIANT" as used herein means that (i) each item of the Company
Technology, on dates on and after January 1, 2000 (the "MILLENIUM DATES")
will calculate any information dependent or relating to Millenium Dates in
the same manner, and with substantially the same functionality, data
integrity and performance, as such Company Technology reads, stores,
processes, calculates and presents calendar dates on any date on or before
any Millenium Date, and (ii) the Millenium Dates will not adversely affect
the operation of each Company Technology with respect to date dependent data
or computations, output, or with other routines or functions.
2.14.13 PARTICIPATING DEVELOPERS
SCHEDULE 2.14.13 to the Company Disclosure Memorandum contains a
complete list of all Participating Developers (as defined below), specifying
for each the relationship between the Participating Developer and the Company
(e.g., employee, contractor, etc.), all dates during which the relationship
was in effect and a list of any documents or other items relating to such
relationship. The Company has furnished to ShopNow or its counsel full and
complete copies of such documents and other items identified in SCHEDULE
2.14.13. "PARTICIPATING DEVELOPER" means any person or entity that has, at
any time and in any way, participated or contributed to the Development of
any IP Rights or any of the Company Technology. "DEVELOPMENT" means create,
author, design, engineer, invent, modify, discover, reduce to practice or
develop. Each Participating Developer has signed a Confidential Information
and Inventions Assignment Agreement in the form attached as EXHIBIT 2.14, and
such agreement legally, fully and effectively transfers to the named
transferee any and all right, title and interest which the named
Participating Developer may have or acquire in and to the IP Rights and the
Technology.
2.14.14 NO IMPAIRMENT; COMPLIANCE WITH LAWS
The consummation of the transactions contemplated in this Agreement
will not alter or impair any of the Technology or the Technology-Related
Assets. To the knowledge of the Company or any Stockholder, the business of
the Company does not involve the employment of any person in a manner that
violates any noncompetition or nondisclosure agreement that such person
entered into in connection with his or her employment activities at any time
prior to employment by the Company. The
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Company is conducting and has conducted its business in compliance with all
export control laws, statutes, rules, ordinances and regulations promulgated
by any government authority. The Company has not received any notice
(whether written, oral or otherwise) alleging that its conduct of business
violates any such laws, statutes, rules, ordinances or regulations, nor is
the Company or any Stockholder aware of any basis for any claim alleging the
same.
2.15 CORPORATE BOOKS AND RECORDS
The Company has furnished to ShopNow or its representatives for their
examination true and complete copies of (a) the Articles of Incorporation and
Bylaws of the Company as currently in effect, including all amendments
thereto, (b) the minute books of the Company, and (c) the stock transfer
books of the Company. Such minutes reflect all meetings of the Company's
stockholders, Board of Directors and any committees thereof since the
Company's inception, and such minutes accurately reflect in all material
respects the events of and actions taken at such meetings. Such stock
transfer books accurately reflect all issuances and transfers of shares of
capital stock of the Company since its inception.
2.16 LICENSES, PERMITS, AUTHORIZATIONS, ETC.
Except as identified on SCHEDULE 2.16 to the Company Disclosure
Memorandum, the Company has received all currently required governmental
approvals, authorizations, consents, licenses, orders, registrations and
permits of all agencies, whether federal, state, local or foreign (the
"PERMITS") the failure of which to obtain would have a Company Material
Adverse Effect. The Company is in compliance in all material respects with
the terms of all Permits, and, except as would not have a Company Material
Adverse Effect, all the Permits are valid and in full force and effect, and
no proceeding is pending, or to the knowledge of the Company or any
Stockholder, threatened, the object of which is to revoke, limit or otherwise
affect any of the Permits. The Company has not received any notifications of
any asserted present failure by it to have obtained any Permit, or any past
and unremedied failure to obtain such items.
2.17 COMPLIANCE WITH LAWS
Except as described on SCHEDULE 2.17 to the Company Disclosure
Memorandum and except as would not have a Company Material Adverse Effect,
the Company is in compliance with all federal, state, local and foreign laws,
rules,
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regulations, ordinances, decrees and orders applicable to it, to its
employees or to the Real Property and the Personal Property, including,
without limitation, all such laws, rules, regulations, ordinances, decrees
and orders relating to intellectual property protection, antitrust matters,
consumer protection, currency exchange, environmental protection, equal
employment opportunity, health and occupational safety, pension and employee
benefit matters, securities and investor protection matters, labor and
employment matters and trading-with-the-enemy matters. The Company has not
received any written, or to the knowledge of the Company and the
Stockholders, oral notification of any asserted present or past unremedied
failure by the Company to comply with any of such laws, rules, regulations,
ordinances, decrees or orders.
2.18 INSURANCE
The Company maintains commercially reasonable levels of (a) insurance
on its property (including leased premises) that insures against loss or
damage by fire or other casualty and (b) insurance against liabilities,
claims and risks of a nature and in such amounts as are normal and customary
in the Company's industry for companies of similar size and financial
condition. All insurance policies of the Company are in full force and
effect, all premiums with respect thereto covering all periods up to and
including the date this representation is made have been paid, and no notice
of cancellation or termination has been received with respect to any such
policy or binder. Such policies or binders are sufficient for compliance
with all material requirements of law currently applicable to the Company and
of all agreements to which the Company is a party, will remain in full force
and effect through the respective expiration dates of such policies or
binders without the payment of additional premiums, and will not in any way
be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. The Company has not been refused any
insurance with respect to its assets or operations, nor has its coverage been
limited, by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance.
2.19 BROKERS OR FINDERS
Except as set forth in SCHEDULE 2.19 of the Company Disclosure
Memorandum, the Company has not incurred, and will not incur, directly or
indirectly, as a result of any action taken by or on behalf of the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Merger, this Agreement or any
transaction contemplated hereby.
2.20 ABSENCE OF QUESTIONABLE PAYMENTS
Neither the Company nor any director, officer, agent, employee or other
Person acting on behalf of the Company has used any Company funds for
improper or
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unlawful contributions, payments, gifts or entertainment, or made any
improper or unlawful expenditures relating to political activity to domestic
or foreign government officials or others. The Company has reasonable
financial controls to prevent such improper or unlawful contributions,
payments, gifts, entertainment or expenditures. Neither the Company nor any
current director, officer, agent, employee or other Person acting on behalf
of the Company has accepted or received any improper or unlawful
contributions, payments, gifts or expenditures. The Company has at all times
complied, and is in compliance, in all respects with the Foreign Corrupt
Practices Act and all foreign laws and regulations relating to prevention of
corrupt practices and similar matters.
2.21 BANK ACCOUNTS
SCHEDULE 2.21 to the Company Disclosure Memorandum sets forth the names
and locations of all banks, trust companies, savings and loan associations
and other financial institutions at which the Company maintains safe deposit
boxes or accounts of any nature and the names of all Persons authorized to
draw thereon, make withdrawals therefrom or have access to such safe deposit
boxes or accounts.
2.22 CUSTOMERS AND SUPPLIERS
SCHEDULE 2.22 to the Company Disclosure Memorandum sets forth (a) a
complete and accurate list of the customers of the Company accounting for 5%
or more of the Company's revenues during the fiscal year last ended and the
period ended November 30, 1999, showing the approximate total revenues from
each such customer during the fiscal year last ended and the period ended
November 30, 1999 and (b) a complete and accurate list of the suppliers of
the Company from whom the Company has purchased 5% or more of the goods or
services purchased by the Company in the fiscal year last ended and the
period ended November 30, 1999. The Company has not received any notice from
its customers or suppliers that would cause it, in its reasonable judgment,
to expect any modification to its relationship with any customer or supplier
named on such SCHEDULE 2.22 to the Company Disclosure Memorandum that would
have a Company Material Adverse Effect.
2.23 ACCOUNTS RECEIVABLE
All accounts receivable of the Company reflected in the Company Balance
Sheet ("ACCOUNTS"), or existing at the Effective Time, represent sales
actually made in the ordinary course of business and were recorded in the
Company's books consistent with the presentation applied in the Company
Financial Statements for the year ended December 31, 1998. Except as
described on SCHEDULE 2.23 to the Company Disclosure
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Memorandum, the bad debt reserves and sales return allowances reflected in
the Company Balance Sheet are adequate. Set forth on SCHEDULE 2.23 to the
Company Disclosure Memorandum are a full and complete list and aging study of
all Accounts. To the knowledge of the Company or any Stockholder, all
Accounts existing and remaining unpaid at the Effective Time will be
collectible by the Surviving Corporation in the ordinary course of business,
consistent with past practice.
2.24 CREDITORS' LIST
SCHEDULE 2.24 to the Company Disclosure Memorandum sets forth a full,
complete and accurate list of all creditors of Company to which the amount
payable by the Company exceeds $10,000, with the amount payable to each such
creditor as of the date ten days prior to the Closing Date.
