AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
CMGI, Inc.
Senlix Corporation
and
uBID, INC.
Dated as of February 9, 2000
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TABLE OF CONTENTS
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ARTICLE I THE MERGER..................................................... 2
1.1 Effective Time of the Merger....................................... 2
1.2 Closing............................................................ 2
1.3 Effects of the Merger.............................................. 2
1.4 Directors.......................................................... 2
ARTICLE II CONVERSION OF SECURITIES...................................... 3
2.1 Conversion of Capital Stock........................................ 3
2.2 Exchange of Certificates........................................... 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 7
3.1 Organization, Standing and Power;
Subsidiaries....................................................... 7
3.2 Capitalization..................................................... 8
3.3 Authority; No Conflict; Required Filings
and Consents....................................................... 10
3.4 SEC Filings; Financial Statements.................................. 11
3.5 No Undisclosed Liabilities......................................... 12
3.6 Absence of Certain Changes or Events............................... 13
3.7 Taxes.............................................................. 13
3.8 Owned and Leased Real Properties................................... 15
3.9 Intellectual Property.............................................. 16
3.10 Agreements, Contracts and Commitments.............................. 17
3.11 Litigation......................................................... 18
3.12 Environmental Matters.............................................. 18
3.13 Employee Benefit Plans............................................. 19
3.14 Compliance With Laws............................................... 22
3.15 Permits............................................................ 22
3.16 Registration Statement; Proxy
Statement/Prospectus............................................... 23
3.17 Labor Matters...................................................... 23
3.18 Insurance.......................................................... 23
3.19 Business Activity Restrictions..................................... 24
3.20 Year 2000 Compliance............................................... 24
3.21 Assets............................................................. 25
3.22 No Existing Discussions............................................ 26
3.23 Opinion of Financial Advisor....................................... 26
3.24 Section 203 of the DGCL Not Applicable............................. 26
3.25 Tax Matters........................................................ 26
3.26 Transactions with Affiliates....................................... 26
3.27 Brokers; Schedule of Fees and Expenses............................. 26
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3.28 Privacy Issues..................................................... 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE
TRANSITORY SUBSIDIARY.................................................... 28
4.1 Organization, Standing and Power................................... 28
4.2 Capitalization..................................................... 28
4.3 Authority; No Conflict; Required Filings
and Consents....................................................... 29
4.4 SEC Filings; Financial Statements.................................. 30
4.5 Absence of Certain Changes or Events............................... 30
4.6 Tax Matters........................................................ 31
4.7 Registration Statement; Proxy
Statement/Prospectus............................................... 31
4.8 Litigation......................................................... 31
4.9 Operations of the Transitory Subsidiary............................ 31
4.10 Brokers............................................................ 31
ARTICLE V CONDUCT OF BUSINESS............................................ 31
5.1 Covenants of the Company........................................... 31
5.2 Cooperation........................................................ 35
5.3 Confidentiality.................................................... 35
ARTICLE VI ADDITIONAL AGREEMENTS......................................... 35
6.1 No Solicitation.................................................... 35
6.2 Proxy Statement/Prospectus; Registration
Statement.......................................................... 37
6.3 Nasdaq Quotation................................................... 38
6.4 Access to Information.............................................. 38
6.5 Stockholders Meeting............................................... 38
6.6 Legal Conditions to the Merger..................................... 39
6.7 Public Disclosure.................................................. 40
6.8 Tax-Free Reorganization............................................ 40
6.9 Affiliate Agreements............................................... 41
6.10 Nasdaq National Market Listing..................................... 41
6.11 Company Stock Plans and the Company
Warrants........................................................... 41
6.12 Stockholder Litigation............................................. 42
6.13 Indemnification.................................................... 42
ARTICLE VII CONDITIONS TO MERGER......................................... 43
7.1 Conditions to Each Party's Obligation To
Effect the Merger.................................................. 43
7.2 Additional Conditions to Obligations of
the Buyer and the Transitory Subsidiary............................ 44
7.3 Additional Conditions to Obligations of
the Company........................................................ 45
ARTICLE VIII TERMINATION AND AMENDMENT................................... 46
8.1 Termination........................................................ 46
8.2 Effect of Termination.............................................. 48
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8.3 Fees and Expenses.................................................. 48
8.4 Amendment.......................................................... 49
8.5 Extension; Waiver.................................................. 50
ARTICLE IX MISCELLANEOUS................................................. 50
9.1 Nonsurvival of Representations and
Warranties......................................................... 50
9.2 Notices............................................................ 50
9.3 Entire Agreement................................................... 51
9.4 No Third Party Beneficiaries....................................... 51
9.5 Assignment......................................................... 51
9.6 Severability....................................................... 52
9.7 Counterparts and Signature......................................... 52
9.8 Interpretation..................................................... 52
9.9 Governing Law...................................................... 52
9.10 Remedies........................................................... 53
9.11 Waiver of Jury Trial............................................... 53
9.12 Forum.............................................................. 53
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EXHIBITS
Exhibit A Form of Stockholder Agreement
Exhibit B Form of Lock-up Agreement
Exhibit C Form of Company Affiliate Agreement
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TABLES OF DEFINED TERMS
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Cross Reference
Terms in Agreement
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Acquisition Proposal Section 6.1(a)
Affiliate Section 6.9
Affiliate Agreement Section 6.9
Agreement Preamble
Alternative Transaction Section 8.3(e)
Antitrust Laws Section 6.6(b)
Antitrust Order Section 6.6(b)
Buyer Preamble
Buyer Balance Sheet Section 4.4(b)
Buyer Common Stock Section 2.1(c)
Buyer Disclosure Schedule Article IV
Buyer Material Adverse Effect Section 4.1
Buyer Preferred Stock Section 4.2
Buyer SEC Reports Section 4.4(a)
Certificates Section 2.2(b)
Closing Section 1.2
Closing Date Section 1.2
Code Preamble
Company Preamble
Company Balance Sheet Section 3.4(b)
Company Common Stock Section 2.1(b)
Company Disclosure Schedule Article III
Company Employee Plans Section 3.13(a)
Company Intellectual Property Rights Section 3.9(a)
Company Leases Section 3.8(b)
Company Material Adverse Effect Section 3.1
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Company Material Contracts Section 3.10
Company Meeting Section 3.16
Company Permits Section 3.15
Company Preferred Stock Section 3.2(a)
Company Products Section 3.20(b)
Company SEC Reports Section 3.4(a)
Company Stock Options Section 3.2(b)
Company Stock Plans Section 3.2(b)
Company Systems Section 3.20(b)
Company Voting Proposal Section 6.5(a)
Company Warrants Section 3.2(b)
Confidentiality Agreement Section 5.3
Constituent Corporations Section 1.3
DGCL Section 1.1
Effective Time Section 1.1
Employee Benefit Plans Section 3.13(a)
Environmental Law Section 3.12(b)
ERISA Affiliate Section 3.13(a)
ERISA Section 3.13(a)
Exchange Agent Section 2.2(a)
Exchange Fund Section 2.2(a)
Exchange Act Section 3.3(c)
Exchange Ratio Section 2.1(c)
Governmental Entity Section 3.3(c)
Hazardous Substance Section 3.12(c)
HSR Act Section 3.3(c)
Indemnified Parties Section 6.13
Liens Section 3.22
Lock-up Agreement Preamble
Merger Preamble
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Outside Date Section 8.1(b)
Proxy Statement Section 3.16
Registration Statement Section 3.16
Rule 145 Section 6.10
SEC Section 3.3(c)
Securities Act Section 3.4(a)
Stockholder Agreement Preamble
Subsidiary Section 3.1
Superior Proposal Section 6.1(a)
Surviving Corporation Section 1.3
Tax Returns Section 3.7(a)
Taxes Section 3.7(a)
Third Party Section 8.3(e)
Transitory Subsidiary Preamble
Year 2000 Compliant Section 3.20
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement"),
dated as of February 9, 2000, is by and among CMGI, Inc., a Delaware corporation
(the "Buyer"), Senlix Corporation, a Delaware corporation and a wholly owned
subsidiary of Buyer (the "Transitory Subsidiary"), and UBID, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of the Buyer and the Company have approved
and declared advisable this Agreement and the Merger (as defined below);
WHEREAS, the combination of the Buyer and the Company shall be effected by
the terms of this Agreement through a merger of the Transitory Subsidiary into
the Company, as a result of which the stockholders of the Company will become
stockholders of the Buyer (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, certain stockholders of the Company have entered into a Stockholder
Agreement dated as of the date of this Agreement in the form attached as
Exhibit A (the "Stockholder Agreement"), pursuant to which such stockholders
---------
have agreed, inter alia, to give the Buyer a proxy to vote all of the shares of
----------
capital stock of the Company that such stockholders own for certain limited
purposes;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to the Buyer's willingness to enter into this
Agreement, certain stockholders and employees of the Company have entered into a
Stockholder Lock-Up Agreement in the form attached hereto as Exhibit B (the
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"Lock-Up Agreement"), pursuant to which such parties have agreed to certain
restrictions relating to the disposition of Buyer Common Stock following the
Effective Time (as defined in Section 1.1); and
WHEREAS, for U.S. federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
Buyer, the Transitory Subsidiary and the Company agree as follows:
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ARTICLE I
THE MERGER
1.1 Effective Time of the Merger. Subject to the provisions of this Agreement,
----------------------------
prior to the Closing (as defined in Section 1.2), the Buyer shall prepare, and
on the Closing Date (as defined in Section 1.2) or as soon as practicable
thereafter the Buyer shall cause to be filed with the Secretary of State of the
State of Delaware, a certificate of merger (the "Certificate of Merger") in such
form as is required by, and executed by the Surviving Corporation (as defined in
Section 1.3) in accordance with, the relevant provisions of the General
Corporation Law of the State of Delaware ("DGCL") and shall make all other
filings or recordings required under the DGCL. The Merger shall become
effective upon the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware or at such later time as is established by the
Buyer and the Company and set forth in the Certificate of Merger (the "Effective
Time").