2.25 INSIDER INTERESTS
Except as set forth on SCHEDULE 2.25 to the Company Disclosure
Memorandum, no Stockholder or officer or director of the Company has any
interest (other than as a stockholder of the Company) (a) in any Real
Property, Personal Property, Technology or IP Rights used in or directly
pertaining to the business of the Company, including, without limitation,
inventions, patents, trademarks or trade names, or (b) in any agreement,
contract, arrangement or obligation relating to the Company, its present or
prospective business or its operations. Except as set forth on SCHEDULE 2.25
to the Company Disclosure Memorandum, there are no agreements, understandings
or proposed transactions between the Company and any of its officers,
directors, Stockholders, affiliates or any affiliate thereof. The Company
and its officers and directors have no interest, either directly or
indirectly, in any entity, including, without limitation, any corporation,
partnership, joint venture, proprietorship, firm, licensee, business or
association (whether as an employee, officer, director, stockholder, agent,
independent contractor, security holder, creditor, consultant or otherwise),
other than ownership of capital stock comprising less than 1% of any publicly
held company, that presently (i) provides any services, produces and/or sells
any products or product lines, or engages in any activity that is the same,
similar to or competitive with any activity or business in which the Company
is now engaged or proposes to engage; (ii) is a supplier, customer or
creditor; or (iii) has any direct or indirect interest in any asset or
property (real or personal, tangible or intangible) of the Company or any
property (real or personal, tangible or intangible) that is necessary or
desirable for the present or currently anticipated future conduct of the
Company's business.
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2.26 COMPLIANCE WITH ENVIRONMENTAL LAWS
Neither the Company nor, to the knowledge of the Company or any
Stockholder, any other Person (including, without limitation, any previous
owner, lessee or sublessee) has treated, stored or disposed of any material
amounts of petroleum products, hazardous waste, hazardous substances,
pollutants or contaminants on the Real Property, or any real property
previously owned, leased, subleased or used by the Company in the operation
of its business, in violation of any applicable foreign, federal, state or
local statutes, regulations or ordinances, or common law, in each case as in
existence at or prior to the Closing. To the knowledge of the Company or any
Stockholder, there have been no releases of any material amounts of
petroleum, petroleum products, hazardous waste, hazardous substances,
pollutants or contaminants on, at or from any assets or properties,
including, without limitation, the Real Property, owned, leased, subleased or
used by the Company in the operation of its business during the time such
assets or properties were owned, leased, subleased or used by the Company
(or, to the knowledge of the Company or any Stockholder, prior to such time),
including, without limitation, any releases of any material amounts of
petroleum, petroleum products, hazardous waste, hazardous substances,
pollutants or contaminants in violation of any law.
2.27 INFORMATION SUPPLIED BY THE COMPANY
None of the information supplied or to be supplied and delivered or to
be delivered to the Stockholders in connection with any written consent by or
meeting of such stockholders regarding the Company, the Stockholders, this
Agreement and the transactions contemplated hereby (collectively,
"STOCKHOLDER MATERIALS"), at the date on which such information was supplied
prior to the time the Stockholders were requested to approve the Merger,
contained 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
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not materially misleading; provided,
however, that neither the Company nor any of the Stockholders makes any
representation or warranty regarding information furnished by or related to
ShopNow or Purchaser.
2.28 FULL DISCLOSURE
No information furnished by the Company or the Stockholders to ShopNow
or its representatives in connection with this Agreement or the Operative
Documents (including, but not limited to, the Company Financial Statements
and all information in the Company Disclosure Memorandum and the other
Exhibits hereto) contains any
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untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements so made or information so delivered
not misleading.
2.29 HART-SCOTT-RODINO
The Company is its own ultimate parent entity as defined under the
rules and regulations promulgated under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HART-SCOTT-RODINO ACT"). The
Company is not a $10 million person as defined thereunder. The Company is
not "engaged in manufacturing" for purposes of the Hart-Scott-Rodino Act.
The representations and warranties set forth in this Section 2.29 are made by
the Company solely for the purpose of determining the applicability to the
Merger and the other transactions contemplated by this Agreement of the
notice requirements of the Hart-Scott-Rodino Act.
ARTICLE IIA - ADDITIONAL REPRESENTATIONS AND
WARRANTIES OF THE STOCKHOLDERS
Except as is otherwise set forth with appropriate Section references in
the Stockholder Disclosure Memorandum attached hereto as EXHIBIT 2A, and in
order to induce ShopNow and Purchaser to enter into and perform this
Agreement and the other Operative Documents to be entered into as of the
Closing among ShopNow and each of the Stockholders, each Stockholder,
individually and not jointly, represents and warrants to ShopNow and
Purchaser as of the date of this Agreement and as of the Closing Date as
follows in this Article IIA:
2A.1 SOPHISTICATION; ACCREDITATION
Except as set forth on SCHEDULE 2A.1 of the Stockholder Disclosure
Memorandum, such Stockholder is an "accredited investor" as defined in
Regulation D of the Securities Act of 1933, as amended (the "SECURITIES
ACT"). Such Stockholder is, either alone or with the assistance of a
professional advisor, a sophisticated investor, able to fend for himself or
itself in the transactions contemplated by this Agreement and the Operative
Documents to which such Stockholder is a party and has such knowledge and
experience in financial and business matters that he or it is capable of
evaluating the merits and risks of the prospective investment in ShopNow
Common Stock. Such Stockholder is in a financial position to hold the
ShopNow Common Stock for an indefinite period of time and is able to bear the
economic risk and withstand a complete loss of his or its investment in the
ShopNow Common Stock.
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2A.2 OWNERSHIP
Such Stockholder owns beneficially and of record the Company Capital
Stock set forth on Schedule 2.3(b) of the Company Disclosure Memorandum, free
and clear of any Encumbrance.
2A.3 SEC DOCUMENTS
Such Stockholder has been furnished with all information that he or it
deems necessary to evaluate the risks and merits of the ShopNow Common Stock,
including the SEC Documents (as defined in Section 3.5). Such Stockholder
has had the opportunity to ask questions and receive answers concerning the
information he or it has received about the ShopNow Common Stock and ShopNow.
2A.4 NO REGISTRATION
Such Stockholder is aware and understands that (a) the Closing Shares
have not been and will not prior to issuance be registered under the
Securities Act, (b) he or it must continue to bear the economic risk of the
investment in the Closing Shares for an indefinite time, (c) the Closing
Shares cannot be sold unless they are subsequently registered or an exemption
from registration is available and (d) ShopNow has no obligation to register
the Closing Shares with the SEC and has not represented that it will register
the Closing Shares.
2A.5 CLAIMS AGAINST THE COMPANY
Such Stockholder does not have any claims against the Company.
2A.6 BROKERS OR AGENTS
Except as set forth in SCHEDULE 2.19 of the Company Disclosure
Memorandum, such Stockholder has not employed any broker or agent in
connection with the transactions contemplated by this Agreement.
2A.7 INVESTMENT FOR OWN ACCOUNT
The ShopNow Common Stock is being acquired by such Stockholder for
investment for his or its account, not as a nominee or agent, and not with a
view to the distribution of any part thereof; such Stockholder has no present
intention of selling, granting any participation in or otherwise distributing
any of the ShopNow Common Stock in a manner contrary to the Securities Act or
to any applicable state securities or Blue Sky law, nor does such Stockholder
have any contract, undertaking, agreement or
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arrangement with any person or entity to sell, transfer or grant a
participation to such person or entity with respect to any of the ShopNow
Common Stock.
2A.8 RESIDENCY
For purposes of the application of state securities laws, each
Stockholder is a resident of the state set forth beside his or its name on
SCHEDULE 2A.8 of the Stockholder Disclosure Memorandum.
2A.9 LEGENDS
Such Stockholder understands that, prior to the effectiveness of a
registration statement registering the Closing Shares for sale, certificates
or other instruments representing the Closing Shares will bear legends
substantially similar to the following, in addition to any other legends
required by federal or state laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER
APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, DISTRIBUTED, PLEDGED ON OR OTHERWISE TRANSFERRED UNLESS
(I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS COVERING ANY
SUCH TRANSACTION INVOLVING THESE SHARES, (II) THE COMPANY
RECEIVES AN OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THE
SHARES SATISFACTORY TO THE COMPANY STATING THAT SUCH TRANSACTION
IS EXEMPT FROM REGISTRATION, OR (III) THE COMPANY OTHERWISE
SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION.
Such Stockholder agrees that, in order to ensure and enforce compliance with
the restrictions imposed by applicable law and those referred to in the
foregoing legend, ShopNow may, prior to the effectiveness of a registration
statement, issue appropriate "stop transfer" instructions to its transfer
agent, if any, with respect to any certificate or other instrument
representing the Closing Shares, or if ShopNow transfers its own securities,
that it may make appropriate notations to the same effect in ShopNow's
records.
2A.10 HART-SCOTT-RODINO
Such Stockholder is either (a) not a $10 million person as defined
under the Hart-Scott-Rodino Act or (b) acquiring the ShopNow Common Stock
solely for purposes of investment within the meaning of 16 C.F.R. 802.9. The
representations and warranties set forth in this Section 2A.10 are made by
the Stockholders solely for
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the purpose of determining the applicability to the Merger and the other
transactions contemplated by this Agreement of the notice requirements of the
Hart-Scott-Rodino Act.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
SHOPNOW AND PURCHASER
In order to induce the Company and the Stockholders to enter into and
perform this Agreement and the Operative Documents, ShopNow and Purchaser
jointly and severally represent and warrant to the Company and the
Stockholders as of the date of this Agreement and as of the Closing Date as
follows in this Article III:
3.1 ORGANIZATION
ShopNow is a corporation duly organized and validly existing under the
laws of the state of Washington. Purchaser is a corporation duly organized
and validly existing under the laws of the state of Washington. Each of
ShopNow and Purchaser has all requisite corporate power and authority to
execute, deliver and perform its obligations under this Agreement and the
Operative Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. Each of ShopNow and the Purchaser is duly
qualified and licensed as a foreign corporation to do business and is in good
standing in each jurisdiction in which the character of properties occupied,
owned, or held under lease by ShopNow or Purchaser, as applicable, makes such
qualification or licensing necessary, except where the failure to be so
qualified or in good standing would not have a material adverse effect on the
business, operations, assets, liabilities (absolute, contingent or
otherwise), condition (financial or other) or prospects of ShopNow and its
subsidiaries taken as a whole. All the issued and outstanding shares of
capital stock of Purchaser are held of record and beneficially by ShopNow.