1.2 Closing. The closing of the Merger (the "Closing") shall take place at
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10:00 a.m., Boston time, on a date to be specified by the Buyer and the Company
(the "Closing Date"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VII (other than
delivery of items to be delivered at the Closing and other than satisfaction of
those conditions that by their nature are to be satisfied at the Closing, but
subject to the delivery of such items and the satisfaction or waiver of such
conditions at the Closing), at the offices of Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts, unless another date, place or time is agreed to
in writing by the Buyer and the Company.
1.3 Effects of the Merger. At the Effective Time (i) the separate existence of
---------------------
the Transitory Subsidiary shall cease and the Transitory Subsidiary shall be
merged with and into the Company (the Transitory Subsidiary and the Company are
sometimes referred to below as the "Constituent Corporations" and the Company
following the Merger is sometimes referred to below as the "Surviving
Corporation"), (ii) the Certificate of Incorporation of the Company shall be
amended so that Article FOURTH of such Certificate of Incorporation reads in its
entirety as follows: "The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 50,000,000, all of which shall
consist of common stock, $.01 par value per share," and, as so amended, such
Certificate of Incorporation shall be the Certificate of Incorporation of the
Surviving Corporation, and (iii) the By-laws of the Transitory Subsidiary as in
effect immediately prior to the Effective Time shall be the By-laws of the
Surviving Corporation. The Merger shall have the effects set forth in Section
259 of the DGCL.
1.4 Directors. The directors of the Transitory Subsidiary immediately prior to
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the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and By-
laws of the Surviving Corporation.
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ARTICLE II
CONVERSION OF SECURITIES
2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the
---------------------------
Merger and without any action on the part of the holder of any shares of the
capital stock of the Company or capital stock of the Transitory Subsidiary:
(a) Capital Stock of the Transitory Subsidiary. Each issued and outstanding
------------------------------------------
share of the capital stock of the Transitory Subsidiary shall be converted
into and become one fully paid and nonassessable share of common stock,
$.01 par value per share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Buyer-Owned Stock. All shares of common
----------------------------------------------------
stock, $.001 par value per share, of the Company ("Company Common Stock")
that are owned by the Company and any shares of Company Common Stock owned
by the Buyer or the Transitory Subsidiary shall be canceled and shall cease
to exist and no stock of the Buyer or other consideration shall be
delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Subject to Section 2.2, each
---------------------------------------
share of Company Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) issued and outstanding immediately before
the Effective Time shall be automatically converted into the right to
receive 0.2628 shares (the "Exchange Ratio ") of common stock, $.01 par
value per share, of the Buyer ("Buyer Common Stock"). As of the Effective
Time, all such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled, and each holder of a
certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive
the shares of Buyer Common Stock and any cash in lieu of fractional shares
of Buyer Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.2, without
interest.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
-----------------------------
reflect fully the effect of any reclassification, stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into Buyer Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to Buyer
Common Stock or Company Common Stock occurring after the date hereof and
prior to the Effective Time.
(e) Unvested Stock. At the Effective Time, any unvested shares of Company
--------------
Common Stock awarded to employees, directors or consultants pursuant to any
of the Company's plans or arrangements and outstanding immediately prior to
the Effective Time shall be converted to unvested shares of Buyer Common
Stock in accordance with the Exchange Ratio and shall remain subject to the
same terms,
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restrictions and vesting schedule as in effect immediately prior to the
Effective Time, except as otherwise agreed by Buyer and the holder thereof.
All outstanding rights which the Company may hold immediately prior to the
Effective Time to repurchase unvested shares of Company Common Stock shall
be assigned to the Buyer in the Merger and shall thereafter be exercisable
by Buyer upon the same terms and conditions in effect immediately prior to
the Effective Time, except that the shares purchasable pursuant to such
rights and the purchase price payable per share shall be adjusted to
reflect the Exchange Ratio. The Buyer shall take all steps necessary to
cause the foregoing provisions of this Section 2.1(e) to occur.
(f) Treatment of Company Options and Company Warrants. Outstanding Company
-------------------------------------------------
Stock Options and Company Warrants (in each case as defined in Section
3.2(b)) shall be treated following the Effective Time in the manner set
forth in Section 6.11.
2.2 Exchange of Certificates. The procedures for exchanging outstanding shares
------------------------
of Company Common Stock for Buyer Common Stock pursuant to the Merger are as
follows:
(a) Exchange Agent. As of the Effective Time, the Buyer shall deposit with a
--------------
bank or trust company designated by the Buyer (the "Exchange Agent"), for
the benefit of the holders of shares of the Company Common Stock, for
exchange in accordance with this Section 2.2, through the Exchange Agent,
(i) certificates representing the shares of Buyer Common Stock (such shares
of Buyer Common Stock, together with any dividends or distributions with
respect thereto, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.1 in exchange for outstanding shares of the
Company Common Stock, (ii) cash in an amount sufficient to make payments
required pursuant to Section 2.2(e), and (iii) any dividends or
distributions to which holders of Certificates (as defined below) may be
entitled pursuant to Section 2.2(c).
(b) Exchange Procedures. As soon as reasonably practicable after the Effective
-------------------
Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the
"Certificates") whose shares were converted pursuant to Section 2.1 into
the right to receive shares of Buyer Common Stock (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as the Buyer may reasonably specify) and (ii) instructions
for effecting the surrender of the Certificates in exchange for
certificates representing shares of Buyer Common Stock (plus cash in lieu
of fractional shares, if any, of Buyer Common Stock and any dividends or
distributions as provided below). Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by the Buyer,
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together with such letter of transmittal, duly executed, and such other
documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Buyer Common Stock
which such holder has the right to receive pursuant to the provisions of
this Article II with respect to the shares of Company Common Stock
represented by such Certificate plus cash in lieu of fractional shares
pursuant to Section 2.2(e) and any dividends or distributions pursuant to
Section 2.2(c), and the Certificate so surrendered shall immediately be
canceled. In the event of a transfer of ownership of Company Common Stock
which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Buyer Common Stock
plus cash in lieu of fractional shares pursuant to Section 2.2(e) and any
dividends or distributions pursuant to Section 2.2(c) may be issued and
paid to a person other than the person in whose name the Certificate so
surrender is registered, if such Certificate is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Buyer Common Stock plus cash in lieu of fractional
shares pursuant to Section 2.2(e) and any dividends or distributions
pursuant to Section 2.2(c) as contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
------------------------------------------------
distributions declared or made after the Effective Time with respect to
Buyer Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.2(e) until the holder of record of such Certificate shall
surrender such Certificate as contemplated by Section 2.2(b). Subject to
the effect of applicable laws, following surrender of any such Certificate,
there shall be issued and paid to the record holder of the Certificate,
(i) certificates representing whole shares of Buyer Common Stock issued in
exchange therefor, without interest, (ii) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share of Buyer
Common Stock to which such holder is entitled pursuant to Section 2.2(e)
and the amount of dividends or other distributions with a record date after
the Effective Time previously paid with respect to such whole shares of
Buyer Common Stock, and (iii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Buyer Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of Buyer
---------------------------------------------------
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms hereof (including any cash or other distributions
paid pursuant to Sections 2.2(c) or 2.2(e)) shall be deemed to have been
issued in full
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satisfaction of all rights pertaining to such shares of Company Common
Stock, and from and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange
Agent for any reason, they shall be canceled and exchanged as provided in
this Article II.
(e) No Fractional Shares. No certificate or scrip representing fractional
--------------------
shares of Buyer Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of the Buyer. Notwithstanding any other provision of this Agreement, each
holder of shares of Company Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Buyer Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Buyer Common Stock
multiplied by the average of the last reported sales prices of the Buyer
Common Stock on the Nasdaq National Market during the ten (10) consecutive
trading days ending on and including the last trading day prior to the
Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
----------------------------
remains undistributed to the holders of the Certificates for 180 days after
the Effective Time shall be delivered to the Buyer, upon demand, and any
holder of the Certificates who has not previously complied with this
Section 2.2 shall thereafter look only to the Buyer, for payment of its
claim for Buyer Common Stock, any cash in lieu of fractional shares of
Buyer Common Stock and any dividends or distributions with respect to Buyer
Common Stock.
(g) No Liability. To the extent permitted by applicable law, none of the
------------
Buyer, the Transitory Subsidiary, the Company, the Surviving Corporation or
the Exchange Agent shall be liable to any holder of shares of Company
Common Stock or Buyer Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar
law. If any Certificate shall not have been surrendered prior to one year
after the Effective Time (or immediately prior to such earlier date on
which any shares of Buyer Common Stock, and any cash payable to the holder
of such Certificate pursuant to this Article II or any dividends or
distributions payable to the holder of such Certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.3(c))), any such shares of Buyer Common Stock or cash, dividends
or distributions in respect of such Certificate shall, to the extent
permitted by applicable law, become the property of the Surviving
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Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Withholding Rights. Each of the Buyer and the Surviving Corporation shall
------------------
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Company Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any other applicable provision of
law. To the extent that amounts are so withheld by the Surviving
Corporation or the Buyer, as the case may be, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Company Common Stock in respect of which such
deduction and withholding was made by the Surviving Corporation or the
Buyer, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
-----------------
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Buyer Common Stock and any
cash in lieu of fractional shares, and unpaid dividends and distributions
on shares of Buyer Common Stock deliverable in respect thereof pursuant to
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer and the Transitory
Subsidiary that the statements contained in this Article III are true and
correct, except as set forth herein or in the Company disclosure schedule
delivered by the Company to the Buyer on or before the date of this Agreement
(the "Company Disclosure Schedule"). The Company Disclosure Schedule shall be
arranged in paragraphs corresponding to the numbered paragraphs contained in
Article III and the disclosure in any paragraph shall qualify other paragraphs
in this Article III only to the extent that it is reasonably apparent from a
reading of such disclosure that it also qualifies or applies to such other
paragraphs.
3.1 Organization, Standing and Power; Subsidiaries.
----------------------------------------------
(a) Each of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate
power and authority to own, lease and operate its properties and assets and
to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and is
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in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business,
properties, financial condition, results of operations or prospects of the
Company and its Subsidiaries, taken as a whole, or to have a material
adverse effect on the ability of the Company to consummate the transactions
contemplated by this Agreement, the Stockholder Agreement or the Company
Stock Option Agreement other than any effect (a) resulting from or arising
out of the public announcement of this Agreement or any of the transactions
contemplated hereby, (b) attributable to any legal action or proceeding
brought by or on behalf of stockholders of the Company alleging that the
Board of Directors of the Company breached its fiduciary duties in
connection with its approval of the Merger, this Agreement or the
transactions contemplated hereby, or (c) arising or resulting from general
industry, economic or stock market conditions that affect the Company in a
manner not disproportionate to the manner in which such conditions affect
other companies in the technology sector (a "Company Material Adverse
Effect").
(b) Except as set forth in the Company SEC Reports (as defined in Section 3.4)
filed prior to the date of this Agreement, neither the Company nor any of
its Subsidiaries directly or indirectly owns any equity, membership,
partnership or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity, membership, partnership or
similar interest in, any corporation, partnership, joint venture, limited
liability company or other business association or entity, whether
incorporated or unincorporated. As used in this Agreement, the word
"Subsidiary" means, with respect to a party, any corporation, partnership,
joint venture, limited liability company or other business association or
entity, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding
partnerships, the general partnership interests of which held by such party
and/or one or more of its Subsidiaries do not have a majority of the voting
interest in such partnership), (ii) such party and/or one or more of its
Subsidiaries holds voting power to elect a majority of the board of
directors or other governing body performing similar functions, or (iii)
such party and/or one or more of its Subsidiaries, directly or indirectly,
owns or controls more than 50% of the equity, membership, partnership or
similar interests.
(c) The Company has delivered or made available to the Buyer complete and
accurate copies of the Certificate of Incorporation and By-laws of the
Company and of the charter, by-laws or other organizational documents of
each Subsidiary of the Company.
3.2 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of 20,000,000 shares
of Company Common Stock and 5,000,000 shares of preferred stock, $.001 par
value per share ("Company Preferred Stock"). As of the close of business
on February 7,
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2000, (i) 11,584,126 shares of Company Common Stock were issued and
outstanding, (ii) no shares of Company Common Stock were held in the
treasury of the Company or by Subsidiaries of the Company, and (iii) no
shares of the Company Preferred Stock were issued and outstanding.
(b) Section 3.2(b) of the Company Disclosure Schedule lists the number of
shares of Company Common Stock reserved for future issuance pursuant to
stock options granted and outstanding as of the date of this Agreement and
the plans (if any) under which such options were granted (collectively, the
"Company Stock Plans") and sets forth a complete and accurate list of all
holders of outstanding options to purchase shares of Company Common Stock
(such outstanding options, the "Company Stock Options"), indicating the
number of shares of Company Common Stock subject to each Company Stock
Option, and the exercise price, the date of grant, vesting schedule and the
expiration date thereof. Section 3.2 of the Company Disclosure Schedule
shows the number of shares of Company Common Stock reserved for future
issuance pursuant to warrants or other outstanding rights to purchase
shares of Company Common Stock outstanding as of the date of this Agreement
(such outstanding warrants or other rights, the "Company Warrants") and the
agreement or other document under which such Company Warrants were granted
and sets forth a complete and accurate list of all holders of Company
Warrants indicating the number and type of shares of Company Common Stock
subject to each Company Warrant, and the exercise price, the date of grant
and the expiration date thereof. Except (x) as set forth in this Section
3.2 and (y) as reserved for future grants under Company Stock Plans,
(i) there are no equity securities of any class of the Company or any of
its Subsidiaries, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding and
(ii) there are no options, warrants, equity securities, calls, rights,
commitments or agreements of any character to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound obligating the Company or any of its Subsidiaries to
issue, transfer, deliver or sell, or cause to be issued, transferred,
delivered or sold, additional shares of capital stock of the Company or any
of its Subsidiaries or any security or rights convertible into or
exchangeable or exercisable for any such shares, or obligating the Company
or any of its Subsidiaries to grant, extend, accelerate the vesting of,
otherwise modify or amend or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Neither the Company nor any
of its Subsidiaries has issued and outstanding any stock appreciation
rights, phantom stock, performance based rights or similar rights or
obligations. To the knowledge of the Company, other than the Stockholder
Agreements, there are no agreements or understandings with respect to the
voting (including voting trusts and proxies) or sale or transfer (including
agreements imposing transfer restrictions) of any shares of capital stock
of the Company or any of its Subsidiaries.
9
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(c) All outstanding shares of Company Common Stock are, and all shares of
Company Common Stock subject to issuance as specified above, upon issuance
on the terms and conditions specified in the instruments pursuant to which
they are issuable, will be, duly authorized, validly issued, fully paid and
nonassessable and not subject to or issued in violation of any purchase
option, call option, right of first refusal, preemptive right, subscription
right or any similar right under any provision of the DGCL, the Company's
Certificate of Incorporation or By-laws or any agreement to which the
Company is a party or is otherwise bound. There are no obligations,
contingent or otherwise, of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of the Company Common
Stock or the capital stock of the Company or any of its Subsidiaries or to
provide funds to or make any material investment (in the form of a loan,
capital contribution or otherwise) in the Company or any Subsidiary of the
Company or any other entity, other than guarantees of bank obligations of
Subsidiaries of the Company entered into in the ordinary course of
business.
(d) All of the outstanding shares of capital stock of each of the Company's
Subsidiaries are duly authorized, validly issued, fully paid, nonassessable
and free of preemptive rights and all such shares (other than directors'
qualifying shares in the case of non-U.S. Subsidiaries, all of which the
Company has the power to cause to be transferred for no or nominal
consideration to the Buyer or the Buyer's designee) are owned, of record
and beneficially, by the Company or another Subsidiary of the Company free
and clear of all security interests, liens, claims, pledges, agreements,
limitations in the Company's voting rights, charges or other encumbrances
of any nature.
(e) No consent of the holders of Company Stock Options is required in
connection with the conversion of such options contemplated by Section
6.11.
3.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) The Company has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement by the
Company have been duly authorized by all necessary corporate action on the
part of the Company, subject only to the approval of the Merger by the
Company's stockholders under the DGCL. This Agreement has been duly
executed and delivered by the Company and constitutes valid and binding
obligation of the Company, enforceable in accordance with its terms.
(b) Except as disclosed in Section 3.3(b) of the Company Disclosure Schedule,
the execution and delivery of this Agreement by the Company does not, and
the consummation of the transactions contemplated by this Agreement will
not, (i) conflict with, or result in any violation or breach of, any
provision of the Certificate
10
<PAGE>
of Incorporation or By-laws of the Company or the charter, by-laws, or
other organizational document of any Subsidiary of the Company, (ii)
conflict with, or result in any violation or breach of, or constitute (with
or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or
loss of any material benefit) under, or require a consent or waiver under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract or other agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties or assets may be bound, or
(iii) subject to compliance with the requirements specified in clauses (i),
(ii), (iii), (iv) and (v) of Section 3.3(c), conflict with or violate any
permit, concession, franchise, license, judgment, injunction, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries or any of its or their properties or
assets, except in the case of clauses (ii) and (iii) of this Section 3.3(b)
for any such conflicts, violations, breaches, defaults, terminations,
cancellations, accelerations or losses which, individually or in the
aggregate, are not reasonably likely to have a Company Material Adverse
Effect.