3.2 ENFORCEABILITY
All corporate action on the part of ShopNow and Purchaser and their
respective officers, directors and shareholders necessary for the
authorization, execution, delivery and performance of this Agreement and the
Operative Documents, the consummation of the Merger and the performance of
all their respective obligations under this Agreement and the Operative
Documents has been taken or will be taken prior to the Effective Time. This
Agreement and each of the Operative Documents has been duly executed and
delivered by each of ShopNow and Purchaser, as applicable, and this Agreement
and each of the Operative Documents is a legal, valid and binding
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obligation of each of ShopNow and Purchaser, as applicable, enforceable
against each of them in accordance with its terms.
3.3 SECURITIES
The Closing Shares to be issued pursuant to this Agreement have been,
or will be prior to the Effective Time, duly authorized for issuance, and
such Closing Shares, when issued and delivered to the Stockholders pursuant
to this Agreement, shall be validly issued, fully paid and nonassessable.
3.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance of this Agreement and the
Operative Documents by Purchaser and ShopNow, as applicable, and the
consummation by them of the transactions contemplated hereby and thereby will
not
(a) constitute a violation (with or without the giving of notice or
lapse of time, or both) of any provision of law or any judgment, decree,
order, regulation or rule of any court or other governmental authority
applicable to ShopNow or Purchaser;
(b) require any consent, approval or authorization of, or declaration,
filing or registration with, any Person, except (i) compliance with
applicable securities laws and (ii) the filing of all documents necessary to
consummate the Merger with the Washington Secretary and the Kansas Secretary;
or
(c) conflict with or result in a breach of or constitute a default
under any provision of the Articles of Incorporation or Bylaws of ShopNow or
Purchaser.
3.5 SEC DOCUMENTS
ShopNow has made available to the Stockholders true and complete copies
of its final prospectus dated September 28, 1999 (the "PROSPECTUS"), the
Prospectus supplement dated October 15, 1999 (the "PROSPECTUS SUPPLEMENT"),
its Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
and its Current Report on Form 8-K filed November 24, 1999, as amended by
Form 8-K/A filed December 3, 1999, with respect to the acquisition by ShopNow
of SpeedyClick, Corp. (collectively, the "SEC DOCUMENTS"). As of their
respective filing dates, each of the SEC Documents complied in all material
respects with the requirements of the Securities Act, or the Securities
Exchange Act of 1934, as amended, as applicable and the applicable rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Except as otherwise noted in the notes thereto, the financial statements of
ShopNow included in the SEC Documents (including the notes thereto)
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comply as to form and in all material respects with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP on a basis consistent throughout the periods indicated and present
fairly the financial condition and results of operations of ShopNow on the
dates thereof and during the periods indicated therein.
3.6 INFORMATION SUPPLIED BY SHOPNOW
None of the information included in the SEC Documents or supplied by
ShopNow for inclusion in the Stockholder Materials, at the date on which such
information was made or supplied contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not materially misleading; provided,
however, that ShopNow makes no representations or warranties regarding
information furnished by or related to the Stockholders or the Company.
3.7 FULL DISCLOSURE
No information furnished by ShopNow or Purchaser to the Company or its
representatives in connection with this Agreement or the Operative Documents
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements so made or information so
delivered not misleading.
ARTICLE IV - CONDITIONS PRECEDENT TO OBLIGATIONS
OF SHOPNOW AND PURCHASER
The obligations of ShopNow and Purchaser to perform and observe the
covenants, agreements and conditions hereof to be performed and observed by
them at or before the Closing shall be subject to the satisfaction of the
following conditions, which may be expressly waived only in writing signed by
ShopNow and Purchaser:
4.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company and the Stockholders
contained herein (including applicable Exhibits or Schedules to the Company
Disclosure Memorandum or the Stockholder Disclosure Memorandum) and in the
Operative Documents shall have been true and correct in all material respects
when made and, except (a) for changes contemplated by this Agreement and the
Operative
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Documents and (b) to the extent that such representations and warranties
speak as of an earlier date, shall be true and correct in all material
respects as of the Closing Date, as though made on that date.
4.2 PERFORMANCE OF AGREEMENTS
Each of the Company and the Stockholders shall have performed in all
material respects all obligations and agreements and complied with all
covenants contained in this Agreement or any Operative Document to be
performed and complied with by him or it at or prior to the Closing.
4.3 OPINION OF COUNSEL FOR THE COMPANY
ShopNow shall have received the opinion letter of Hinkle Elkouri Law
Firm LLC, counsel for the Company, dated the Closing Date in the form
attached hereto as EXHIBIT 4.3.
4.4 COMPLIANCE CERTIFICATE
ShopNow shall have received a certificate of the President and the
Chief Financial Officer of the Company, dated the Closing Date, in form and
substance reasonably satisfactory to ShopNow, (a) certifying that the
conditions to the obligations of ShopNow and Purchaser in Sections 4.1, 4.2,
4.5, 4.6, 4.12, 4.13, 4.15 and 4.22 have been fulfilled and (b) verifying the
accuracy of the information contained in the Merger Consideration Spreadsheet
(as defined below) and the Option Consideration Spreadsheet (as defined
below).
4.5 MATERIAL ADVERSE CHANGE
Since the date of the Company Balance Sheet and through the Closing,
there shall not have occurred any change that is or is reasonably likely to
have or cause a Company Material Adverse Effect.
4.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery
of which is necessary for the consummation of the transactions contemplated
hereby, including, if applicable, approvals or notices required by the
Hart-Scott-Rodino Act, or for the continued operation of the Company, shall
have been obtained, and all waiting periods specified by law shall have
passed. All other consents, approvals and notices referred to in this
Agreement shall have been obtained or delivered.
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4.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
ShopNow shall have received a certificate of the Secretary of the
Company, in form and substance reasonably satisfactory to ShopNow, as to the
authenticity and effectiveness of the actions of the Board of Directors of
the Company and the Stockholders authorizing the Merger and the transactions
contemplated by this Agreement and the Operative Documents. Copies of (a)
the Company's Articles of Incorporation, certified by the Kansas Secretary,
(b) the Company's Bylaws, certified by the Secretary of the Company, and (c)
the resolutions of the Board of Directors of the Company and the Stockholders
relating to the transactions contemplated by this Agreement and the Operative
Documents shall be attached to such certificate.
4.8 NONFOREIGN AFFIDAVIT
ShopNow shall have received from the Company, pursuant to Section 1445
of the Code, a Foreign Investment in Real Property Tax Act Affidavit in the
form attached hereto as EXHIBIT 4.8.
4.9 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by ShopNow,
Purchaser, the Company and the Stockholders of their respective obligations
pursuant to this Agreement and the Operative Documents shall be legally
permitted by all laws and regulations to which ShopNow, Purchaser, the
Company and the Stockholders are subject.
4.10 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be pending or threatened that would enjoin, restrain,
condition or prevent consummation of this Agreement or any Operative Document.
4.11 NONCOMPETITION ARRANGEMENTS
Each of the employees of the Company who has been offered and has
accepted employment with ShopNow shall have executed the ShopNow standard
form of Intellectual Property Agreement (Confidentiality, Invention
Assignment, Nonraiding and Noncompetition) in the form attached hereto as
EXHIBIT 4.11 and each such agreement shall be in full force and effect on the
Closing Date.
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4.12 TERMINATION OF CERTAIN AGREEMENTS
Any and all rights of refusal, co-sale rights and registration rights
(other than pursuant hereto) for the benefit of the holders of Company
Capital Stock, or Stock Purchase Rights set forth in the Company Disclosure
Memorandum, including but not limited to (i) that certain Registration Rights
Agreement dated May 19, 1999 between the Company and World Investments, Inc.
and (ii) that certain Stockholders Agreement dated May 19, 1999 among the
Company, World Investments, Inc., Craig Johnson, Kent Johnson, Eric Wendelbo
and Rick Ralston, shall have terminated.
4.13 TERMINATION OF STOCK PURCHASE AGREEMENTS AND ASSOCIATED PROMISSORY
NOTES
(a) The Agreement, dated May 19, 1999, between Kent Johnson and Rick
Ralston, shall have been amended by the parties to provide for transfer of
the Company Common Stock purchased pursuant to such agreement, or the
agreement shall have been terminated.
(b) The Agreement, dated May 19, 1999, between Craig Johnson and Eric
Wendelbo, shall have been amended by the parties to provide for transfer of
the Company Common Stock purchased pursuant to such Agreement, or the
agreement shall have been terminated.
4.14 EXERCISE OR TERMINATION OF STOCK PURCHASE RIGHTS; CONVERSION OF
CONVERTIBLE SECURITIES
Any and all Stock Purchase Rights (other than the Options to be assumed
by ShopNow pursuant to Section 1.7.1(e)) and any and all securities and notes
convertible at any time into Company Common Stock, vested and unvested, and
regardless of restrictions on exercise or conversion, shall have been
exercised on a cash exercise basis or converted for shares of Company Common
Stock, or shall have been terminated, as the case may be, immediately prior
to the Effective Time.