(c) No consent, approval, license, permit, order or authorization of, or,
registration, declaration, notice or filing with, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity") is required by or
with respect to the Company or any of its Subsidiaries in connection with
the execution and delivery of this Agreement by the Company or the
consummation of the transactions contemplated by this Agreement, except for
(i) the filing of a pre-merger notification report under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
(ii) the filing of the Certificate of Merger with the Delaware Secretary of
State, (iii) the filing of the Proxy Statement (as defined in Section 3.16
below) with the Securities and Exchange Commission (the "SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iv) the filing of such reports or schedules under Section
13 of the Exchange Act as may be required in connection with this Agreement
and the transactions contemplated hereby and (v) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws except where the failure to
obtain any such consent, approval, order, authorization, registration,
declaration or filing would not have a Company Material Adverse Effect.
(d) The affirmative vote of the holders of a majority of the outstanding shares
of Company Common Stock on the record date for the Company Meeting (as
defined below) is the only vote of the holders of any class or series of
the Company's capital stock or other securities necessary to adopt this
Agreement. There are no bonds, debentures, notes or other indebtedness of
the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which
stockholders of the Company may vote.
11
<PAGE>
3.4 SEC Filings; Financial Statements.
---------------------------------
(a) The Company has filed and made available to the Buyer all forms, reports
and other documents required to be filed by the Company with the SEC since
its inception. All such required forms, reports and other documents
(including those that the Company may file after the date hereof until the
Closing) together with any amendments thereto are referred to herein as the
"Company SEC Reports." The Company SEC Reports (i) were or will be filed
on a timely basis, (ii) were or will be prepared in compliance in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to
such Company SEC Reports, and (iii) did not or will not at the time they
were or are filed contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Company SEC Reports
or necessary in order to make the statements in such Company SEC Reports,
in the light of the circumstances under which they were made, not
misleading. No Subsidiary of the Company is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case, any
related notes and schedules) contained or to be contained in the Company
SEC Reports (i) complied or will comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) were or will be prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case
of unaudited statements, as permitted by the SEC on Form 10-Q under the
Exchange Act) and (iii) fairly presented or will fairly present the
consolidated financial position of the Company and its Subsidiaries as of
the dates thereof and the consolidated results of their operations and cash
flows for the periods indicated, consistent with the books and records of
the Company and its Subsidiaries, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount.
The unaudited balance sheet of the Company as of September 30, 1999 is
referred to herein as the "Company Balance Sheet."
3.5 No Undisclosed Liabilities. Except as disclosed in the Company SEC Reports
--------------------------
filed prior to the date of this Agreement, and except for normal or recurring
liabilities incurred since the date of the Company Balance Sheet in the ordinary
course of business consistent with past practices, the Company and its
Subsidiaries do not have any liabilities, either accrued, contingent or
otherwise (whether or not required to be reflected in financial statements in
accordance with United States generally accepted accounting principles), and
whether due or to become due, which, individually or in the aggregate, are
reasonably likely to have a Company Material Adverse Effect.
12
<PAGE>
3.6 Absence of Certain Changes or Events. Except as disclosed in the Company
------------------------------------
SEC Reports filed prior to the date of this Agreement, since the date of the
Company Balance Sheet, the Company and its Subsidiaries have conducted their
respective businesses only in the ordinary course and in a manner consistent
with past practice and, since such date, there has not been (i) any event,
change or development in the business, properties, financial condition, results
of operations or prospects of the Company and its Subsidiaries, taken as a
whole, which, individually or in the aggregate, has had, or is reasonably likely
to have, a Company Material Adverse Effect; or (ii) except as disclosed pursuant
to this Agreement (including Section 3.6 of the Company Disclosure Schedule) any
other action or event that would have required the consent of the Buyer pursuant
to Section 5.1 of this Agreement had such action or event occurred after the
date of this Agreement.
3.7 Taxes.
-----
(a) The Company and each of its Subsidiaries has filed all Tax Returns (as
defined below) that it was required to file, and all such Tax Returns were
correct and complete except for any errors or omissions which are not,
individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect. To the knowledge of the Company, each group of
corporations with which the Company or any Subsidiary has filed (or was
required to file) consolidated, combined, unitary or similar Tax Returns
(an "Affiliated Group") has filed all Tax Returns that it was required to
file with respect to any period in which the Company or a Subsidiary was a
member of such Affiliated Group (an "Affiliated Period"), and all such Tax
Returns were correct and complete except for any errors or omissions which
are not, individually or in the aggregate, reasonably likely to have a
Company Material Adverse Effect. The Company and each of its Subsidiaries
has paid on a timely basis all Taxes (as defined below) that are shown to
be due on any such Tax Returns and to the knowledge of the Company each
Affiliated Group has paid all that were due and payable with respect to all
Affiliated Periods. The unpaid Taxes of the Company and its Subsidiaries
for Tax periods through the date of the Company Balance Sheet do not exceed
the accruals and reserves for Taxes set forth on the Company Balance Sheet
exclusive of any accruals and reserves for "deferred taxes" or similar
items that reflect timing differences between Tax and financial accounting
principles. All Taxes that the Company or any of its Subsidiaries is or
was required by law to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper
Governmental Entity. For purposes of this Agreement, (i) "Taxes" means all
taxes, charges, fees, levies or other similar assessments or liabilities,
including income, gross receipts, ad valorem, premium, value-added, excise,
real property, personal property, sales, use, services, transfer,
withholding, employment, payroll and franchise taxes imposed by the United
States of America or any state, local or foreign government, or any agency
thereof, or other political subdivision of the United States or any such
government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to
13
<PAGE>
or incurred in connection with any tax or any contest or dispute thereof
and (ii) "Tax Returns" means all reports, returns, declarations, statements
or other information required to be supplied to a taxing authority in
connection with Taxes.
(b) The Company has delivered to the Buyer correct and complete copies of all
federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company or any of its
Subsidiaries since inception to the knowledge of the Company and correct
and complete copies of the portion of the federal income Tax Returns,
examination reports and statements of deficiency assessed against or agreed
to with respect to any Affiliated Group relating to the activities of the
Company and the Subsidiaries for all Affiliated Periods. The federal
income Tax Returns of the Company and each of its Subsidiaries and to the
knowledge of the Company each Affiliated Group have been audited by the
Internal Revenue Service or are closed by the applicable statute of
limitations for all taxable years through the taxable year specified in
Section 3.7(b) of the Company Disclosure Schedule. The Company has made
available to the Buyer correct and complete copies of all other Tax Returns
of the Company and its Subsidiaries together with all related examination
reports and statements of deficiency for all periods and to the knowledge
of the Company correct and complete copies of the portion of all other Tax
Returns, examination reports and statements of deficiency assessed against
or agreed to with respect to any Affiliated Group relating to the
activities of the Company and the Subsidiaries for all Affiliated Periods.
No examination or audit of any Tax Return of the Company or any of its
Subsidiaries or to the knowledge of the Company any Affiliated Group with
respect to any Affiliated Period by any Governmental Entity is currently in
progress or, to the knowledge of the Company and its Subsidiaries,
threatened or contemplated. Neither the Company nor any of its
Subsidiaries nor to the knowledge of the Company any member of the
Affiliated Group has been informed by any Governmental Entity that the
Governmental Entity believes that the Company or any of its Subsidiaries or
the Affiliated Group was required to file any Tax Return that was not
filed. Neither the Company nor any of its Subsidiaries has waived any
statute of limitations with respect to Taxes or agreed to an extension of
time with respect to a Tax assessment or deficiency.
(c) Neither the Company nor any of its Subsidiaries: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of
the assets of the Company or its Subsidiaries are subject to an election
under Section 341(f) of the Code; (ii) has 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)(l)(A)(ii) of
the Code; (iii) has made any payments, is obligated to make any payments,
or is a party to any agreement that could obligate it to make any payments
that may be treated as an "excess parachute payment" under Section 280G of
the Code; (iv) has any actual or potential liability for any Taxes of any
person (other than the Company and its Subsidiaries) under Treasury
Regulation
14
<PAGE>
Section 1.1502-6 (or any similar provision of law in any jurisdiction), or
as a transferee or successor, by contract, or otherwise; or (v) is or has
been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
(d) None of the assets of the Company or any of its Subsidiaries: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code;
or (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
(e) Neither the Company nor any of its Subsidiaries has undergone, or will
undergo as a result of the transactions contemplated by the Agreement, a
change in its method of accounting resulting in an adjustment to its
taxable income pursuant to Section 481(a) of the Code.
(f) Except as disclosed in Section 3.7(f) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries (i) is or has ever been a
member of a group of corporations with which it has filed (or been required
to file) consolidated, combined or unitary Tax Returns, other than a group
of which only the Company and its Subsidiaries are or were members or (ii)
is a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement.
(g) No state or federal "net operating loss" of the Company determined as of
the Closing Date is subject to limitation on its use pursuant to Section
382 of the Code or comparable provisions of state law as a result of any
"ownership change" within the meaning of Section 382(g) of the Code
occurring prior to the Closing Date.
(h) Since June 7, 1997 one or more persons have not acquired, directly or
indirectly, a 50% or greater interest in either the Company, or to the
knowledge of the Company, Creative Computers Inc. (DE) or Creative
Computers, Inc. (CA), such interest calculated in the manner required under
Section 355(e) of the Code.
3.8 Owned and Leased Real Properties.
--------------------------------
(a) The Company does not own and has never owned any real property.
(b) The Company has provided to the Buyer in Section 3.8(b) of the Company
Disclosure Schedule a complete and accurate list of all real property
leased by the Company or its Subsidiaries (collectively "Company Leases")
and the location of the premises. The Company is not in default in any
material respect under any of the Company Leases. Each of the Company
Leases is in full force and effect and will not
15
<PAGE>
cease to be in full force and effect as a result of the transactions
contemplated by this Agreement.
3.9 Intellectual Property.
---------------------
(a) The Company and its Subsidiaries exclusively own, or are licensed or
otherwise possess legally enforceable rights to use, without any obligation
to make any fixed or contingent payments, including any royalty payments,
all patents, trademarks, trade names, domain names, service marks and
copyrights, any applications for and registrations of such patents,
trademarks, trade names, domain names, service marks and copyrights, and
all processes, formulae, methods, schematics, technology, know-how,
computer software programs or applications and tangible or intangible
proprietary information or material that are used or necessary to conduct
the business of the Company and its Subsidiaries as currently conducted
(the "Company Intellectual Property Rights").
(b) Except as disclosed in Section 3.9(b) in the Company Disclosure Schedule,
the execution and delivery of this Agreement and consummation of the Merger
will not result in the breach of, or create on behalf of any third party
the right to terminate or modify, any material license, sublicense or other
agreement relating to the Company Intellectual Property Rights, or any
license, sublicense and other agreement as to which the Company or any of
its Subsidiaries is a party and pursuant to which the Company or any of its
Subsidiaries is authorized to use any third party patents, trademarks,
copyrights or trade secrets (the "Company Third Party Intellectual Property
Rights"), including software that is used in the manufacture of,
incorporated in, or forms a part of any product or service sold or expected
to be sold by the Company or any of its Subsidiaries.
(c) Except as disclosed in Section 3.9 in the Company Disclosure Schedule:
(i) All issued patents, registered trademarks, registered service marks and
registered copyrights which are held by the Company or any of its
Subsidiaries and which are material to the business of the Company and its
Subsidiaries, taken as a whole, are valid and subsisting. The Company and
its Subsidiaries have taken reasonable measures to protect the proprietary
nature of the Company Intellectual Property Rights that are material to the
business of the Company and its Subsidiaries, taken as a whole, and to
maintain in confidence all trade secrets and confidential information owned
or used by the Company or any of its Subsidiaries and that are material to
the business of the Company and its Subsidiaries, taken as a whole.
16
<PAGE>
(ii) To the knowledge of the Company, no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property
Rights.
(iii)None of the activities or business previously or currently conducted by
the Company or any of the Subsidiaries infringes, violates or constitutes a
misappropriation of, any patents, trademarks, trade names, service marks
and copyrights, any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know-how, computer software
programs or applications and tangible or intangible proprietary information
or material of any other person or entity except for any infringement,
violation or misappropriation that would not have a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has
received any complaint, claim or notice alleging any such infringement,
violation or misappropriation.
(d) Source Code. Except as set forth on Schedule 3.9(d) of the Company
-----------
Disclosure Schedule, the Company has not disclosed, granted access to,
permitted use of or otherwise made available its source code relating to
its Technology Systems to any third party.
3.10 Agreements, Contracts and Commitments.
-------------------------------------
(a) Section 3.10(a) of the Company Disclosure Schedule sets forth a list of all
contracts, agreements and commitments, written or oral ("Contracts"), of
the following categories to which the Company or any of its Subsidiaries is
a party or by which any of them is bound ("Company Material Contracts"):
(i) Contracts under which the Company or any Subsidiary licenses any Company
Intellectual Property Rights to a third party, other than to customers in
the ordinary course of business;
(ii) Contracts under which the Company or any Subsidiary licenses any material
item of intellectual property from a third party;
(iii)Contracts with any Affiliate of the Company;
(iv) Contracts for the acquisition, sale or disposition of any material assets
of the Company or any of its Subsidiaries outside the ordinary course of
business;
(v) any Contract not disclosed in a Company SEC Report that is a material
contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC);
17
<PAGE>
(vi) any Contract under which a third party would be entitled to receive a
license or any other right to intellectual property of the Buyer or any
of Buyer's affiliates (as defined in Rule 405 under the Securities Act),
other than the Surviving Corporation, following the Closing, and
(vii) any Contract that would require Buyer to register any shares of Buyer
Common Stock under the Securities Act after the Closing
(viii) any Contract with America Online, Inc.
(b) Except as disclosed in Section 3.10(b) in the Company Disclosure Schedule,
each Company Material Contract has not expired by its terms and is in full
force and effect. Neither the Company nor any of its Subsidiaries is in
violation of or in default under (nor does there exist any condition which,
upon the passage of time or the giving of notice or both, would cause such
a violation of or default under) any Company Material Contract or any other
loan or credit agreement, note, bond, mortgage, indenture, lease, permit,
concession, franchise, license or other contract, arrangement or
understanding to which it is a party or by which it or any of its
properties or assets is bound, except for violations or defaults which,
individually or in the aggregate, have not resulted in, and are not
reasonably likely to result in, a Company Material Adverse Effect.
3.11 Litigation. Except as disclosed in the Company SEC Reports filed prior to
----------
the date of this Agreement and in Section 3.11 in the Company Disclosure
Schedule, there is no action, suit, proceeding, claim, arbitration or
investigation pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its Subsidiaries which, individually or in the
aggregate, has had, or is reasonably likely to have, a Company Material Adverse
Effect. There are no judgments, orders or decrees outstanding against the
Company.
3.12 Environmental Matters.
---------------------
(a) Except as disclosed in the Company SEC Reports filed prior to the date of
this Agreement and except for such matters which, individually or in the
aggregate, have not had, and are not reasonably likely to have a Company
Material Adverse Effect: (i) the Company and each of its Subsidiaries has
complied with, and is not in violation of, any applicable Environmental
Laws (as defined in Section 3.12(b)); (ii) the properties currently owned
or operated by the Company and its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not
contaminated with any Hazardous Substances (as defined in Section 3.12(c));
(iii) the properties formerly owned or operated by the Company or any of
its Subsidiaries were not contaminated with Hazardous Substances prior to
or during the period of ownership or operation by the Company or any of its
Subsidiaries; (iv) neither the Company nor its Subsidiaries are subject to
liability for any Hazardous Substance
18
<PAGE>
disposal or contamination on the property of any third party; (v) neither
the Company nor any of its Subsidiaries have released any Hazardous
Substance to the environment; (vi) neither the Company nor any of its
Subsidiaries has received any notice, demand, letter, claim or request for
information alleging that the Company or any of its Subsidiaries may be in
violation of, liable under or have obligations under any Environmental Law;
(vii) neither the Company nor any of its Subsidiaries is subject to any
orders, decrees, injunctions or other arrangements with any Governmental
Entity or is subject to any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to
Hazardous Substances; and (viii) there are no circumstances or conditions
involving the Company or any of its Subsidiaries that could reasonably be
expected to result in any claims, liability, obligations, investigations,
costs or restrictions on the ownership, use or transfer of any property of
the Company or any of its Subsidiaries pursuant to any Environmental Law.
(b) For purposes of this Agreement, "Environmental Law" means any law,
regulation, order, decree, permit, authorization, opinion, common law or
agency requirement of any jurisdiction relating to: (A) the protection,
investigation or restoration of the environment, human health and safety,
or natural resources, (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
(c) For purposes of this Agreement, "Hazardous Substance" means any substance
that is: (A) listed, classified, regulated or which falls within the
definition of a "hazardous substance" or "hazardous material" pursuant to
any Environmental Law; (B) any petroleum product or by-product, asbestos-
containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon; or (C) any other substance which
is the subject of regulatory action by any Governmental Entity pursuant to
any Environmental Law.
(d) Section 3.12(d) of the Company Disclosure Schedule sets forth a complete
and accurate list of all documents (whether in hard copy or electronic
form) that contain any environmental reports, investigations and audits
relating to premises currently or previously owned or operated by the
Company or any of its Subsidiaries (whether conducted by or on behalf of
the Company or one of its Subsidiaries or a third party, and whether done
at the initiative of the Company or one of its Subsidiaries or directed by
a Governmental Entity or other third party) which were issued or conducted
during the past five years and of which the Company has possession. A
complete and accurate copy of each such document has been provided to the
Buyer.
3.13 Employee Benefit Plans.
----------------------
(a) Section 3.13(a) of the Company Disclosure Schedule sets forth a complete
and accurate list of all Employee Benefit Plans (as defined below)
maintained,
19
<PAGE>
or contributed to, by the Company, any Subsidiary of the Company, or any
ERISA Affiliate (as defined below) with respect to which the Company or any
Subsidiary has or may have any actual or contingent liabilities (together,
the "Company Employee Plans"). For purposes of this Agreement, the
following terms shall have the following meanings: (i) "Employee Benefit
Plan" means any "employee pension benefit plan" (as defined in Section 3(2)
of ERISA), any "employee welfare benefit plan" (as defined in Section 3(1)
of ERISA), and any other plan, agreement or arrangement involving direct or
indirect compensation or fringe benefits, including without limitation
insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation; (ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended; and (iii) "ERISA Affiliate" means any entity which
is, or at any applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a group of
trades or businesses under common control (as defined in Section 414(c) of
the Code), or (3) an affiliated service group (as defined under Section
414(m) of the Code or the regulations under Section 414(o) of the Code),
any of which includes or included the Company or a Subsidiary.