4.15 AMENDMENT OF OPTION AGREEMENTS
All holders of Options shall have entered into an Option Termination
Agreement, for adequate consideration and in substantially the form attached
hereto as EXHIBIT 4.15, waiving or amending the applicable provisions of the
option agreements related to their respective Options to provide that the
vesting of such Options shall not be accelerated or become immediately
exercisable at the Closing.
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4.16 CONSENTS TO MERGER
SCHEDULE 2.10.2 to the Company Disclosure Memorandum lists certain
agreements, leases, notes or other documents identified in the schedules to
the Company Disclosure Memorandum that, by their terms require consent or
waiver to consummate the Merger. Unless otherwise set forth in SCHEDULE
2.10.2 to the Company Disclosure Memorandum, the Company shall have received
and shall have delivered to ShopNow or its counsel written consents to the
Merger or waivers, as applicable, from each of the parties (other than the
Company) to such agreements, leases, notes or other documents, which consents
or waivers, as the case may be, shall be reasonably satisfactory in all
respects to ShopNow.
4.17 MERGER CONSIDERATION SPREADSHEET
The Company shall provide ShopNow with a spreadsheet in a form
reasonably acceptable to ShopNow detailing (a) the number of shares of
Company Common Stock held by each Stockholder, (b) the amount of ShopNow
Common Stock to be received by each such Stockholder at the Effective Time
and (c) with respect to each Stockholder of the Company, the number of
Indemnification Shares to be held pursuant to the Holdback.
4.18 OPTION CONSIDERATION SPREADSHEET
The Company shall provide ShopNow with a spreadsheet in a form
reasonably acceptable to ShopNow detailing with respect to each Option the
number of shares of Company Capital Stock subject to such Option and the
exercise price thereof, the number of shares of ShopNow Common Stock that
will be subject to such Option and the exercise price thereof after the
assumption of such Option by ShopNow pursuant to Section 1.7.1(e) and the
vesting schedule with respect to such Option.
4.19 RESIGNATIONS
ShopNow and Purchaser shall have received copies of the resignations,
effective as of the Effective Time, of all the directors and officers of the
Company.
4.20 TAX CLEARANCE CERTIFICATES
The Company shall provide to ShopNow certificates of good standing (or,
where applicable, tax clearance certificates) from those states, including
but not limited to Kansas, in which the Company is engaged in business.
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4.21 REPAYMENT OF INDEBTEDNESS, RELEASES OF LIENS
Prior to the Effective Time, except as agreed to in writing by ShopNow,
the Company shall apply its cash balances to retire all Company Debt
Liability and shall obtain the release of any and all Encumbrances, other
than the UCC-1 financing statement of Epic Funding Corporation, with respect
to any of the Company's assets, including, without limitation, termination of
the Nationsbank UCC-1 financing statements. Any note wherein the holder has
the option to convert such note into shares of Company Capital Stock shall be
so converted (and not retired for cash) prior to the Effective Time.
4.22 TERMINATION OF EMPLOYEE OFFER LETTERS
SCHEDULE 4.22 to the Company Disclosure Memorandum contains a list of
all employees of the Company who received an offer letter from the Company
upon commencement of employment, and whose offer letter is still in effect.
Each of the employees listed on Schedule 4.22 shall have executed the Offer
Letter Termination attached hereto as EXHIBIT 4.22.
4.23 AGREEMENT OF BROADVIEW CAPITAL LLC
Broadview Capital LLC ("BROADVIEW") shall have executed a receipt and
release agreement in a form satisfactory to ShopNow acknowledging that
payment by ShopNow of the Broadview Fees (as defined in Section 9.2), as
contemplated in Section 9.2 constitutes satisfaction in full of all of the
Company's obligations under that certain letter agreement between the Company
and Broadview dated July 16, 1999.
ARTICLE V - CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE COMPANY AND THE STOCKHOLDERS
The obligations of the Company and the Stockholders to perform and
observe the covenants, agreements and conditions hereof to be performed and
observed by it at or before the Closing shall be subject to the satisfaction
of the following conditions, which may be expressly waived only in writing
signed by the Company and the Stockholders.
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of ShopNow and Purchaser contained
herein and in the Operative Documents shall have been true and correct in all
material respects when made and, except (a) for changes contemplated by this
Agreement and
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the Operative Documents and (b) to the extent that such representations and
warranties speak as of an earlier date, shall be true and correct as of the
Closing Date as though made on that date.
5.2 PERFORMANCE OF AGREEMENTS
ShopNow and Purchaser shall have performed in all material respects all
obligations and agreements and complied with all covenants contained in this
Agreement or any Operative Document to be performed and complied with by them
at or prior to the Closing.
5.3 OPINION OF COUNSEL FOR SHOPNOW AND PURCHASER
The Company and the Stockholders shall have received the opinion letter
of Perkins Coie LLP, counsel for ShopNow and Purchaser, dated the Closing
Date in the form attached as EXHIBIT 5.3.
5.4 COMPLIANCE CERTIFICATE
The Company shall have received a certificate of an officer of ShopNow,
dated the Closing Date, in form and substance reasonably satisfactory to the
Company, certifying that the conditions to the obligations of the Company and
the Stockholders in Sections 5.1, 5.2 and 5.7 have been fulfilled.
5.5 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
The Company and the Stockholders shall have received a certificate of
the Secretary of ShopNow and a certificate of the Secretary of Purchaser, in
form and substance reasonably satisfactory to the Company, as to the
authenticity and effectiveness of the actions of each of the Boards of
Directors of ShopNow and Purchaser, as applicable, and the sole shareholder
of Purchaser, authorizing the Merger and the transactions contemplated by
this Agreement and the Operative Documents. A copy of the resolutions of the
Board of Directors of ShopNow or Purchaser, as applicable, relating to the
transactions contemplated by this Agreement and the Operative Documents shall
be attached to each such certificate.
5.6 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement or
any Operative Document, and no litigation, investigation or administrative
proceeding shall be
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pending or threatened which would enjoin, restrain, condition or prevent
consummation of this Agreement or any Operative Document.
5.7 MATERIAL ADVERSE CHANGE
Since the date of this Agreement and through the Closing, there shall
not have occurred any material change in the business, properties or
prospects of ShopNow. Changes in the trading prices of ShopNow Common Stock
shall not be deemed material adverse changes under this Agreement.
5.8 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals of or notices to
public agencies, federal, state, local or foreign, the granting or delivery
of which is necessary on the part of ShopNow and Purchaser for the
consummation of the transactions contemplated hereby, shall have been
obtained, and all waiting periods specified by law shall have passed. All
other consents, approvals and notices on the part of ShopNow and Purchaser
referred to in this Agreement shall have been obtained or delivered.
5.9 COMPLIANCE WITH LAWS
The effectiveness of the Merger and the performance by ShopNow,
Purchaser, the Company and the Stockholders of the obligations hereunder and
under the Operative Documents shall be legally permitted by all laws and
regulations to which ShopNow, Purchaser, the Company and the Stockholders are
subject.
ARTICLE VI - COVENANTS
Between the date of this Agreement and the Effective Time, the parties
covenant and agree as set forth in this Article VI.
6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER
Unless ShopNow shall otherwise agree in writing and except as otherwise
contemplated by this Agreement, the Company and the Stockholders covenant and
agree to conduct the Company's business between the date of this Agreement
and the Effective Time in and only in, and the Company and the Stockholders
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice and in accordance with applicable law;
and each of the Company and the Stockholders shall use his or its best
efforts to preserve intact the business organization of the Company, to keep
available the services of the current officers, employees and
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consultants of the Company and to preserve the current relationships of the
Company with, and the goodwill of, customers, suppliers and other Persons
with which the Company has significant business relations. By way of
amplification and not limitation, except as otherwise contemplated by this
Agreement, the Company and the Stockholders shall not, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose
to do, any of the following without the prior written consent of ShopNow:
(a) amend or otherwise change the Company's Articles of Incorporation
or Bylaws;
(b) except for the issuance of shares of Company Common Stock upon the
exercise or conversion of currently outstanding Stock Purchase Rights, issue,
sell, contract to issue or sell, pledge, dispose of, grant, encumber or
authorize the issuance, sale, pledge, disposition, grant or Encumbrance of
(i) any shares of capital stock of any class of the Company, (ii) any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest) of the Company, or
(iii) any assets of the Company, except in the ordinary course of business
and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock or other securities, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock or other
securities;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or division thereof or any material
amount of assets; (ii) incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or make
any loans or advances, except in the ordinary course of business and
consistent with past practice; (iii) enter into any contract or agreement
other than in the ordinary course of business, consistent with past practice;
(iv) authorize any single capital expenditure which is in excess of $5,000 or
capital expenditures which are, in the aggregate, in excess of $10,000 for
the Company taken as a whole; (v) enter into any agreement in which the
obligation of the Company exceeds $5,000 or which shall not terminate or be
subject to termination for convenience within 30 days following execution;
(vi) license any Technology or IP Rights; or (vii) enter into or amend any
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contract, agreement, commitment or arrangement with respect to any matter set
forth in this subsection (e);
(f) enter into or amend any employment, consulting or agency agreement,
or increase the compensation payable or to become payable to its officers,
employees, agents or consultants, or grant any severance or termination pay
to, or enter into any employment or severance agreement with, any director,
officer or other employee of the Company, or establish, adopt, enter into or
amend any Employee Benefit Plan, collective bargaining, bonus, profit-sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance, benefit or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting methods, policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable);
(h) make any Tax election or settle or compromise any Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice;
(j) take any action that would or is reasonably likely to result in any
of the representations or warranties of the Company and the Stockholders set
forth in this Agreement being untrue in any material respect, or in any
covenant of the Company or the Stockholders set forth in this Agreement being
breached, or in any of the conditions to the Merger specified in Article IV
not being satisfied; or
(k) agree to do any of the foregoing.
6.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the Effective Time, the Company shall, and
shall cause the officers, directors, employees and agents of the Company to,
afford the officers, employees and agents of ShopNow access at all reasonable
times to the officers, employees, agents, properties, offices, plants and
other facilities, books and records of the Company and shall furnish ShopNow
with all financial, operating and other data and information as ShopNow ,
through its officers, employees or agents, may reasonably request. From the
date hereof until the Effective Time, the Company shall
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provide ShopNow with monthly and other financial statements of the Company as
they become available internally at the Company, all of which financial
statements shall fairly present the financial position and results of
operations of the Company as of the dates and for the periods therein
specified. No investigation pursuant to this Section 6.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto. The parties shall
continue to comply with and to perform their respective obligations under the
Mutual Nondisclosure Agreement between ShopNow and the Company entered into
as of September 15, 1999.
6.3 NO ALTERNATIVE TRANSACTIONS
Unless this Agreement shall have been terminated in accordance with its
terms, neither the Company nor the Stockholders shall, directly or
indirectly, through any officer, director, agent or otherwise, solicit,
initiate or encourage the submission of any proposal or offer from any Person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) any material portion of the assets of, or any equity
interest in, the Company or any business combination with the Company. The
Company shall notify ShopNow promptly if any such proposal or offer, or any
inquiry or contact with any Person with respect thereto, is made. The
Company agrees not to release any third party from, or waive any provision
of, any confidentiality or standstill (e.g., agreement not to invest in or
seek change of control of the Company) agreement to which the Company is a
party. Notwithstanding anything to the contrary contained in this Section
6.3, if this Agreement is terminated by ShopNow or Purchaser, this Section
6.3 shall be terminated and the Company shall, immediately upon such
termination, be permitted to pursue an Alternative Transaction.
6.4 NOTIFICATION OF CERTAIN MATTERS
Each party shall give prompt notice to the other parties of (a) the
occurrence or nonoccurrence of any event that would be reasonably likely to
cause any representation or warranty made by such party contained in this
Agreement to be untrue or inaccurate in any material respect and (b) any
material failure by such party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
6.4 shall not limit or otherwise affect the remedies available to the parties
hereunder.
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6.5 FURTHER ACTION; COMMERCIALLY REASONABLE EFFORTS
Upon the terms and subject to the conditions hereof, each of the
parties hereto shall use commercially reasonable efforts to take, or cause to
be taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby,
including, without limitation, using commercially reasonable efforts to
obtain all waivers, licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to
contracts with the Company as are necessary for the consummation of the
transactions contemplated hereby and to fulfill the conditions to the Merger.
In case at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of this Agreement or the Operative
Documents, each party to this Agreement shall use commercially reasonable
efforts to promptly take all such action. After the Closing, each party
hereto, at the request of and without any further cost or expense to the
other parties, shall take any further actions reasonably necessary or
desirable to carry out the purposes of this Agreement or any Operative
Document, to vest in the Surviving Corporation full title to all properties,
assets and rights of the Company and to effect the issuance of the Closing
Shares to the Stockholders pursuant to the terms and conditions hereof.
6.6 PUBLICITY
No party hereto shall issue any press release or otherwise make any
statements to any third party with respect to this Agreement or the
transactions contemplated hereby other than the issuance by ShopNow of a
press release announcing this Agreement and the transactions contemplated
hereby, as contemplated by this Agreement or necessary to carry out the
transactions contemplated hereby or as required by law. Any party who is
required by law to make any such disclosure must provide notice in advance of
the disclosure to all other parties. Such notice shall contain (a) the
contents of the proposed disclosure; (b) the reasons that the party
contemplating disclosure believes that disclosure is required by law; and (c)
the proposed time and place of such disclosure.
6.7 BRING-DOWN CAPITALIZATION SCHEDULE
No later than one day prior to Closing, the Company shall deliver to
ShopNow an updated version of SCHEDULE 2.3 to the Company Disclosure
Memorandum (Capitalization) which shall list all holders of Company Common
Stock and shall reflect the conversion of the outstanding shares of Company
Preferred Stock into
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Company Common Stock. The updated SCHEDULE 2.3 shall be deemed an amendment
to SCHEDULE 2.3 attached hereto.
6.8 EXECUTION OF ALL OPERATIVE DOCUMENTS
Each party shall execute at or prior to Closing each Operative Document
to which he or it is a party.
6.9 AGREEMENT TO VOTE SHARES
(a) Each Stockholder shall vote or cause to be voted, or execute a
written consent with respect to, his, her or its shares of Company Common
Stock (i) in favor of adoption and approval of this Agreement and all
transactions relating hereto or contemplated hereby at every meeting of the
Stockholders at which such matters are considered and at every adjournment
thereof and in connection with every proposal to take action by written
consent with respect thereto and (ii) against any proposal by a party other
than ShopNow, Purchaser or their affiliates to merge or consolidate with the
Company or any subsidiary of the Company or to sell all or substantially all
the assets of the Company or any subsidiary of the Company, at every meeting
of the stockholders of the Company at which such matters are considered, at
every adjournment thereof and in connection with every proposal to take
action by written consent with respect thereto.
(b) Each Stockholder agrees that he or it will not, nor will such
Stockholder permit any entity under such Stockholder's control to, deposit
any shares in a voting trust or subject the shares to any agreement,
arrangement or understanding with respect to the voting of the shares
inconsistent with this Agreement.
6.10 LIMITATION ON SALES OF COMPANY COMMON STOCK
Except as contemplated by this Agreement, each Stockholder covenants
and agrees not to sell, assign, transfer, pledge, encumber or otherwise
dispose of any of his or its shares of Company Capital Stock.
6.11 WAIVER OF DISSENTER'S RIGHTS
Each Stockholder hereby irrevocably and unconditionally waives, and
agrees to cause to be waived and to prevent the exercise of, any rights of
appraisal, any dissenters' rights and any similar rights relating to the
Merger that such Stockholder may have by virtue of the ownership of any
outstanding shares of Company Common Stock.
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6.12 STOCKHOLDER REPRESENTATIVE
(a) Each Stockholder other than World Investments, Inc. (collectively,
the "APPOINTING STOCKHOLDERS") hereby irrevocably authorizes and appoints
Rick Ralston (the "STOCKHOLDER REPRESENTATIVE"), with full power of
substitution and resubstitution, as his or its representative in connection
with the Merger.
(b) Each Appointing Stockholder agrees that the Stockholder
Representative shall have the full power, authority and right to perform, do
and take any and all actions he deems necessary or advisable to carry out the
purposes of this Agreement and each Operative Document all without liability
to such Stockholder (except as expressly stated herein or therein), so long
as same are carried out by the Stockholder Representative in good faith.
Such actions include the power to amend, modify or waive any agreement (other
than this Agreement) in the name of each Appointing Stockholder as if such
Stockholder had himself or itself amended, modified or waived such agreement;
provided that the Stockholder Representative shall have no power to alter any
term of this Agreement which would reduce the amount or change the type of
consideration to be received by any Stockholder in respect of the Merger
unless a majority of the Stockholders shall so agree. In particular, but not
by way of limitation, the Stockholder Representative shall have the power to
make and carry out decisions under this Agreement and the Operative Documents
on behalf of each Appointing Stockholder and to sign documents and make
filings on behalf of each Stockholder as if such Stockholder had himself or
itself signed or filed such document.
(c) Each Appointing Stockholder understands that this appointment is
irrevocable.
(d) The Stockholder Representative may resign at any time. Upon such
resignation, each Appointing Stockholder hereby authorizes the Stockholder
Representative to appoint a new Stockholder Representative to replace such
resigning Stockholder Representative with the same powers and duties as such
resigning Stockholder Representative, provided that such newly appointed
Stockholder Representative shall have been a Stockholder immediately prior to
the Effective Time.
(e) If the Stockholder Representative or any successor shall die, or
become unable to act as the Stockholder Representative, a replacement shall
promptly be appointed by a writing signed by a majority of the Appointing
Stockholders, provided that such newly appointed Stockholder Representative
shall have been a Stockholder immediately prior to the Effective Time.
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6.13 RELEASE OF STOCKHOLDERS FOR OBLIGATIONS OF THE COMPANY
ShopNow shall use commercially reasonable efforts to assist the
Stockholders in obtaining the release of each Stockholder from the Personal
Guarantees.
6.14 LISTING APPLICATION
ShopNow shall prepare by the date of the Closing and submit to the
Nasdaq National Market promptly after Closing a listing application covering
the shares of ShopNow Common Stock issuable in the merger, and shall use its
best efforts to obtain, promptly after the Effective Time, approval for the
listing of such shares of ShopNow Common Stock, subject to official notice of
issuance.