(b) With respect to each Company Employee Plan, the Company has furnished to
the Buyer, a complete and accurate copy of (i) such Company Employee Plan
(or a written summary of any unwritten plan), (ii) the most recent annual
report (Form 5500, 5500C or 5500R) filed with the IRS, if any, required
under ERISA or the Code, (iii) each trust agreement, group annuity contract
and summary plan description, if any, required under ERISA relating to such
Company Employee Plan and (iv) reports, if any, regarding the satisfaction
of the nondiscrimination requirements of Sections 401(a)(4), 401(k), 401(m)
and 410(b) of the Code for the last plan year for which such tests has been
performed.
(c) Each Company Employee Plan has been administered in all material respects
in accordance with its terms and each of the Company, the Company's
Subsidiaries and their ERISA Affiliates has in all material respects met
its obligations with respect to such Company Employee Plan and has made all
required contributions thereto. With respect to the Company Employee
Plans, no event has occurred, and to the knowledge of the Company, there
exists no condition or set of circumstances in connection with which the
Company or any of its Subsidiaries could be subject to (i) any liability
(other than the obligation to fund and administer the plans in accordance
with their respective terms) under ERISA, the Code or any other applicable
law which, individually or in the aggregate, is reasonably likely to have a
Company Material Adverse Effect; or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service
provider with respect to any Company Employee Plan.
20
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(d) With respect to the Company Employee Plans, there are no funded benefit
obligations for which contributions have not been made or properly accrued
and there are no unfunded benefit obligations (other than routine claims
for benefits) which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with United States generally accepted
accounting principles, on the financial statements of the Company.
(e) All the Company Employee Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Company Employee Plans are
qualified and the plans and trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
or were established using a standardized prototype plan document with
respect to which a determination letter was received by the sponsor, no
such determination letter has been revoked and revocation has not been
threatened, and no such Company Employee Plan has been amended or operated
since the date of its most recent determination letter or application
therefor in any respect, and no act or omission has occurred, that would
adversely affect its qualification or materially increase its cost.
(f) Neither the Company, any Subsidiary of the Company nor any ERISA Affiliate
has (i) ever maintained a Company Employee Plan which was ever subject to
Section 412 of the Code or Title IV of ERISA or (ii) ever been obligated to
contribute to, or otherwise has any liability with respect to, a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No
Company Employee Plan is funded by, associated with or related to a
"voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(g) Each Company Employee Plan is amendable and terminable unilaterally by the
Company at any time without any material liability to the Company as a
result thereof and no Company Employee Plan, plan documentation or
agreement, summary plan description or other written communication
distributed generally to employees by its terms prohibits the Company from
amending or terminating any such Company Employee Plan.
(h) Except for plans identified in Section 3.13(a) or in Section 3.10(h) of the
Company Disclosure Schedule or the Company SEC Reports filed prior to the
date of this Agreement, neither the Company nor any of its Subsidiaries is
a party to any (i) agreement with any stockholders, director, executive
officer or other key employee of the Company or any of its Subsidiaries
(A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the
Company or any of its Subsidiaries of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other
benefits after the termination of employment of such director, executive
officer or key employee;
21
<PAGE>
(ii) agreement, plan or arrangement under which any person may receive
payments from the Company or any of its Subsidiaries that may be subject to
the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of
the Code; and (iii) agreement or plan binding the Company or any of its
Subsidiaries, including any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan,
or Company Employee Plan, any of the benefits of which will be increased,
or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement.
(i) Except as disclosed in Section 3.13(i) of the Company Disclosure Schedule:
(i) no claims (other than claims for benefits payable in the normal
operation of the Company Employee Plans) are outstanding with respect to
any Company Employee Plan; (ii) there are no pending nor, to the Company's
knowledge, threatened legal proceedings with respect to any Company
Employee Plan; and (iii) no Company Employee Plan is the subject of an
examination by any governmental authority or of any government-sponsored
amnesty, voluntary compliance or similar program.
(j) The Company represents that it has or will have immediately prior to the
Effective Time all requisite corporate power, right and authority under the
Company Stock Plans, and all grants and awards thereunder, to take all
actions contemplated by Section 6.11(f) of this Agreement, without
violating any of the terms of the Company Stock Plans or any grants or
awards outstanding thereunder. Except for the elections of optionees
contemplated by Schedule 6.11, no consent of any holder of a Company Stock
Option is required in connection with the treatment of options provided for
in Schedule 6.11 of this Agreement.
3.14 Compliance With Laws. The Company and each of its Subsidiaries has
--------------------
complied with, is not in violation of, and has not received any notice alleging
any violation with respect to, any applicable provisions of any federal or state
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its properties or assets, except for failures to
comply or violations which, individually or in the aggregate, have not had, and
are not reasonably likely to have, a Company Material Adverse Effect.
3.15 Permits. The Company and each of its Subsidiaries have all permits,
-------
licenses and franchises from Governmental Entities required to conduct their
businesses as now being conducted or as presently contemplated to be conducted
(the "Company Permits"), except for such permits, licenses and franchises the
absence of which, individually or in the aggregate, have not resulted in, and
are not reasonably likely to result in, a Company Material Adverse Effect. The
Company and its Subsidiaries are in compliance, in all material respects, with
the terms of the Company Permits.
22
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3.16 Registration Statement; Proxy Statement/Prospectus. The information to be
--------------------------------------------------
supplied by the Company for inclusion in the registration statement on Form S-4
pursuant to which shares of Buyer Common Stock issued in connection with the
Merger will be registered under the Securities Act (the "Registration
Statement"), shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information to be supplied by the Company for inclusion in the proxy
statement/prospectus (the "Proxy Statement") to be sent to the stockholders of
the Company in connection with the meeting of the Company's stockholders to
consider this Agreement and the Merger (the "Company Meeting") shall not, on the
date the Proxy Statement is first mailed to stockholders of the Company, at the
time of the Company Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements made in the Proxy
Statement not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Meeting which has become false or
misleading. If at any time prior to the Effective Time any event relating to
the Company or any of its Affiliates, officers or directors should be discovered
by the Company which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, the Company shall promptly
inform the Buyer.
3.17 Labor Matters. Neither the Company nor any of its Subsidiaries is a party
-------------
to or otherwise bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization. Neither
the Company nor any of its Subsidiaries is the subject of any proceeding
asserting that the Company or any of its Subsidiaries has committed an unfair
labor practice or is seeking to compel it to bargain with any labor union or
labor organization, nor is there pending or, to the knowledge of the Company,
threatened, any labor strike, dispute, walkout, work stoppage, slow-down or
lockout involving the Company or any of its Subsidiaries.
3.18 Insurance. Each of the Company and its Subsidiaries maintains insurance
---------
policies with reputable insurance carriers against all risks of a character and
in such amounts as are usually insured against by similarly situated companies
in the same or similar businesses. Each insurance policy is in full force and
effect and is valid, outstanding and enforceable, and all premiums due thereon
have been paid in full. None of the insurance policies will terminate or lapse
(or be affected in any other materially adverse manner) by reason of the
transactions contemplated by this Agreement. The Company and its Subsidiaries
have complied in all material respects with the provisions of each insurance
policy under which it is the insured party. No
23
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insurer under any insurance policy has canceled or generally disclaimed
liability under any such policy or indicated any intent to do so or not to renew
any such policy. All material claims under the insurance policies have been
filed in a timely fashion.
3.19 Business Activity Restrictions. There is no non-competition or other
------------------------------
similar agreement, commitment, judgment, injunction or order to which the
Company or any Subsidiary of the Company is a party or subject to that has or
could reasonably be expected to have the effect of prohibiting or impairing the
conduct of the business by the Company in any material respect. Except as set
forth in Section 3.19 of the Company Disclosure Schedule, the Company has not
entered into any agreement under which it is restricted in any material respect
from selling, licensing or otherwise distributing any of its technology or
products, or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or any
segment of the market or line of business.
3.20 Year 2000 Compliance.
--------------------
(a) Except as disclosed in Section 3.20(a) in the Company Disclosure Schedule,
the Company has conducted "year 2000" audits with respect to (i) all of the
Company's internal systems used in the business or operations of the
Company, including, without limitation, computer hardware systems, software
applications, firmware, equipment firmware and other embedded systems, and
(ii) the software, hardware, firmware and other technology which constitute
part of the products and services marketed or sold by the Company or
licensed by the Company to third parties. The Company has obtained "year
2000" certificates with respect to all material third-party systems used in
connection with the business or operations of the Company.
(b) All of (i) the Company's material internal systems used in the business or
operations of the Company, including, without limitation, computer hardware
systems, software applications, firmware, equipment containing embedded
microchips and other embedded systems (the "Company Systems"), and (ii) the
software, hardware, firmware and other technology which constitute part of
the products and services marketed or sold by the Company or licensed by
the Company to third parties (the "Company Products") are Year 2000
Compliant.