ARTICLE VII - TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time (notwithstanding approval of this Agreement
by the Stockholders):
(a) by mutual written consent of the Company and ShopNow;
(b) by either the Company or ShopNow, if the Merger has not been
consummated by January 21, 2000; provided, however, that the right to
terminate this Agreement under this subsection (b) shall not be available to
any party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur
on or before such date;
(c) by either the Company or ShopNow, if there shall be any law or
regulation that makes consummation of the Merger illegal or if any judgment,
injunction, order or decree enjoining ShopNow, Purchaser, the Company or the
Stockholders from consummating the Merger is entered and such judgment,
injunction, order or decree shall become final and nonappealable; provided,
however, that the party seeking to terminate this Agreement pursuant to this
subsection (c) shall have used all reasonable efforts to remove such
judgment, injunction, order or decree;
(d) by the Company, in the event of a material breach by ShopNow or
Purchaser of any representation, warranty or agreement contained herein that
has not been cured or is not curable by January 21, 2000;
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(e) by ShopNow, in the event of a material breach by the Company or any
Stockholder of any representation, warranty or agreement contained herein
that has not been cured or is not curable by January 21, 2000.
7.2 EFFECT OF TERMINATION
(a) Except as specifically provided in this Section 7.2, in the event
of the termination of this Agreement pursuant to Section 7.1 hereof, there
shall be no further obligation on the part of any party hereto, except that
nothing herein shall relieve any party from liability for any willful breach
hereof.
(b) If ShopNow shall terminate this Agreement pursuant to (i) Section
7.1(b) by reason of the Company's or any Stockholder's failure or inability
to satisfy the conditions to the Merger or (ii) Section 7.1(e) by reason of
the Company's or any Stockholder's breach of the covenants contained in
Sections 6.3 or 6.6 (a "BREAKUP TERMINATION"), and the Company consummates an
Alternative Transaction (as defined below) on or before the one-year
anniversary of such termination, the Company shall: (i) pay to ShopNow upon
the closing of the Alternative Transaction a cash termination fee (the
"TERMINATION FEE"), equal to 19.9% of the aggregate value of cash and noncash
consideration received and to be received by the Company and its Stockholders
in respect of such Alternative Transaction. An "ALTERNATIVE TRANSACTION"
means any acquisition by a party other than ShopNow, Purchaser or any of
their affiliates of (x) a material portion of shares of the Company's capital
stock; (y) a material portion of the Company's assets; or (z) a material
portion of the Company's business, in each case, whether through direct
purchase, merger, consolidation or other business combination; provided,
however, that Alternative Transactions shall not mean sales of inventory or
immaterial portions of the Company's assets in the ordinary course of
business.
(c) Notwithstanding the provisions of Section 7.2(b), in the event of a
Breakup Termination, ShopNow shall have the right (the "INVESTMENT OPTION"),
in its sole discretion (whether or not the Company consummates an Alternative
Transaction) and in lieu of receiving payment of the Termination Fee pursuant
to Section 7.2(b), to purchase for an aggregate purchase price of $15
million, that number of shares of Breakup Preferred Stock (as defined below)
equal to 19.9% of the total number of shares of Company Common Stock
outstanding on the closing date of such purchase (the "INVESTMENT DATE"),
which calculation assumes the exercise or conversion into Company Common
Stock, as the case may be, of all Stock Purchase Rights outstanding on the
Investment Date. ShopNow shall exercise the Investment Option by giving
written notice to the Company in accordance with Section 9.3 no later than
120 days after the date of termination of this Agreement. "BREAKUP PREFERRED
STOCK"
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shall mean the class or series of the Company's capital stock (or the capital
stock of the successor corporation in the event that the Company consummates
an Alternative Transaction) possessing the most senior rights, preferences
and privileges under the articles of incorporation and applicable law on the
Investment Date.
7.3 AMENDMENT
This Agreement may not be amended except by an instrument in writing
signed by ShopNow, the Company and the Stockholders.
7.4 WAIVER
At any time prior to the Effective Time, any party hereto may (a)
extend the time for the performance of any obligation or other act of any
other party hereto, (b) waive any inaccuracy in the representations and
warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
ARTICLE VIII - SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL
All representations and warranties contained in this Agreement or in
the Operative Documents or in any certificate delivered pursuant hereto or
thereto shall survive until the first anniversary of the Effective Time (the
"SURVIVAL PERIOD"), and shall not be deemed waived or otherwise affected by
any investigation made or any knowledge acquired with respect thereto, or by
any notice delivered pursuant to Section 6.4 or otherwise; provided, however,
that (i) the representations and warranties of the Company and the
Stockholders contained in Sections 2.3, 2A.2 and 2A.5 shall survive the
Effective Time until the applicable statute of limitations, plus thirty days
for each of the matters addressed in such representations and warranties and
(ii) any claim relating to fraud shall survive the Effective Time
indefinitely. The covenants and agreements contained in this Agreement shall
survive and continue until all obligations with respect thereto shall have
been performed or satisfied or shall have been terminated in accordance with
their terms. Notwithstanding the foregoing, any representation or warranty
in respect of which indemnity may be sought pursuant to this Agreement shall
survive until the time which it would otherwise terminate if a Claim Notice
(as defined in Section 8.5(a)) shall have been delivered to the Stockholder
Representative, or, in the case of a Claim against World Investments, Inc.,
to World Investments, Inc. prior to such time.
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8.2 INDEMNIFICATION BY THE STOCKHOLDERS
The Stockholders severally shall indemnify and hold ShopNow and its
officers, directors and affiliates (the "SHOPNOW INDEMNIFIED PARTIES")
harmless from and against, and shall reimburse the ShopNow Indemnified
Parties for, any and all loss, obligation, deficiency, damage, claim
liability, cost and expense (including, without limitation, the amount of any
settlement entered into pursuant hereto, and all reasonable legal fees and
other expenses) ("LOSSES") arising out of (i) any inaccuracy or
misrepresentation in, or breach of, any representation or warranty made by
the Company or any Stockholder in this Agreement or in any Operative Document
or in any certificate delivered pursuant hereto or thereto; (ii) any failure
by the Company or the Stockholders to perform or comply, in whole or in part,
with any covenant or agreement in this Agreement or in any Operative
Document; (iii) any claim by any third party arising out of the Company's
operation of the Company's business or the ownership, use or distribution of
the Company's assets on or before the Effective Time; (iv) all liability for
Taxes of the Company assessed during or attributable to any taxable period
ending on or prior to the Effective Date, and the portion of any taxable
period that includes, but does not end on, the Effective Date to the extent
such Taxes exceed the reserve for Tax liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the Company Balance Sheet (rather than in
any notes thereto); (v) any liability for Taxes resulting from the
transactions contemplated by this Agreement, including, without limitation,
transfer, sales, use, excise, conveyance and similar taxes, excluding any
Taxes resulting from a reassessment of Real Property or Personal Property
occurring as a result of the Merger; (vi) any claims by the Company's trade
creditors relating to the Company's obligations existing on or prior to, or
arising with respect to the period ending on, the Effective Date, other than
trade payables arising in the ordinary course of business; or (vii) any
liability for brokerage or finders' fees or agents commissions or any similar
charges in connection with the Merger, this Agreement or any transaction
contemplated hereby, except for the Broadview Fees.
8.3 INDEMNIFICATION BY SHOPNOW
ShopNow shall indemnify and hold the Stockholders, the Company and the
Company's officers, directors and affiliates (the "COMPANY INDEMNIFIED
PARTIES" and, together with the ShopNow Indemnified Parties, the "INDEMNIFIED
PARTIES") harmless from and against, and shall reimburse the Company
Indemnified Parties for, any and all Losses arising out of or in connection
with (a) any inaccuracy in, or misrepresentation or breach of, any
representation or warranty made by ShopNow or Purchaser in this Agreement or
in any Operative Document or in any certificate delivered pursuant hereto or
thereto; (b) any failure by ShopNow or Purchaser to
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perform or comply, in whole or in part, with any covenant or agreement in
this Agreement or in any Operative Document; and (c) any claim by any third
party against a Stockholder arising out of or in connection with any of the
Personal Guarantees, except to the extent by which such claim arises out of
or in connection with any inaccuracy in, or misrepresentation or breach of,
any representation or warranty made by the Company or the Stockholders in
this Agreement or any Operative Document or in any certificate delivered
pursuant hereto or thereto.
8.4 THRESHOLD AND LIMITATIONS
(a) The Indemnified Parties shall be not be entitled to receive any
indemnification payment with respect to any claims for indemnification under
this Article VIII ("CLAIMS") until the aggregate Losses for which such
Indemnified Parties would be otherwise entitled to receive indemnification
exceed $100,000 (the "THRESHOLD"); provided, however, that once such
aggregate Losses exceed the Threshold, such Indemnified Parties shall be
entitled to indemnification for the aggregate amount of all Losses without
regard to the Threshold.
(b) Except for Losses based on fraud, the aggregate total liability of
the Stockholders pursuant to this Article VIII shall be limited to
$50,000,000 and the liability of each Stockholder shall be limited to the
aggregate dollar value (based on the Base Price) of the Merger Consideration
to which such Stockholder is entitled pursuant to Section 1.7.1.
(c) An indemnifying party shall not be obligated to defend and hold
harmless an Indemnified Party, or otherwise be liable to such party, with
respect to any claims made by the Indemnified Party after the expiration of
the Survival Period or other applicable time limitation described in Section
8.1, except that indemnity may be sought after the expiration of the Survival
Period or other applicable time limitation if a Claim Notice (as defined in
Section 8.5(a)) shall have been delivered to the Stockholder Representative,
or in the case of a Claim against World Investments, Inc. to World
Investments, Inc. prior to the expiration of such time period.
(d) Notwithstanding the foregoing, Losses incurred by the ShopNow
Indemnified Parties arising out of or with respect to any inaccuracy or
misrepresentation in, or breach of, any representation or warranty contained
in Sections 2.3, 2A.2 and 2A.5 shall not be subject to the Threshold set
forth in Section 8.4(a), but shall instead be indemnified by the Stockholders
from the first dollar incurred.
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8.5 PROCEDURE FOR INDEMNIFICATION
(a) The Indemnified Party shall give written notice (the "CLAIM
NOTICE") of any claim for indemnification under this Article VIII (a "CLAIM")
to the indemnifying party as promptly as practicable, but in any event: (i)
if such Claim relates to the assertion against an Indemnified Party of any
claim by a third party (a "THIRD PARTY CLAIM"), within 30 days after the
assertion of such Third Party Claim, or (ii) if such Claim is not in respect
of a Third Party Claim, within 30 days after the discovery of facts upon
which the Indemnified Party intends to base a Claim for indemnification
pursuant to Article VIII hereof; provided, however, that the failure or delay
to so notify the indemnifying party shall not relieve the indemnifying party
of any obligation or liability that the indemnifying party may have to the
Indemnified Party except to the extent that the indemnifying party
demonstrates that the indemnifying party's ability to defend or resolve such
Claim is adversely affected thereby. Any such Claim Notice shall describe the
facts and circumstances on which the asserted Claim for indemnification is
based, the amount thereof if then ascertainable and, if not then
ascertainable, the estimated maximum amount thereof, and the provisions in
the Agreement on which the Claim is based.
(b) (i) Subject to the rights of or duties to any insurer or other
third party having potential liability therefor, the indemnifying party shall
have the right, upon written notice given to the Indemnified Party within 30
days after receipt of the notice from the Indemnified Party of any Third
Party Claim, to assume the defense or handling of such Third Party Claim, at
the indemnifying party's sole expense, in which case the provisions of
Section 8.4(b)(ii) hereof shall govern.
(ii) The indemnifying party shall select counsel reasonably
acceptable to the Indemnified Party in connection with conducting the defense
or handling of such Third Party Claim, and the indemnifying party shall
defend or handle the same in consultation with the Indemnified Party and
shall keep the Indemnified Party timely apprised of the status of such Third
Party Claim. The indemnifying party shall not, without the prior written
consent of the Indemnified Party, agree to a settlement of any Third Party
Claim, unless (A) the settlement provides an unconditional release and
discharge of the Indemnified Party and the Indemnified Party is reasonably
satisfied with such discharge and release and (B) the Indemnified Party shall
not have reasonably objected to any such settlement on the ground that the
circumstances surrounding the settlement could result in an adverse impact on
the business, operations, assets, liabilities (absolute, accrued, contingent
or otherwise), condition (financial or otherwise) or prospects of the
Indemnified Party. The Indemnified Party shall cooperate with the
indemnifying party and shall be entitled to participate in the
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defense or handling of such Third Party Claim with its own counsel and at its
own expense.
(c) (i) If the indemnifying party does not give written notice to the
Indemnified Party within 30 days following receipt of the notice from the
Indemnified Party of any Third Party Claim of the indemnifying party's
election to assume the defense or handling of such Third Party Claim, the
provisions of Section 8.4(c)(ii) hereof shall govern.
(ii) The Indemnified Party may, at the indemnifying party's expense
(which shall be paid from time to time by the indemnifying party as such
expenses are incurred by the Indemnified Party), select counsel in connection
with conducting the defense or handling of such Third Party Claim and defend
or handle such Third Party Claim in such manner as it may deem appropriate;
provided, however, that the Indemnified Party shall keep the indemnifying
party timely apprised of the status of such Third Party Claim and shall not
settle such Third Party Claim without the prior written consent of the
indemnifying party, which consent shall not be unreasonably withheld. If the
Indemnified Party defends or handles such Third Party Claim, the indemnifying
party shall cooperate with the Indemnified Party and shall be entitled to
participate in the defense or handling of such Third Party Claim with its own
counsel and at its own expense.
8.5 HOLDBACK
8.5.1 PLEDGE
The Indemnification Shares (which shall include for purposes of this
Section 8.5 any distributions accrued or made thereon after the date of this
Agreement, the net proceeds of any sale of the Indemnification Shares and any
other securities or property which may be issued after the date hereof in
exchange for the Indemnification Shares in any merger or recapitalization or
similar transaction involving ShopNow) shall be deemed as of the Effective
Time to be pledged by the Stockholders to, and certificates representing the
Indemnification Shares shall be held by, ShopNow or any successor thereto
pursuant to this Agreement. So long as any Indemnification Shares are held
by ShopNow hereunder, ShopNow shall have, and the Stockholders by execution
and/or approval of this Agreement hereby grant, effective as of the Effective
Time, a perfected, first-priority security interest in such Indemnification
Shares to secure payment of amounts payable by the Stockholders in respect of
claims under this Article VIII. In connection therewith, each Stockholder
shall execute and deliver such instruments as ShopNow may from time to time
reasonably request for the purpose of evidencing and perfecting such security
interest.
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8.5.2 HOLDBACK RELEASE
ShopNow shall hold the Indemnification Shares in accordance with this
Agreement and shall transfer the Indemnification Shares only as follows:
(a) Indemnification Shares shall be retransferred to ShopNow in respect
of a Claim made by ShopNow, or transferred to a ShopNow Indemnified Party in
respect of a claim made by such Indemnified Party, under this Article VIII
when, and to the extent, authorized under Section 8.5.3 below.
(b) At 5:00 p.m. Central Standard Time on the first anniversary of the
Closing Date (the "RELEASE DATE"), the Indemnification Shares shall be
released to the Stockholders PRO RATA in accordance with their percentage
interest in the Indemnification Shares; provided, however, that no
Indemnification Shares shall be released to any Stockholder who has not
previously surrendered all of such Stockholder's certificates representing
Company Common Stock in accordance with Section 1.7.2. ShopNow shall cause
the certificates representing the Indemnification Shares that have been
released to be delivered to the Stockholders promptly after the Release Date.
Notwithstanding the foregoing, the number of Indemnification Shares to be
released on the Release Date shall be reduced by the number of
Indemnification Shares (i) subject to a pending Claim Notice for which the
Response Period (as defined below) has not yet expired, (ii) retransferred to
ShopNow or transferred by ShopNow to a ShopNow Indemnified Party in
satisfaction of a Claim made prior to the Release Date or (iii) held in
reserve pending resolution of a ShopNow Open Claim (as defined below) in
respect of a Claim Notice delivered prior to the Release Date.
(c) After the Release Date, when a final determination is made with
respect to any ShopNow Open Claim, the number of Indemnification Shares
transferable to any ShopNow Indemnified Party shall be transferred to the
ShopNow Indemnified Party from the Claim Reserve Amount for such ShopNow Open
Claim, and the Indemnification Shares included in such Claim Reserve Amount
remaining after such transfer shall be released to the Stockholders PRO RATA
in accordance with their percentage interest in the Indemnification Shares to
be released; provided, however, that no Indemnification Shares shall be
released to any Stockholder who has not previously surrendered all of such
Stockholder's certificates representing Company Common Stock in accordance
with Section 1.7.2.
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8.5.3 CLAIMS PROCEDURE
The procedure for payment from the Indemnification Shares of
indemnification amounts to which ShopNow or other ShopNow Indemnified Parties
may become entitled under this Article VIII shall be as follows:
(a) From time to time as ShopNow determines that it or another ShopNow
Indemnified Party is entitled to an indemnification payment from the
Indemnification Shares for a Claim under this Article VIII, ShopNow shall
give a Claim Notice to the Stockholder Representative or, in the case of a
Claim against World Investments, Inc., to World Investments, Inc. in
accordance with Section 8.5.
(b) If ShopNow has not received from the Stockholder Representative, or
in the case of a Claim against World Investments, Inc., from World
Investments, Inc. within 30 business days after notice of such Claim is
delivered (the "RESPONSE PERIOD") a written objection to a Claim stating the
facts and circumstances on which the objection is based, the Claim stated in
such Claim Notice shall be conclusively deemed to be approved by the
Stockholders and ShopNow shall promptly thereafter transfer to the ShopNow
Indemnified Party from the Indemnification Shares a number of Indemnification
Shares equal in value to the amount of such Claim. The number of
Indemnification Shares to be transferred shall be determined by dividing the
amount of the Claim by the Base Price and shall be rounded to the nearest
whole share, with .5 being rounded up.
(c) If, within the Response Period, ShopNow shall have received from
the Stockholder Representative or, in the case of a Claim against World
Investments, Inc., from World Investments, Inc. a written objection to the
claim specifying the nature of and grounds for such objection, then such
Claim shall be deemed to be a "SHOPNOW OPEN CLAIM," and ShopNow shall reserve
within the Indemnification Shares a number of shares equal in value to the
amount of such ShopNow Open Claim (which amount designated for each ShopNow
Open Claim is referred to herein as the "CLAIM RESERVE AMOUNT"). The number
of Indemnification Shares to be reserved shall be determined (rounded to the
nearest whole share, with .5 rounded up) by dividing the amount of the
ShopNow Open Claim by the Base Price.