(c) The Company has no knowledge of any failure to be Year 2000 Compliant of
any material third-party system used in connection with the business or
operations of the Company.
(d) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system or item:
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<PAGE>
(i) accurately receives, records, stores, provides, recognizes and processes
all date and time data from, during, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and all leap years;
(ii) accurately performs all date-dependent calculations and operations
(including, without limitation, mathematical operations, sorting,
comparing and reporting) from, during, into and between the twentieth and
twenty-first centuries, the years 1999 and 2000 and all leap years; and
(iii) does not malfunction, cease to function or provide invalid or incorrect
results as a result of (x) the change of years from 1999 to 2000 or from
2000 to 2001, (y) date data, including date data which represents or
references different centuries, different dates during 1999 and 2000, or
more than one century or (z) the occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by the
Company correctly exchange date data with or provide data to such system or
item.
(e) The Company has not provided any guarantee or warranty for any Company
Product to the effect that such product or service (i) complies with or
accounts for the fact of the arrival of the year 2000, (ii) will not be
adversely affected with respect to functionality, interoperability,
performance or volume capacity (including, without limitation, the
processing and reporting of data) by virtue of the arrival of the year 2000
or (iii) is otherwise Year 2000 Compliant.
3.21 Assets. Each of the Company and its Subsidiaries owns or leases all
------
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Except as disclosed in
Section 3.21 in the Company Disclosure Schedule, all of such tangible assets
which are owned, are owned free and clear of all mortgages, security interest,
pledges, liens and encumbrances ("Liens") except for (i) Liens which are
disclosed in the Company SEC Reports filed prior to the date of this Agreement
and (ii) other Liens which, individually and in the aggregate, do not materially
interfere with the ability of the Company or its Subsidiaries to conduct their
business as currently conducted and as presently proposed to be conducted and
have not resulted in, and are not reasonably likely to result in, a Company
Material Adverse Effect. The tangible assets of the Company and its
Subsidiaries, taken as a whole, are free from material defects, have been
maintained in accordance with normal industry practice, are in good operating
condition and repair (subject to normal wear and tear) and are suitable for the
purpose for which they are presently used.
25
<PAGE>
3.22 No Existing Discussions. As of the date of this Agreement, neither the
-----------------------
Company nor any of its Subsidiaries is engaged, directly or indirectly, in any
discussions or negotiations with any other party with respect to an Acquisition
Proposal (as defined in Section 6.1).
3.23 Opinion of Financial Advisor. The financial advisor of the Company,
----------------------------
Merrill Lynch & Co., Inc., has delivered to the Company an opinion, dated the
date of this Agreement, to the effect that, as of such date and based upon and
subject to the matters stated in the opinion, that the Exchange Ratio is fair to
the holders of the Company Common Stock from a financial point of view.
3.24 Section 203 of the DGCL Not Applicable. The Board of Directors of the
--------------------------------------
Company has taken all actions necessary so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement, the Stockholder Agreement or the consummation of the Merger or the
other transactions contemplated by this Agreement, or the Stockholder Agreement.
3.25 Tax Matters
-----------
(a) To the Company's knowledge, after consulting with its independent auditors,
neither the Company nor any of its Affiliates has taken or agreed to take
any action which would prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
(b) The representations made by the Company and its Subsidiaries and, to the
knowledge of the Company, the representations made by Creative Computer,
Inc. ("CCI") and the 5% shareholders of the Company and CCI in the
certificates and/or letters provided to PricewaterhouseCoopers LLP and KPMG
LLP (the "Accounting Firms") for the purpose of the Accounting Firms
issuing opinions to CCI, Buyer and/or the Company with respect to the
applicability of Section 355(e)(1) of the Code to the Merger are true,
correct and complete in all respects.
3.26 Transactions with Affiliates. Except as disclosed in the Company SEC
----------------------------
Reports filed prior to the date of this Agreement, neither the Company nor any
of its Subsidiaries has entered into any transaction with any director, officer
or other affiliate of the Company or any of its Subsidiaries or any transaction
that would be subject to proxy statement disclosure pursuant to Item 404 of
Regulation S-K.
3.27 Brokers; Schedule of Fees and Expenses.
--------------------------------------
(a) No agent, broker, investment banker, financial advisor or other firm or
person acting on behalf of the Company is or will be entitled to any
broker's, finder's, financial advisor's or other similar fee or commission
in connection with any of
26
<PAGE>
the transactions contemplated by this Agreement, except Merrill Lynch &
Co., Inc., whose fees and expense will be paid by the Company. The Company
has delivered to the Buyer a complete and accurate copy of all agreements
pursuant to which Merrill Lynch & Co., Inc., is entitled to any fees and
expenses in connection with any of the transactions contemplated by this
Agreement.
(b) Section 3.27(b) of the Company Disclosure Schedule sets forth a complete
and accurate list of the estimated fees and expenses incurred and to be
incurred by the Company and any of its Subsidiaries in connection with this
Agreement and the transactions contemplated by this Agreement (including
the fees and expenses of Merrill Lynch & Co., Inc., and of the Company's
legal counsel and accountants) and such estimated fees and expenses shall
be no more than as set forth on Section 3.27(b) of the Company Disclosure
Schedule.
3.28 Privacy Issues.
--------------
(a) The Company's (including any Subsidiaries) statistical models used to
determine whether to post products for auction on the Company's website
have not been disclosed to any third party at any time other than to third
parties who have executed nondisclosure agreements with the Company.
(b) The Company has implemented all reasonable steps which are known in the
information systems industry and which are generally known as best
practices in the physical and electronic protection of its information
assets from unauthorized disclosure, use or modification. The Company has
previously disclosed to the Buyer whether, to its knowledge, there have
been breaches of security, known consequences, and the steps the Company
has taken to remedy any such breaches.
(c) The Company has conducted its business and has collected, maintained and
used its data at all times materially in accordance with (i) accepted
industry practice and the privacy policy of the Company as currently set
forth on the company's website; and (ii) all applicable United States
federal and state laws, including but not limited to those relating to
privacy.
(d) The electronic data processing, information, record keeping,
communications, telecommunications, auction trading and computer systems
and intellectual property (including software) that are used by the Company
in its business (collectively, the "Technology Systems") operate in
accordance with their technical specifications and are adequate for the
operation of the business of the Company as currently operated and proposed
to be operated. The Company owns or has the right to use all components of
the Technology Systems, free of any rights of Creative Computers, Inc. or
any other third party. There has not been any material malfunction with
respect to any of the Technology Systems since December 31, 1996 that has
not been remedied or replaced without disruption to the business of the
Company.
27
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE TRANSITORY SUBSIDIARY
The Buyer and the Transitory Subsidiary represent and warrant to the
Company that the statements contained in this Article IV are true and correct,
except as set forth herein or in the Buyer disclosure schedule delivered by the
Buyer to the Company on or before the date of this Agreement (the "Buyer
Disclosure Schedule"). The Buyer Disclosure Schedule shall be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article IV and the disclosure in any paragraph shall qualify other
paragraphs in this Article IV only to the extent that it is reasonably apparent
from a reading of such document that it also qualifies or applies to such other
paragraphs.
4.1 Organization, Standing and Power. Each of the Buyer and the Transitory
--------------------------------
Subsidiary and the Buyer's other Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified, individually or in the aggregate, would be
reasonably likely to have a material adverse effect on the business, properties,
financial condition, results of operations or prospects of the Buyer and its
Subsidiaries, taken as a whole, or to have a material adverse effect on the
ability of the Buyer to consummate the transactions contemplated by this
Agreement (a "Buyer Material Adverse Effect").
4.2 Capitalization. The authorized capital stock of the Buyer consists of
-------------
400,000,000 shares of Buyer Common Stock and 5,000,000 shares of preferred
stock, $.01 par value per share (the "Buyer Preferred Stock"), of which
(i) 250 shares are designated Series A Preferred Stock, (ii) 50,000 shares are
designated Series B Preferred Stock, (iii) 375,000 shares are designated Series
C Preferred Stock and (iv) 18,090.45 shares are designated Series D Preferred
Stock. As of the close of business on January 26, 2000, 265,342,554 shares of
Buyer Common Stock were issued and outstanding, and (i) no shares of Series A
Preferred Stock, (ii) 35,000 shares of Series B Preferred Stock (convertible
into an aggregate of 2,808,556 shares of Buyer Common Stock), (iii) 375,000
shares of Series C Preferred Stock (convertible into an aggregate of 9,488,056
shares of Buyer Common Stock), and (iv) no shares of Series D Preferred Stock
were issued and outstanding. All outstanding shares of Buyer Common Stock are,
and all shares of Buyer Common Stock subject to issuance as specified above,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be, duly authorized, validly issued, fully paid
and nonassessable. All of the shares of Buyer Common Stock issuable pursuant to
Section 2.1(c) in connection with the
28
<PAGE>
Merger, when issued in accordance with this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable.