(d) Indemnification Shares within the Claim Reserve Amount for each
ShopNow Open Claim shall be transferred by ShopNow only in accordance with
either (i) a mutual agreement between ShopNow and the Stockholder
Representative (or, in the case of transfer pursuant to a Claim against World
Investments, Inc., a mutual agreement between ShopNow and World Investments,
Inc.) which shall be memorialized in writing or (ii) a court order from any
competent court having
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jurisdiction over the parties under Section 9.8 or a final and binding
arbitration decision pertaining to the ShopNow Open Claim.
8.5.4 VOTING; DISPOSITION
Until retransferred to ShopNow or transferred to an Indemnified Party
in accordance with the provisions of this Article VIII, the Indemnification
Shares shall be held of record by the Stockholders for all purposes
(including federal income tax purposes), and the Stockholders shall have full
right to vote the Indemnification Shares on all matters coming before the
shareholders of ShopNow. Except for transfers to ShopNow or an Indemnified
Party in accordance with the provisions of this Article VIII, no interest in
the Indemnification Shares may be sold or transferred to any third party
prior to any distribution of the Indemnification Shares pursuant to Section
8.5.2(b) or (c).
8.5.5 MERGER OR RECAPITALIZATION
In the event of any merger or recapitalization or similar transaction
involving ShopNow prior to the time when all Indemnification Shares have been
transferred or released in accordance with the terms of this Section 8.5,
such Indemnification Shares shall be converted or exchanged in accordance
with such transaction in the same manner as other ShopNow Common Stock, and
any securities or property issued in conversion or exchange thereof shall
then be included within the definition of Indemnification Shares and shall
otherwise become subject to this Agreement in lieu of such shares of ShopNow
Common Stock.
8.5.6 TAXATION OF DIVIDENDS
For federal and state income tax purposes, any dividends or other
distributions with respect to the Indemnification Shares shall be income of
the Stockholders, except dividends or distributions relating to Indemnification
Shares that have been retransferred to ShopNow or an Indemnified Party as
required under this Article VIII.
8.6 SPECIFIC PERFORMANCE
Each of the parties acknowledges and agrees that the other parties
hereto would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties hereto agrees that
the other parties hereto shall be entitled to an injunction to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof (including the indemnification
provisions hereof) in any competent court having jurisdiction over the
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parties, in addition to any other remedy to which they may be entitled at law
or in equity.
ARTICLE IX - GENERAL
9.1 TAX MATTERS - COMPANY AND STOCKHOLDERS
Unless otherwise required by law, the parties hereto shall treat the
Merger as a reorganization under Section 368 of the Code and the underlying
Treasury Regulations for all Tax reporting purposes; provided, however, that
except as set forth in this Section 9.1 neither ShopNow nor Purchaser makes
any representation or warranty with respect to, and expressly disclaims any
responsibility for, any Tax consequences to the Company or Stockholders
arising out of the structure or terms of this Agreement. Except as otherwise
required by law, none of the parties shall take a position on any tax return
inconsistent with this Section 9.1. In addition, ShopNow represents as of
the date of this Agreement and as of the Closing Date, solely for tax
purposes (i) that it presently intends to continue the Company's historic
business or to use a significant portion of the Company's business assets in
a business (within the meaning of Section 1.368-1(e) of the Treasury
Regulations); and (ii) that it has no current plan or intention to liquidate
the Company, to merge the Company with or into another corporation, to sell
or otherwise dispose of the Company Common Stock or to cause the Company to
sell or otherwise dispose of its assets, except for dispositions made in the
ordinary course of business or transfers permitted by Section 368(a)(2)(C) of
the Code or any related Treasury Regulations.
9.2 EXPENSES
If the transactions contemplated by this Agreement are not consummated,
each party shall pay its own fees and expenses incident to the negotiation,
preparation and execution of this Agreement and the Operative Documents
(including legal and accounting fees and expenses); provided, however, that
the attorneys' fees and expenses of the prevailing party in any action
brought hereunder shall be paid by the other party to such action. If the
transactions contemplated by this Agreement are consummated, ShopNow will pay
at Closing the reasonable fees and expenses of the Company and the
Stockholders incident to the negotiation, preparation and execution of this
Agreement and the Operative Documents including the Company's attorneys' fees
incurred between September 15, 1999 and the Closing Date, provided such costs
and expenses of the Company's attorneys do not exceed $90,000. Costs and
expenses in excess of this amount shall remain the responsibility of the
Stockholders. ShopNow shall pay the fees of Broadview incurred in connection
with the Merger (the "BROADVIEW FEES"), provided, however, that such fees do
not exceed $1.4 million and
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provided, further, that Broadview shall have executed a receipt and release
agreement, as contemplated by Section 4.23.
9.3 NOTICES
Any notice, request or demand desired or required to be given hereunder
shall be in writing given by personal delivery, confirmed facsimile
transmission or overnight courier service, in each case addressed as
respectively set forth below or to such other address as any party shall have
previously designated by such a notice. The effective date of any notice,
request or demand shall be the date of personal delivery, the date on which
successful facsimile transmission is confirmed or the date actually delivered
by a reputable overnight courier service, as the case may be, in each case
properly addressed as provided herein and with all charges prepaid.
TO SHOPNOW OR PURCHASER:
ShopNow.com Inc.
411 First Avenue South, Suite 200 North
Seattle, Washington 98101
Fax: (206) 223-2324
Attention: Alan D. Koslow
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 48th Floor
Seattle, Washington 98101-3099
Fax: (206) 583-8500
Attention: Stephen M. Graham
Alan C. Smith
TO THE COMPANY:
WebCentric, Inc.
Building 1000, Suite 1001
8200 E. 34th Street Circle N
Wichita, KS 67226
Fax: (316) 636-9150
Attention: Rick Ralston
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TO THE STOCKHOLDER REPRESENTATIVE:
Rick Ralston
15840 Limerick
Wichita, KS 67230
Fax: (316) 636-9160
in the case of the Company and the Stockholder Representative, with a
copy to:
Hinkle Elkouri Law Firm LLC
301 N. Main, Suite 2000
Wichita, KS 67202
Fax: (316) 264-1518
Attention: David S. Elkouri
TO WORLD INVESTMENTS, INC.:
World Investments, Inc.
World-Herald Square
1334 Dodge Street
Omaha, NE 68102
Fax: (402) 220-3225
with a copy to:
Koley, Jessen, Daubman & Rupiper, P.C.
One Pacific Place
1125 South 103 Street
Omaha, NE 68124
Fax: (402) 390-9005
Attention: Michael Hupp
9.4 SEVERABILITY
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order
that the
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transactions contemplated hereby be consummated as originally contemplated to
the fullest extent possible.
9.5 ENTIRE AGREEMENT
This Agreement, the Operative Documents and that certain Non-Disclosure
Agreement dated on or about September 15, 1999, constitute the entire
agreement among the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof and thereof (including, without limitation, the Letter of Intent,
dated November 22, 1999, between ShopNow, the Company, Kent Johnson and Craig
Johnson).
9.6 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise;
provided, however, that Purchaser's rights and obligations may be assigned to
and assumed by ShopNow or any other corporation wholly owned (directly or
through intermediate wholly owned subsidiaries) by ShopNow.
9.7 PARTIES IN INTEREST
This Agreement shall be binding upon and inure solely to the benefit of
the parties hereto and their respective successors, heirs, legal
representatives and permitted assigns, and nothing in this Agreement, express
or implied, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
9.8 GOVERNING LAW; VENUE
This Agreement shall be governed by, and construed in accordance with,
the laws of the state of Washington applicable to contracts executed in and
to be performed in that state. The parties irrevocably consent to the
jurisdiction and venue of the state and federal courts located in King
County, Washington in connection with any action relating to this Agreement.
9.9 HEADINGS
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
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9.10 COUNTERPARTS
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties
hereto in separate counterparts, each of which when executed and delivered
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
9.11 WAIVER OF JURY TRIAL
Each of ShopNow, the Company, Purchaser and each Stockholder hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement, the transactions contemplated hereby or the
actions of such parties in the negotiation, administration, performance and
enforcement hereof.
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IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement and Plan of Merger as of the date and year first above written.
SHOPNOW.COM INC.
By /s/ Alan Koslow
-----------------------------
Its Executive Vice President,
-----------------------------
Chief Financial Officer,
General Counsel and Secretary
CHIEFS ACQUISITION, INC.
By /s/ Alan Koslow
-----------------------------
Its Vice President and Secretary
-----------------------------
WEBCENTRIC, INC.
By /s/ Rick Ralston
-----------------------------
Its President
-----------------------------
STOCKHOLDERS:
/s/ Craig Johnson
---------------------------------
Craig A. Johnson
/s/ Kent Johnson
---------------------------------
Kent A. Johnson
/s/ Eric Wendelbo
---------------------------------
Eric Wendelbo
/s/ Rick Ralston
---------------------------------
Rick Ralston
<PAGE>
WORLD INVESTMENTS, INC.
By /s/ William E. Conley
-----------------------------
Its President
-----------------------------
KENT JOHNSON, L.P.
By /s/ Kent Johnson
-----------------------------
Its General Partner
-----------------------------
LAZY J OF KANSAS, L.P.
By /s/ Craig Johnson
-----------------------------
Its General Partner
-----------------------------