4.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Each of the Buyer and the Transitory Subsidiary has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by
this Agreement by the Buyer and the Transitory Subsidiary have been duly
authorized by all necessary corporate action on the part of each of the
Buyer and the Transitory Subsidiary, including the approval of the Merger
by the Buyer in its capacity as sole stockholder of the Transitory
Subsidiary. This Agreement has been duly executed and delivered by each of
the Buyer and the Transitory Subsidiary and constitutes the valid and
binding obligation of each of the Buyer and the Transitory Subsidiary,
enforceable in accordance with its terms.
(b) The execution and delivery of this Agreement by each of the Buyer and the
Transitory Subsidiary does not, and the consummation of the transactions
contemplated by this Agreement will not, (i) conflict with, or result in
any violation or breach of, any provision of the Certificate of
Incorporation or By-laws of the Buyer or the Transitory Subsidiary,
(ii) conflict with, or result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise
to a right of termination, cancellation or acceleration of any obligation
or loss of any material benefit) under, or require a consent or waiver
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, contract or other agreement,
instrument or obligation to which the Buyer or any of its Subsidiaries is a
party or by which any of them or any of their properties or assets may be
bound, or (iii) subject to compliance with the requirements specified in
clause (i), (ii), (iii), (iv), (v) and (vi) of Section 4.3(c), conflict
with or violate any permit, concession, franchise, license, judgment,
injunction, order, decree, statute, law, ordinance, rule or regulation
applicable to the Buyer or any of its Subsidiaries or any of its or their
properties or assets, except in the case of (ii) and (iii) for any such
conflicts, violations, breaches, defaults, terminations, cancellations or
accelerations which, individually or in the aggregate, are not reasonably
likely to have a Buyer Material Adverse Effect.
(c) No consent, approval, license, permit, order or authorization of, or
registration, declaration, notice or filing with, any Governmental Entity
is required by or with respect to the Buyer or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Buyer
or the Transitory Subsidiary or the consummation of the transactions
contemplated by this Agreement, except for (i) the filing of a pre-merger
notification report under the HSR Act, (ii) the filing of the Certificate
of Merger with the Delaware Secretary of State, (iii) the filing of the
Registration Statement with the SEC in accordance with the Securities Act,
(iv) the
29
<PAGE>
filings of such reports or schedules under Section 13 of the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated hereby, (v) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and (vi) the filing with the Nasdaq National Market
of a Notification Form for Listing of Additional Shares with respect to the
Buyer Common Stock issuable in connection with the Merger.
4.4 SEC Filings; Financial Statements.
---------------------------------
(a) The Buyer has filed and made available to the Company all forms, reports
and other documents required to be filed by the Buyer with the SEC since
June 1, 1998. All such required forms, reports and other documents
(including those that the Buyer may file after the date hereof until the
Closing) are referred to herein as the "Buyer SEC Reports." The Buyer SEC
Reports (i) were or will be filed on a timely basis, (ii) were or will be
prepared in compliance in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Buyer SEC Reports, and (iii) did not or will not at the time they were or
are filed contain any untrue statement of a material fact or omit to state
a material fact required to be stated in such Buyer SEC Reports or
necessary in order to make the statements in such Buyer SEC Reports, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case, any
related notes and schedules) contained or to be contained in the Buyer SEC
Reports (i) complied or will comply as to form in all material respects
with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) were or will be prepared
in accordance with United States generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case
of unaudited statements, as permitted by the SEC on Form 10-Q under the
Exchange Act) and (iii) fairly presented or will fairly present the
consolidated financial position of the Buyer and its Subsidiaries as of the
dates and the consolidated results of its operations and cash flows for the
periods indicated, consistent with the books and records of the Buyer and
its Subsidiaries, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were
not or are not expected to be material in amount. The audited balance sheet
of the Buyer as of July 31, 1999 is referred to herein as the "Buyer
Balance Sheet."
4.5 Absence of Certain Changes or Events. Except as disclosed in the Buyer SEC
------------------------------------
Reports filed prior to the date of this Agreement, since the date of the Buyer
Balance Sheet, there has not been any event, change or development in the
business, properties, financial condition, results of operations or prospects of
the Buyer and its
30
<PAGE>
Subsidiaries, taken as a whole, which has had, or is reasonably likely to have,
a Buyer Material Adverse Effect.
4.6 Tax Matters. To the Buyer's knowledge, after consulting with its
-----------
independent auditors, neither the Buyer nor any of its Affiliates has taken or
agreed to take any action which would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Code.
4.7 Registration Statement; Proxy Statement/Prospectus. The information in the
--------------------------------------------------
Registration Statement (except for information supplied by the Company for
inclusion in the Registration Statement, as to which the Buyer makes no
representation and which shall not constitute part of the Buyer SEC Reports for
purposes of this Agreement) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Registration
Statement or necessary in order to make the statements in the Registration
Statement, in light of the circumstances under which they were made, not
misleading. If at any time prior to the Effective Time any event relating to
the Buyer or any of its Affiliates, officers or directors should be discovered
by the Buyer which should be set forth in an amendment to the Registration
Statement, the Buyer shall promptly inform the Company.
4.8 Litigation. Except as disclosed in the Buyer SEC Reports filed prior to
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the date of this Agreement, there is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the knowledge of the Buyer,
threatened against or affecting the Buyer or any of its Subsidiaries which,
individually or in the aggregate, has had, or is reasonably likely to have, a
Buyer Material Adverse Effect. There are no material judgments, orders or
decrees outstanding against the Buyer.
4.9 Operations of the Transitory Subsidiary. The Transitory Subsidiary has
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engaged in no business activities other than as contemplated by this Agreement
and has conducted its operations only as contemplated by this Agreement.
4.10 Brokers. No agent, broker, investment banker, financial advisor or other
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firm or person acting on Buyer's behalf is or will be entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with any of the transactions contemplated by this Agreement, except for
Greenhill & Co., whose fees and expense will be paid by the Buyer.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Covenants of the Company. Except as expressly provided herein or as
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consented to in writing by the Buyer, from and after the date of this Agreement
until the earlier of the termination of this Agreement in accordance with its
terms or the Effective
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Time, the Company shall, and shall cause each of its Subsidiaries to, act and
carry on its business in the usual, regular and ordinary course in substantially
the same manner as previously conducted, and use all reasonable efforts,
consistent with past practices, to maintain and preserve its and each
Subsidiary's business organization, assets and properties, keep available the
services of its present officers and employees and preserve its advantageous
business relationships with customers, suppliers, distributors and others having
business dealings with it to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, from and after the date of this Agreement until the earlier of
the termination of this Agreement in accordance with its terms or the Effective
Time, the Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, do any of the following without the prior written
consent of the Buyer:
(a) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, securities or other property) in respect
of, any of its capital stock (other than dividends and distributions by a
direct or indirect wholly owned subsidiary of the Company to its parent);
(B) split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution of shares of its capital stock; or (C) purchase, redeem or
otherwise acquire any shares of its capital stock or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities (other than repurchases at cost from employees upon
termination of their employment);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or encumber any
shares of its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities (other than the issuance of shares of Company Common Stock upon
the exercise of Company Options or Company Warrants outstanding on the date
of this Agreement in accordance with their present terms);
(c) amend its certificate of incorporation, by-laws or other comparable charter
or organizational documents, except as expressly provided by this
Agreement;
(d) acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets or any stock of, or by any other manner,
any business or any corporation, partnership, joint venture, limited
liability company, association or other business organization or division
thereof or (B) any assets that are material, in the aggregate, to the
Company and the Subsidiaries, taken as a whole, except purchases of
inventory in the ordinary course of business consistent with past practice;
(e) except in the ordinary course of business consistent with past practice,
sell, lease, license, pledge, or otherwise dispose of or encumber any
properties or assets of the Company or of any of its Subsidiaries;
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(f) whether or not in the ordinary course of business or consistent with past
practice, sell or dispose of any assets material to the Company and its
Subsidiaries, taken as a whole (including any accounts, leases, contracts
or intellectual property or any assets or the stock of any Subsidiaries,
but excluding the sale of products and services in the ordinary course of
business consistent with past practice);
(g) adopt or implement any stockholder rights plan;
(h) except as permitted by Section 6.1, enter into an agreement with respect to
any merger, consolidation, liquidation or business combination, or any
acquisition or disposition of all or substantially all of the assets or
securities of the Company or any of its Subsidiaries;
(i) (A) incur or suffer to exist any indebtedness for borrowed money other than
such indebtedness which existed as of [November 30, 1999] as reflected on
the Company Balance Sheet or guarantee any such indebtedness of another
person, (B) issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Company or any of its Subsidiaries,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, other than the incurrence of accounts payable in the
ordinary course of business, or (C) make any loans, advances (other than
routine advances to employees of the company in the ordinary course of
business consistent with past practice) or capital contributions to, or
investment in, any other person;
(j) make any capital expenditures or expenditures for property, plant or
equipment, except consistent with the capital budget shown on
Section 5.1(j) of the Company Disclosure Schedule;
(k) make any changes in accounting methods, principles or practices, except
insofar as may have been required by a change in United States generally
accepted accounting principles or, except as so required, change any
assumption underlying, or method of calculating, any bad debt, contingency
or other reserve;
(l) (A) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Company SEC Reports filed
prior to the date of this Agreement (to the extent so reflected or